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EX-31.1 - EXHIBIT 31.1 - NUGEN HOLDINGS, INC.v244699_ex31-1.htm
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EX-32.2 - EXHIBIT 32.2 - NUGEN HOLDINGS, INC.v244699_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - NUGEN HOLDINGS, INC.v244699_ex32-1.htm
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2011
    
or
        
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number 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, Virginia
20147
(Address of principal executive offices)
(Zip Code)
 
(703) 858-0036
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of Act:
None
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
 
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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
 
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 definitions of “large accelerated filer,” “accelerated filer” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
  
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 Act).    Yes  ¨    No  x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter is $3,960,268.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 56,966,564 shares of common stock, $0.001 par value, were outstanding on January 12, 2012.
 
 
DOCUMENTS INCORPORATED BY REFERENCE:

None

 
 

 
 
NUGEN HOLDINGS, INC.
FORM 10-K
TABLE OF CONTENTS
   
Page
PART I
     
ITEM 1.
BUSINESS
1
     
ITEM 1A.
RISK FACTORS
11
     
ITEM 1B.
UNRESOLVED STAFF COMMENTS
11
     
ITEM 2.
PROPERTIES
11
     
ITEM 3
LEGAL PROCEEDINGS
11
     
ITEM 4.
REMOVED AND RESERVED
11
     
PART II
     
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
11
     
ITEM 6.
SELECTED FINANCIAL DATA
13
     
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
13
     
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
18
     
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
18
     
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
18
     
ITEM 9A.
CONTROLS AND PROCEDURES
18
     
ITEM 9B.
OTHER INFORMATION
19
     
PART III
     
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
19
 
 
 
ITEM 11.
EXECUTIVE COMPENSATION
22
     
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
27
     
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
28
     
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
29
     
PART IV
     
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
29
     
SIGNATURES
 
 
 
 

 
PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This annual report on Form 10-K for the fiscal year ended September 30, 2011 (this "Report") contains "forward-looking statements" within the meaning of the securities laws. You should not place undue reliance on these statements. Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," or similar expressions. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. As you read and consider this Report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. Many factors could affect our actual financial results and could cause actual results to differ materially from those expressed in the forward-looking statements. Some important factors include:
 
 
·
general economic conditions
 
·
our ability to evaluate and predict our future operations and expenses,
 
·
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 10-K.
 
In light of these risks, uncertainties and assumptions, the forward-looking statements contained in this Report might not prove accurate. You should not place undue reliance upon them. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date of this Report, and we undertake no obligation to update or revise publicly any forward-looking statements, whether to reflect new information, future events or for any other reason otherwise.
 
OTHER PERTINENT INFORMATION

When used in this report, the terms “NuGen,” "we," "our," and "us" refers to NuGen Holdings, Inc., a Delaware corporation.   When used in this report, “fiscal 2011” means the year ended September 30, 2011 and "fiscal 2010" means the year ended September 30, 2010.

ITEM 1.   BUSINESS

CORPORATE HISTORY
 
 
·
We were incorporated as a Delaware corporation on September 27, 2007 under the name “Expedite 1, Inc.” for the purpose of acquiring an operating business.
 
 
1

 
 
 
·
On February 11, 2008, Exchequer, Inc., an entity affiliated with Henry Toh, our Vice Chairman, purchased all of the 100,000 outstanding shares of our common stock from the original sole stockholder for $97,000. We were then renamed InovaChem, Inc.

 
·
In June 2008, we acquired, through a reverse subsidiary merger, Trinterprise, LLC. As a result of this merger, the owners of Trinterprise became the owners of approximately 80% of our outstanding common stock. We contemplated that as a result of the Trinterprise acquisition that we would be engaged in the production and sale of sucralose (an artificial sweetener) and would pursue a strategic plan to reduce certain food, pharmaceutical and other products’ costs by using new technologies.   However, due to the uncertainty of the state of the economy and the inability to raise needed capital, InovaChem was unable to pursue this opportunity and abandoned this strategic plan.

 
·
NuGen Mobility, Inc. was organized as a Delaware corporation on September 8, 2006 for the purpose of engaging in research, development and manufacture of permanent magnet electric motors and related electric controls.

 
·
In August 2007, NuGen Mobility acquired substantially all of the assets, and certain liabilities of New Generation Motors Corporation, a Delaware corporation organized in May 2001, related to its business of designing, manufacturing, marketing and licensing axial flux and other electric motors

 
·
On January 29, 2010, pursuant to the Merger Agreement by and among NuGen Holdings, formerly known as InovaChem, NuGen and InovaChem Mergerco II, Inc., a wholly-owned subsidiary of NuGen Holdings, and the other parties identified therein, InovaChem Mergerco II merged with and into NuGen, and NuGen, as the surviving corporation, became a wholly-owned subsidiary of NuGen Holdings.

 
·
On February 26, 2010, our board of directors and stockholders approved an amendment to our Certificate of Incorporation changing our name from InovaChem, Inc. to NuGen Holdings, Inc., which name change became effective in Delaware on March 4, 2010.
 
RECENT DEVELOPMENTS AND CHANGE IN CONTROL

 
·
Merger and Changes in Control

Effective upon the closing of the Merger referred to above, William Zuo, Shao Jun Xu and Xiaojing Li resigned from their respective positions as officers and directors of Inovachem. On the same date, the board of directors appointed Eric Takamura as Chairman, Chief Executive Officer, President and a director and John Salatino as Vice President of Engineering and Programs. Henry Toh retained his position as Vice Chairman of our board of directors and Executive Vice President of Corporate Development, Alan Pritzker retained his position as Chief Financial Officer, until his resignation effective June 30, 2011 and Michael Kleinman remained on the board of directors of our company.

 
·
Redemption

Immediately prior to the Merger dated January 29, 2010, the Company redeemed shares of stock from certain of its pre-merger stockholders such that a total of 6,278,346 shares of the Company’s common stock were outstanding prior to the Merger.

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. Included in this amount was 5,484,167 shares redeemed from our former Chairman & CEO, William Zuo; 5,484,167 shares redeemed from our former Secretary and VP, Xiaojing Li; 71,667 shares redeemed from our current officer and director, Henry Toh; 3,433,333 shares redeemed from our former Chief Science and Technical Officer, Shao Jun Xu; and 763,333 shares redeemed from Lu Yiu, a shareholder.

Upon the closing of this merger (the “Merger”), each issued and outstanding share of NuGen’s common stock was converted into 24,422.48 shares of NuGen Holding’s common stock. As a result, an aggregate of 27,133,384 shares of our common stock, par value $0.001 per share were issued to the two shareholders of NuGen, Eric Takamura, our Chairman, Chief Executive Officer and President, and Ron Takamura.
 
 
2

 
 
 
·
Debt Conversion

In connection with the Merger, holders of an aggregate of $915,475 of outstanding indebtedness of NuGen converted their promissory notes (based on a $0.15 per share conversion price) into an aggregate of 6,103,166 shares of common stock (“Debt Conversion”). Included in this amount was $465,476 of indebtedness owed Ronald Takamura, brother of the Chairman and CEO and $57,938 of indebtedness owed to Four M International. Henry Toh, Vice Chairman of our board of directors and an officer of our company is an officer and director of Four M International.

 
·
Private Placements

In connection with the Company’s private offering of its common stock, on January 29, 2010 and February 16, 2010, the Company issued an aggregate of 6,266,669 and 3,599,999, respectively, shares of Common Stock in the Private Placement at a purchase price of $0.15 per share for total cash proceeds of $1,480,000 and paid offering costs of $139,396.

In addition the Company has issued 70,000 common shares to its placement agent in connection with the offering. The Company also issued warrants valued at $53,640, as a finder’s fee, exercisable until March 16, 2011, at an exercise price of $0.001 per share, to acquire an aggregate of 360,000 shares of common stock.

On September 29, 2010, December 5, 2010 and March 30, 2011, the Company entered into subscription agreements with four foreign investors pursuant to which, among other things, the Company issued an aggregate of 6,225,000 shares of its common stock, par value $0.001 per share, at a purchase price of $0.16 per share, for total cash proceeds of $996,000 and paid offering costs of $5,645. Such issuances were made in reliance on an exemption from registration under Regulation S promulgated under the Securities Act. Pursuant to the Subscription Agreements each investor executed and delivered to the Company (i) an irrevocable proxy appointing the Company’s Chief Executive Officer as his 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 the Company’s securities for a nine-month period.

 
·
Convertible Debt

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 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.
 
The Company is in default of these agreements because it did not convert the promissory notes and accrued interest into common stock or repay the debt within the one year period.  The Company on January 6, 2012 began negotiations with these investors to convert this debt.  The Company believes it will be ultimately successful in converting this debt to stock per the original terms of the agreement.

 
·
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.
 
 
3

 
 
 
·
Preferred Stock

Class A 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. On March 8, 2011, we entered into an option agreement (the “Option Agreement”) with such investors which replaced and superseded the prior agreement. The Option Agreement provides that the option to purchase the preferred stock terminates upon the earlier of (i) December 31, 2011, (ii) 180 days after the effective date of the Amended Registration Statement or (iii) if the Company demands that the investors exercise their option in the event that the Company enters into an agreement with respect to at least $2,500,000 at no less than $0.30 per share and the investors do not so exercise their right of first refusal to purchase such shares. We had also issued the representative of such investors one-year warrants to acquire 360,000 shares of our common stock at an exercise price of $0.001 per share; said person fully exercised his warrants on March 1, 2011.

If the investors exercise their option to purchase the preferred stock, they will be entitled to convert said preferred stock at their option at any time into one share of common stock, 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 6 months following issuance and on a "weighted average" basis for 42 months following said 6-month period. The “weighted average” anti-dilution protection uses a formula that adjusts the rate at which preferred stock converts into common stock based upon (i) the amount of money previously raised by the Company and the price per share at which it was raised and (ii) the amount of money being raised by the Company in the subsequent dilutive financing and the price per share at which such new money is being raised. This weighted average price (which will always be lower than the original purchase price following a dilutive financing) is then divided into the original purchase price in order to determine the number of shares of common stock into which each share of preferred stock is then convertible, which will be greater than one. Thus, a new reduced conversion price for the preferred stock is obtained, which results in an increased conversion rate for the preferred stock when converting to common stock. So long as the investors hold at least 5% of our outstanding capital stock in the aggregate, the holders of the preferred stock will also have pre-emptive rights, subject to certain exemptions for issuances under option plans or to strategic investors under certain circumstances.

The holders of the preferred stock will also have the right to designate one person to serve as a member of our board of directors. 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 accumulate 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. The investors will also be entitled to warrants to purchase the amount of shares of common stock equal to 10% of the total value of the investment in the preferred stock. The exercise price of the common share to be provided for in the warrant, which expires 12 months after it is issued, is $0.001 per share.

We have not yet filed a certificate of designation designating this Preferred Stock.  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.

Series B Preferred Stock

The Company is offering a maximum of 13,888,889 shares of Series B Preferred Stock at a purchase price of $0.18 per share and 2,777,778 Warrants; the investor is to receive Warrants equal to 20% of the number of shares of Preferred Stock purchased.  Such issuances were made in reliance on an exemption from registration under the Securities Act that the Series B Preferred Stock will be issued on the basis of the statutory exemption provided by Section 4(2) of the Securities Act or Regulation D promulgated there under. During the three months ended June 30, 2011. the Company entered into subscription agreements with eight accredited investors to purchase an aggregate of 1,627,778 Series B convertible preferred shares, par value $0.001 per share at a purchase price of $0.18 per share, for aggregate gross proceeds of $293,000.  Each investor also received two-year warrants to purchase in the aggregate 325,556 shares of common stock, par value $0.001 per share, of the Company for $0 per share.
 
 
4

 
 
The Company filed a Certificate of Designations, Preference and Rights of Series B Convertible Preferred Stock in Delaware. The Certificate of Designation provides for the conversion of the Series B Preferred Stock to common stock of the Company on a one to one ratio. Cumulative dividends will accrue at the rate of $0.0054 per annum to be paid annually in shares of Series B Preferred Stock with the first payment due on July 1, 2012. The Series B Preferred Stock has a liquidation preference over capital stock of the Company ranking junior to the Series B Preferred Stock. The Series B Preferred Stock will be junior and subordinate to the Series A preferred stock, if and when an option to purchase such Series A preferred stock is exercised and Series A preferred stock is issued by the Company. The Series B Preferred Stock holders have voting rights equal to the number of shares of common stock into which such Series B Preferred Stock are convertible. The Series B Preferred Stock will vote together as a single class on all matters. The initial conversion price of $0.18 is subject to adjustment in the event of dividends, distributions, stock splits, or other occurrences, as set forth and in accordance with the formula in the Certificate of Designation. Any Series B Preferred Stock outstanding on December 31, 2012 is mandatorily convertible into common stock. The Series B Preferred Stock holders also have registration rights with respect to the shares of common stock into which such Series B Preferred Stock are convertible.

Dividends accrued at September 30, 2011 and 2010 for Series B preferred stock holders amounted to $3,634 and $0, respectively.
 
General
 
We are, through our NuGen subsidiary, engaged in the development, design, and marketing of a technology related to creating a permanent magnet electrical motor systems. 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.

Our high-efficiency, compact motors, controllers, energy storage management and monitoring systems (a related component to the drive system that monitors and manages the use of an energy storage system such as, but not limited to, a battery) and related software have applications in markets ranging from electric/hybrid electric vehicles to materials handling equipment, distributive power, ground support equipment, motion control, and military applications.

Our proprietary, variable gap, axial flux technology (for these purposes, a motor in which the magnetic fields run parallel to the access of rotation) combines:

 
·
very high efficiency and torque density capability (generally, the amount of turning force in relation to weight of the electro-magnetic components of the motor);and
 
·
low or zero emissions.

Our current business plan is to expand on our established technology and market presence in the sale of proprietary and highly efficient, variable gap, axial flux, permanent magnet electric motors ranging from 1kW (to drive a two wheel vehicle) to 120 kW(to drive a truck or bus), for a broad range of commercial markets.

Our current primary market focus is the electric vehicle market in China and India where we believe, urban air and noise pollution and high fuel costs make our technology very attractive. China and India are currently the two largest markets in the world for electric vehicles and these markets will be instrumental in our strategy to become the lowest cost provider of light electric vehicles with the best performance in terms of efficiency and torque, and speed. We have also generated sales to various participants in an annual car race in the United States. This niche market not only generates sales of our variable gap in-wheel motors but also provides us an opportunity to test our products for use in various platforms at minimal cost.
 
 
5

 
 
Strategic Relationships and Customers

 
·
Mahindra Group

In June 2009, we entered into a 30-month technical assistance agreement for light transport vehicle drive systems with Mahindra Group, a leading manufacturer in India of utility vehicles, parts and accessories (“Mahindra”), to effectuate the next phases of integration of drive systems into 4 wheel transport vehicles. Under the agreement we will provide technical services including engineering, for electric drive and drive system components (i.e. systems that convert electrical power to mechanical power that will propel the vehicle and the related components, such as components that monitor and manage the use of the stored power). If and when this current phase is successfully completed, both parties could proceed to the mass production phase (i.e., commercial sales) which would require another agreement to be entered into by Mahindra and the Company.

 
·
Bajaj Auto Ltd.

Bajaj Auto Ltd. (“Bajaj Auto) was a party to a master license agreement with New Generation Motors which provided, among other things, that Bajaj Auto has (i) exclusive distribution licenses and the right to use one of our proprietary engineering designs (EMS-401-043) in their three-wheeled vehicle for sale anywhere in the world other than the United States (it is a non-exclusive right in the U.S), (ii) the exclusive license and right for the manufacturing specifications and technologies for use in their 3-wheeled vehicles that consist of an integrated electric motor and controller (which right applies to Bajaj Auto products built and marketed in India) and (iii) non-exclusive licenses for the manufacture and distribution of our product (EMS-401-043) in their various two- three- and four- wheeled vehicles, which right is exclusive in India with respect to two-wheeled vehicles.

Since commercial production did not commence within 3 years of the agreement, in accordance with the terms of the agreement, all rights there under became non-exclusive. Pursuant to the agreement, Bajaj Auto paid New Generation Motors a $245,500 fee with $400,000 to be paid, if at all, as follows: (i) $250,000 for the first 625 units of Bajaj Auto’s three wheeler products sold, based on a rate of $400 per unit; (ii) $50,000 upon the commencement of commercial production, which is defined as the completion of the initial 1,200 units and the remittance of preproduction technology fees of the products; (iii) $50,000 on completion of cumulative sale from the date of commencement of commercial production of 5,000 units of specified products; and (iv) $50,000 on completion of cumulative sale from the date of commencement of commercial production of 10,000 units of specified products. Under the agreement, Bajaj Auto is obligated to supply the first 300 units at cost and thereafter at 10% above cost. The term of the agreement is until the earlier of December 7, 2015 or 7 years from payment of 1,200 initial units and payments of a pre-production technology fee, and may be terminated by Bajaj Auto upon 90 days’ notice.

We have exclusive rights for the manufacture and sale of any improvements, modifications or developments of our technology and motor in the US. However, we do not have Baja Auto’s consent to the assignment of the master agreement to us or any other contractual agreement with Baja Auto. If Bajaj Auto begins to market their product with our motor, we intend to attempt to negotiate and enter into a commercial license agreement with Bajaj Auto. However, Bajaj Auto is not actively marketing its product at present and there can be no assurance that they will do so in the future or that we will be able to enter into a commercial agreement with Bajaj Auto and receive payments pursuant to the master license agreement or to any agreement.

 
·
BSA Motors of India

We were a party to a 12-month technical support agreement with BSA Motors of India, a subsidiary of the Murugappa Group (“BSA Motors”) which expired in September 2010. BSA Motors is in the business of designing, manufacturing and marketing electric, hybrid electric and standard internal combustion engine two-wheelers (2w) currently primarily in India. Pursuant to the agreement, we provided technical support, including prototype development and demonstration, concept design and development and improvements for motor and controller systems for BSA Motors electric scooters with the long-term goal of becoming BSA Motors’ power train systems supplier. The agreement provided that we would not provide technical support regarding the development, manufacture or marketing of axial flux power train or new power train systems for 2-wheeler platforms to other OEMs during the term of the agreement in India and that BSA Motors would not develop new axial flux power train with any party other than us. BSA Motors also has a right of first refusal for the commercial application in India of motors and controllers for electric 2-wheelers developed by us during the term of the agreement. The BSA products discussed are about half the power and size, such as 2kW vs. 8kW, as those in the Bajaj Auto agreement described above.
 
 
6

 
 
 
·
US Department of Defense

We have a two-year agreement, as amended, effective June 2010, with the United States Department of Defense (“DOD”) for a Phase II (contract value ranging from $500,000-$750,000) Small Business Innovation Research program (“SBIR”) with the US Army to demonstrate our variable gap control technology for electric generators and motors for the purpose of validating applicability, performance and reliability on future platforms and to produce prototypes. We have a consultant specializing in this area to facilitate our efforts. We also plan to coordinate the SBIR efforts to our ‘Micro-Truck’ drive system to increase the marketability and performance of that system. Although we do not currently foresee not being able to perform under the agreement, the contract as stated is a fixed price contract based on deliverables and milestones. In the event that we would not be able to deliver and complete the work as described in the contract, due to such factors as our overall financial stability, “force majeure” events, or reallocation of government budgets, the contract may be temporarily or indefinitely terminated.

 
·
Niche/Specialized Market

We also have had a market in motors and controllers for solar racing teams worldwide, where our variable gap, in-wheel motors continue to produce winners in solar racing competition. Solar car competition participants may include future automotive and other EV industry engineers from top universities. More than 25% of the teams currently engaged in these activities have been, or are currently, our customers. The solar car market offers a unique opportunity for us as it provides benefits beyond sales and revenue. This niche market requires the most advanced systems that are available and pushes technology to the edge and inspires new continuing development that may not make general commercial sense. This offers us a market segment that allows for continued research and development to test products in extreme conditions so that we may apply the technology and lessons learned to primary commercial markets. Using our technology in solar cars has been beneficial in adopting our technology, at minimal cost for use in various platforms. We need to constantly ensure that our technology is adaptable to different platforms; having our technology utilized in the solar car competition provides us with a low cost opportunity to test our technology.

The Market

Primary markets for our core technology of variable gap, axial flux, permanent magnet motors include:

 
·
Low and Zero Emission Vehicles in Developing Countries: Worldwide requirements to reduce hydrocarbon fuel consumption and air pollution have created a large and emerging market for efficient, inexpensive and reliable, low and zero emission electric drive vehicles using batteries, fuel cells or hybrid configurations. Electric drive systems can be employed in the entire spectrum of small passenger vehicles including scooters, motorcycles, three-wheelers, neighborhood electric vehicles, compact cars, micro pickups and micro busses. We are targeting the entire segment of the small vehicle traction market and propose to supply electric drive systems technology with all prime movers.
 
 
·
Three-wheelers in India: Bajaj Auto currently builds approximately 300,000 three-wheel and 2,000,000 two-wheel vehicles per year. After five years of developmental and functional testing, Bajaj Auto began limited commercial production of Eco-Ricks, its all electric auto rickshaw, in December 2006 for additional public testing.
 
 
·
Four-wheelers: (Light Commercial Vehicles) under our agreement with Mahindra, we currently anticipate that Mahindra will produce a minimum of 1,200 vehicles for further market testing and evaluation.
 
 
·
Two-wheelers: 20 two-wheel scooters for Bajaj Auto were built, tested and certified by the government of India. Four additional platforms with intended deployments are being considered with BSA Motors.
 
 
·
Further extension of this vertical market includes such applications as electric all-terrain vehicles (were management estimates, based solely on informal discussions between our management and representatives of Mahindra, we believe volumes could exceed 10,000 vehicles per year), golf carts (with about 250,000 vehicle sales per year in the US), neighborhood electric vehicles, quadracycles, citicars and electric motor applications for 15’ to 45’ sailboats.
 
 
7

 
 
 
·
Materials Handling Equipment and Defense Applications: Airport ground support equipment, including baggage tractors and belt loaders are often powered by electric drive systems. We have supplied our technologies and products to Harlan Corporation for use in integrated starter generator units in their ground support vehicles.
 
Competition

All of the markets in which we operate are highly competitive. The markets served by the technology segment are additionally characterized by rapid changes due to technological advances that can render existing technologies and products obsolete.

We hope to market our advanced electric propulsion systems and components to vehicle original equipment manufacturers (OEM) and their suppliers throughout the world for use in electric, hybrid electric, plug-in hybrid electric and fuel cell electric vehicles. In recent years, the market for hybrid electric automobiles has begun to emerge, led by the introduction and market success of hybrid electric vehicles manufactured by Toyota, Lexus, Honda, Ford and General Motors. Recently, International Truck and Engine Corporation, Freightliner Trucks and Peterbilt Motors Company announced plans to begin production of hybrid electric medium-duty trucks and Caterpillar, Inc. introduced a belt-less engine/electric tracked bulldozer. As a result, we expect additional vehicle makers in both on-road and off-road markets to develop and introduce a variety of hybrid electric vehicles as the market acceptance of these vehicles continue to grow. To our knowledge, none of these companies manufacture axial flux motors; however their end application or market is the same market where our motors may be utilized. We believe that we are able to compete due to our topology or style of motor which offers unique characteristics. Our topology of motor is typically much shorter in length but larger in diameter than other styles of motors. Depending on the application and end use, this offers other potential options for the customers that the other competitors may not offer. In addition, our topology of motor generally offers greater torque capability for the same power level thus operating at lower speeds while still maintaining equivalent if not better efficiencies whereby the other systems typically will operate at higher speeds and lower torque to achieve the same power levels.

There can be no assurances that we will be able to compete successfully in this market or any other market that now exists or may develop in the future. There are numerous companies developing products that do or soon will compete with our systems. Some of these companies possess significantly greater financial, personnel and other resources than we do, including established supply arrangements and volume manufacturing operations. We believe our principal competitors for axial motors and similar products include Honda, Toyota, General Motors, Daimler, Hitachi, Toshiba, Siemens, Delphi, Danaher, Enova and United Technologies Corp., UQM Technologies, Inc. and Azure Dynamics.

Our technology which can be utilized for power products competes primarily in the automotive, heavy equipment, military, aerospace and medical products industries. Each of these industries is extremely competitive. We face substantial competition on a continuing basis from numerous companies, many of whom possess longer operating histories, significantly greater financial resources and marketing, distribution and manufacturing capability. Our technology can be used for such power products such as the electronic amplifiers and controllers are used to power and run electric motors. Presently most of these power products are tuned to operate with our motors but are useable to be able to run other types and manufactures electric motors. We believe our principal competitors for power products include Advanced Motors and Drives, Allied Motion, Emerson Electric, General Electric, Moog, Rockwell International, Baldor, Hitachi, Hyundai, Toshiba, Siemens, Delphi, Danaher, United Technologies, UQM Technologies, Inc., L-3 Communications and Enova.

We are currently not aware of other axial flux producers that operate in our space. Axial flux motors are a fairly new topology of motor which was not viable until the advent of new permanent magnets in about the late 1990s. Additionally, software capable of analyzing this type of motor topology was not available until approximately 2005 and is under continuing development to bring it to the same level of software that is used for more conventional electric motors. Until designs are made and these types of motors have been brought to production, the uncertainties and complexities of manufacturing this type of topology is unfamiliar as compared with the process control and learning on conventional motors. Therefore, the number of companies that operate in this space using axial flux topology is fairly limited and new and the potential number of competitors within this space is low as compared to the potential market size, we believe minimizing any chances or the effects of any competitor, if they were to exist. Additionally, since this is a new area, the information available is very limited as intellectual property that may be associated with axial flux motors is protected to ensure against competition.

We believe that we compete and that we will continue to be able to compete with our competitors in the engine drive and power product markets based on the limited number of competitors for axial flux motors, price, and our reputation with customers with whom we have worked. The competitive disadvantages that we face include that we are not as well known as many of our competitors who have greater resources (financial, engineering and otherwise) than we have.
 
 
8

 
 
Technology, Competitive Advantage, Value Proposition

Our high efficiency variable gap, axial flux, permanent magnet (“PM”) motors are different from conventional electric motors due to the different path of their magnetic flux.

 
·
Axial Flux Technology: In conventional motors the flux flows radially (i.e. outward from the access of rotation) through the air gap between the rotor (the rotating part of the motor) and the stator (the stationary part of the motor). However, in axial flux motors, the flux flows parallel to the axis of the motor. The motor, often referred to as a “pancake” rotor, can be made much thinner and lighter, with the same performance.
 
Our key competitive advantage is that our motors offer high torque density and installation in tight spaces, like inside wheel housings. We believe that this has been very compelling to companies like Bajaj Auto that seek low-cost, high efficiency motors for conversion from internal combustion to electric propulsion in small vehicles.

An additional competitive advantage of axial flux motors over conventional series wound or induction motors is their efficiency.

 
·
Variable Gap Technology: In our PM motors, the magnets create the working flux. This is different than an AC induction motor which is current-driven and does not use a permanent magnet. This fact is central to why a PM motor can be more efficient than other motors. Unfortunately, this is the same property that causes the most significant limitation of a PM motor; the permanent field causes a fixed relationship between winding current and motor torque. This relationship or “torque constant” (kT), also defines a fixed top speed of a PM motor. The higher the kT, the lower the top motor speed.
 
An axial flux PM motor is different than a radial flux PM motor, because the kT can be varied, without causing power loss by simply altering a critical geometry of the motor. Although there are many different contributors to the torque constant, the one of interest to us is the distance between the magnet rotor and the stator. In axial flux motors, the rotor and stator are adjacent discs and the “gap” is the space between the disks. By moving one of these discs axially relative to the other, the torque constant can be adjusted. This geometry can be varied statically (in the factory, simply with different spacers) or dynamically (by the vehicle controller). The result is optimal performance for various uses or drive conditions from the same electric motor. The variable gap allows for application-specific optimization of power, torque, and speed, while maximizing efficiency across the operating range. Application of this technology makes electric motors very efficient and can result in energy savings.

 
·
Efficiency: In accordance with National Electrical Manufacturers Association/International Electrical Technical Commission motor standard, general nominal efficiency of electric motors range from 78.8% to 92.4% efficiency depending on the size and power of the motor. In accordance with Energy Policy Act standards, premium efficiency electric motors achieve peak target efficiencies up to 95%. There is very limited data available regarding other axial flux motors since this a new topology of motor that very few if any have worked on. Stated unvalidated efficiencies have been seen from 60% to 95%. Our typical motors have total peak system efficiencies ranging from 92% to 96%. Removing the electronics from the system places the motors peak efficiencies in the range of 96% to 98%.
 
 
·
New Applications, In-Wheel Motors: We believe that there are other applications for this technology in low tech products ranging from ceiling fans to floor buffers; and to high tech products ranging from flywheels and military actuators. However, our primary focus is in-and near-wheel motors, that we have been selling for solar racing. Application of in-wheel technology plays to the strength of axial flux motors and our variable gap technology, and we believe is a compelling motive traction solution for electric, hybrid and fuel cell powered vehicles.
 
 
9

 
 
Manufacturing

We manufacture our axial flux motor system for our customers on a small scale basis. In particular, we are focused on the manufacture of prototypes requested by customers and the customization of our technology in these products in accordance with customer specifications. These activities are conducted in our Virginia based facilities. If and when there is significantly increased demand for our technology, we will have to outsource the manufacture of products containing our axial motor to others. In anticipation of increased demand for our technology, we are exploring outsourcing opportunities in China, though no assurance can be given that such capability will be required or if required, that we will be able to secure an outsourcing arrangement on satisfactory terms.

Research and Development Activities

Our research and development activities are included as part of the engineering and other services that are performed on a contract basis for our customers. We are generally not engaged in independent research and development activities.

Backlog

The Company believes the backlog metric is of limited utility in predicting future sales because a significant portion of the Company’s sales are made on a ship-to-order basis.

At September 30, 2011 the Company’s backlog, which includes all binding purchase contracts and accepted purchase orders, was approximately $381,000.  Variations in the magnitude and duration of contracts and customer delivery requirements may result in substantial fluctuations in backlog from period to period.

Intellectual Property

We currently have three US patents and one foreign patent as follows:

 
·
U.S. Patent #6,348,751 B1-“Dual Starter Motor with Selectively Variable Air Gaps”

 
·
U.S. Patent #6,137,203-“Stator for an Axial Flux Motor Using at least Two Phases of Electrical Current”

 
·
U.S. Patent #6,975,082 B2-“Variable Speed Drive System Including Synchronous Electric Motor” - We have not received assignment documents from one of the two inventors with respect to this patent. Such inventor was an employee of New Generation Motors and had a contractual obligation in connection with his employment to assign inventions made by him. We have legal rights to the patent, by virtue of an assignment from at least one of the inventors. We are presently using the patent in all of our current programs.  This patent was filed in India as PCT # 1045/MUMNP/2005.

 
·
India PCT # 822/MUM/2003-“Compact Drive system for electrically operated road vehicle” -  No portion of our current business relies on this patent as it is a patent covering the product that we licensed with Baja.
 
NuGen's United States patents are due to expire between 2017 and 2024, subject to the payment of maintenance fees to the USPTO.

Indian patent counsel initiated restoration proceedings on April 9, 2010 for the Indian patent PCT # 1045/MUMNP/2005 which had expired because of the non-payment of the renewal fee for the 6th year annuity and was considered abandoned. Such patent was restored by the Indian patent office on October 23, 2010 and will expire in 2024. Indian patent counsel filed the assignment of all rights in the patent from New Generation Motors to NuGen Mobility with the Indian patent office on November 29, 2010.

Employees

People are considered to be a key element for success by the Company. Our future success will depend largely on its ability to continue to attract, retain, and motivate highly skilled and qualified personnel.   The Company’s employees are not represented by any collective bargaining units and the Company has never experienced a work stoppage.  As of September 30, 2011, the Company had 14 full time employees and 1 part time employee.
 
 
10

 

ITEM 1A. RISK FACTORS

The Company is a “smaller reporting company” as defined by Regulation S-K and as such, not required to provide the information contained in this item pursuant to Regulation S-K.

ITEM 1 B. UNRESOLVED STAFF COMMENTS

The Company is a “smaller reporting company” as defined by Regulation S-K and as such, not required to provide the information contained in this item pursuant to Regulation S-K.

ITEM 2. PROPERTIES

We entered into a one-year lease commencing October 1, 2010 for approximately 6,500 square feet which currently includes our executive offices and production facility located at 44645 Gilford Drive, Suite 201, Ashburn, Virginia, for a monthly rental of $4,860. This lease expired September 30, 2011 and was converted to a month-to-month lease.  In addition, we lease an additional 6,550 square feet of office space located at 21641 Beaumeade Circle, Suite 314, Ashburn, Virginia under a three-year lease with monthly lease payments of $5,595 (from December 1, 2010 to September 30, 2011), $5,764 (from October 1, 2011 to September 30, 2012), $5,933 (from October 1, 2012 to September 30, 2013) and $6,113 (from October 1, 2013 to October 31, 2013).
 
ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings to which we are a party to or in which to our knowledge any of our directors, officers or affiliates or any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
 
On December 2, 2011, we received a “Notice of Event of Default” from CIT Guilford Drive, LLC, our landlord through September 30, 2011.  This notice requests that we pay our past due balance in the amount of $30,119.34 for past due rent for the period August 1, 2011 to September 30, 2011 for properties located at 44645 Gilford Drive, Suite 201, Ashburn, Virginia and 21641 Beaumeade Circle, Suite 314, Ashburn, Virginia within 10 days of receipt.  We are in negotiations with CIT Guilford Drive, LLC and expect to reach a satisfactory settlement.
 
On December 7, 2011, we received a “Notice to Pay or Quit” from DBT-Data Beaumeade Corporate Center LLC., our landlord from October 1, 2011.  This notice requests that we pay our past due balance for the period October 1, 2011 to December 31, 2011 in the amount of $38,576.37 for past due rent for properties located at 44645 Gilford Drive, Suite 201, Ashburn, Virginia and 21641 Beaumeade Circle, Suite 314, Ashburn, Virginia within 10 days of receipt.  We are in negotiations with DBT-Data Beaumeade Corporate Center LLC and expect to reach a satisfactory settlement.
 
ITEM 4.  (REMOVED AND RESERVED).
 

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
There is no established public trading market for our common stock. To be quoted on the Over-the-Counter-Bulletin Board (“OTCBB”), a market maker must file an application on our behalf in order to make a market for our common stock. We have engaged in preliminary discussions with a Financial Industry Regulatory Authority, Inc. (“FINRA”) market maker to file such application on Form 211 with FINRA, but as of the date hereof, no filing has been made.
 
As of the date hereof, there were approximately 109 holders of record of our common stock.
 
We have not declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.
 
 
11

 
Equity Compensation Plans
 
The following table sets forth the number of shares of our common stock subject to outstanding awards or available for future awards as of September 30, 2011.
 
Plan
 
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
   
Weighted-Average Exercise
Price of
Outstanding
Options,
Warrants and
Rights
   
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans
 
Equity Compensation Plans Approved by Security Holders (1)(2)(3)
   
2,500,000
   
$
0.40
     
2,650,000
 
                         
Equity Compensation Plans Not Approved by Security Holders
                       
 
(1)
Represents options to purchase an aggregate of 1,350,000 shares of our common stock at $0.45 per share and 400,000 shares of our common stock at $0.15 per share issued to officers of our company under our 2010 Stock Option Plan. Such options vest and become exercisable in equal monthly installments on the last day of each month for 24 consecutive months, commencing February 28, 2010.
(2)
Represents options to purchase an aggregate of 500,000 shares of our common stock at $0.45 per share issued to employees of our company under our 2010 Stock Option Plan. Such options vest and become exercisable in equal monthly installments on the last day of each month for 24 consecutive months, commencing March 31, 2010.
(3)
Represents options to purchase 250,000 shares of our common stock at $0.45 per share issued to an officer of our company under our 2010 Stock Option Plan. 125,000 shares vested immediately and the balance becomes exercisable in equal monthly installments on the last day of each month for 12 consecutive months, commencing July 31, 2011.
 
2008 Stock Option Plan

Our 2008 Stock Option Plan, which was adopted by our Board of Directors on June 30, 2008, specifically provided for its effectiveness within 12 months of its adoption by vote of the shareholders; as of September 30, 2009 the shareholders did not vote to adopt or reject the option plan. Accordingly, the 2008 Stock Option Plan is no longer effective and any previous options granted thereunder are null and void.
 
2010 Stock Option Plan
 
Our board of directors adopted the 2010 Stock Option Plan on February 9, 2010. The total number of shares of common stock available under this Plan equals the sum of (i) 5,000,000, plus (ii) the number of shares with respect to awards that terminate without being exercised, are exchanged for awards that do not involve shares of common stock, or are settled in cash in lieu of shares of common stock. An aggregate of 5,150,000 shares of common stock have been reserved for issuance under the Plan. The purpose of the Plan is to provide an incentive to retain directors, officers, consultants and employees of our company and our affiliates whose services are considered valuable. Under the Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code and non-qualified stock options. The Plan is administered by our board of directors or the Compensation Committee, which Compensation Committee presently consists of Dr. Michael Kleinman. As of September 30, 2011, options to purchase 2,500,000 shares of common stock were outstanding and 2,650,000 shares of common stock remain available for issuance under the Plan.
 
Recent Sales of Unregistered Securities
 
During the period covered by this annual report, we have not issued any unregistered securities which have not been previously reported.
 
 
12

 
 
Purchases of equity securities by the issuer and affiliated purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Future cash commitments

The Company estimates the need for capital to run new production facilities. The exact amount will be determined based on both the market demand for the Company’s products and the time needed for these facilities to run at full capacity. The Company will carefully review its financial condition and consider financing with internally generated cash, bank loans or additional equity.  The Company expects that its proceeds from operating cash flows and its cash balances, together with proceeds from sales of equity will be sufficient to meet its anticipated liquidity needs for the next twelve months.

Results of Operations

Comparison of Fiscal Years ending September 30, 2011 and 2010

Net Sales:

Net sales by customer for the fiscal year ended September 30, 2011 as compared to the fiscal year ended September 30, 2010 is as follows:

   
2011
   
2010
       
Customer
 
Amount
   
% of Total
   
Amount
   
% of Total
   
$ Change
 
Hefei
  $ 761,644       53.1 %   $ 0       0 %   $ 761,644  
Department of Defense  (Army SBIR) – Phase 2 - Innovative Motor and Generator Technologies
    289,236       20.2 %     77,388       17.9 %     211,848  
Department of Defense  (Navy SBIR) - Advanced Marine Generator for Combatant Craft 
    79,854       5.6 %     0       0 %     79,854  
Mahindra Group
    97,578       6.8 %     186,339       43.0 %     (88,761 )
BSA Motors of India
    0       0 %     140,169       32.4 %     (140,169 )
Solar car participants
    205,290       14.3 %     29,093       6.7 %     176,197  
Total
  $ 1,433,602       100.0 %   $ 432,989       100.0 %   $ 1,000,613  
 
 
13

 
 
Revenues from Hefei amounted to 53.1% of our total revenues in fiscal 2011 and consists the purchase and resale of specialized equipment for Hefei’s manufacturing facility amounting to $411,106 and engineering support services amounting to $350,538.  Revenues generated from the Department of Defense–Army increased by $211,848 from $77,388 and consist of 12 months and 3 months of progress billings for the years ended September 30, 2011 and 2010, respectively.  There were no revenues from BSA Motors of India, a subsidiary of the Murugappa Group (“BSA Motors”) as 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 Motors would decide to continue to do business with our company.

Direct Costs, Labor and Gross Loss:
 
Direct costs increased by $552,457 for the fiscal year ended September 30, 2011 from $70,437 for the fiscal year ended September 30, 2010 due to increased material costs because of higher revenues in fiscal 2011 and the purchase and resale of specialized equipment for Hefei’s manufacturing facility.  Direct labor increased by $387,827 for the fiscal year ended September 30, 2011 from $622,377 for the fiscal year ended September 30, 2010 to support higher revenues in 2011.  In addition, the increase of 8 employees hired throughout fiscal year 2010 were in place for all fiscal year 2011.
 
Our gross loss was $199,496 for the fiscal year ended September 30, 2011 versus $259,825 for the fiscal year ended September 30, 2010.

Operating Expenses:

Our operating expenses increased by $298,885 for the fiscal year ended September 30, 2011 from $1,302,953 for the fiscal year ended September 30, 2010. The increase consisted primarily of an increase in our compensation expense of $84,163.  Rent and office expense increased by $50,853 primarily due to the additional space rented at 21641 Beaumeade Circle, Suite 313, Ashburn, VA pursuant to a lease agreement dated October 1, 2011.   Bad debt expense increased by $109,901 from $0 in 2010 primarily due to managements estimate of the amount of probable credit losses in accounts receivable.

Other Expenses:
 
These expenses consist of interest expense and foreign currency transaction losses.  Interest expense for fiscal 2011 decreased by $16,369 from $60,262 in 2010 primarily due to the conversion of a large portion of our debt to equity in January 2010.

Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at September 30, 2011 compared to September 30, 2010.

   
2011
   
2010
 
             
Current Assets
 
$
323,061
   
$
1,351,854
 
                 
Current Liabilities
 
$
1,612,721
   
$
643,379
 
                 
Working Capital (Deficit)
 
$
(1,289,660
)
 
$
708,475
 

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 February 2012 (without giving effect to exercise of options to acquire our Class A Preferred Stock or sale of our Series B Preferred Stock, as to which no assurance can be given, would raise between $2,800,000 to $3,000,000).
 
 
14

 
 
While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development of revenue sources.  As of September 30, 2011, we had a working capital deficit of $1,289,660.   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, 2011 and 2010 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.

Net cash used in operating activities was $1,211,946 and $1,492,451 for the years ended September 30, 2011 and 2010, respectively. Cash flows from financing activities was $465,312 for the year ended September 30, 2011, and was primarily due to the net proceeds from the sale of the Company’s equity securities, as well as, the sale of convertible notes. For the year ended September 30, 2010 cash flows from financing activities was $2,310,627, and was primarily due to the net proceeds from the sale of the Company’s equity securities.  At September 30, 2011 and 2010, we had $97,564 and 863,876 cash on hand, respectively.

In connection with the Company’s private offering of its common stock, on January 29, 2010 and February 16, 2010, the Company issued an aggregate of 6,266,669 and 3,599,999, respectively, shares of Common Stock in the Private Placement at a purchase price of $0.15 per share for total cash proceeds of $1,480,000 and paid offering costs of $85,757. In addition the Company has issued 70,000 shares to its placement agent in connection with the offering. The Company also issued warrants valued at $53,640, as a finder’s fee, exercisable until March 16, 2011, at an exercise price of $0.001 per share, to acquire an aggregate of 360,000 shares of common stock. Also, in connection with the Merger, holders of an aggregate of $915,475 of outstanding indebtedness of NuGen converted their promissory notes (based on a $0.15 per share conversion price) into an aggregate of 6,103,166 shares of Common Stock (“Debt Conversion”). This number includes the 466,667 shares which were converted by an individual holding $70,000 of indebtedness not represented by a note.

On September 29, 2010, December 5, 2010 and March 30, 2011, we entered into subscription agreements with foreign accredited investors pursuant to which, among other things, we issued an aggregate of 5,500,000 shares, 412,500 and 312,500 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 $880,000, $66,000 and $50,000, respectively. In connection with the subscription agreements, each 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.  The Company is in default of these agreements because it did not convert the promissory notes and accrued interest into common stock or repay the debt within the one year period.  The Company on January 6, 2012 began negotiations with these investors to convert this debt.  The Company believes it will be ultimately successful in converting this debt to stock per the original terms of the agreement.

For the year ended September 30, 2011, we entered into subscription agreements with eight accredited investors pursuant to which, among other things, we issued an aggregate of 1,627,778 Series B convertible preferred shares, par value $0.001 per share (“Series B Preferred Stock”), at a purchase price of $0.18 per share, for aggregate gross proceeds of $293,000. Each investor also received two-year warrants to purchase common stock in an amount equal to 20% of the number of shares of Series B Preferred Stock purchased by such investor.

As of September 30, 2011 and 2010, the Company had a total of $692,118 and $617,344 of debt outstanding, respectively. The primary components of this total are $596,108 owed to New Generation Motors and $70,000 owed to holders of the Company’s convertible promissory notes in 2011 and $596,108 owed to New Generation Motors in 2010.

The Company is delinquent in its quarterly payments to New Generation Motors due August 15, 2011 and November 15, 2011.  On January 6, 2012, New Generation Motors granted a waiver to defer these quarterly payments until March 7, 2012.
 
Critical Accounting Policies

We have disclosed in the notes to our financial statements those accounting policies that we consider to be significant in determining our results of operations and our financial position which are incorporated by reference herein. The following reflects the more critical accounting policies that currently affect our financial condition and results of operations.
 
 
15

 
Recent Accounting Pronouncements

ASU No. 2011-03; Reconsideration of Effective Control for Repurchase Agreements.  In April, 2011, the FASB issued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.

The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.   In May, 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed.  This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs.  The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted.

The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income.  In June, 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Due to the recency of this pronouncement, the Company is evaluating its timing of adoption of ASU 2011-05, but will adopt the ASU retrospectively by the due date.

On September 15, 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other, which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment.  The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
 
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.

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.

Revenue under the Company’s SBIR contracts with both the US Army and the US Navy 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 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.

Use of estimates

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant estimates, required by management, include the allowance for doubtful accounts, the valuation of inventories and the recoverability of long-lived assets.  Actual results could differ from those estimates.

Accounts Receivables

In the normal course of business, the Company typically extends credit to its customers without requiring collateral or other security interests. Management reviews its accounts receivables at each reporting period to provide for an allowance against accounts receivable for an amount that could become uncollectible. This review process may involve the identification of payment problems with specific customers. The Company estimates this allowance based on the aging of the accounts receivable, historical collection experience, and other relevant factors, such as changes in the economy and the imposition of regulatory requirements that can have an impact on the industry. These factors continuously change, and can have an impact on collections and the Company’s estimation process. These impacts may be material.  Subsequent cash recoveries are recognized as income in the period when they occur.

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.

Accounting for the Impairment or Disposal of Long-Lived Assets 

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.
 
 
16

 
 
Share-Based Payment

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.
 
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:

 
·
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,
 
·
$101,083 in customer deposits that they retained though we were responsible for fulfilling such customer orders, and
 
·
$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 $90,000 has been paid (twelve 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.

 
The Company is delinquent in its quarterly payments due August 15, 2011 and November 15, 2011.  On January 6, 2012, New Generation Motors granted a waiver to defer these quarterly payments until March 7, 2012.

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.
 
 
17

 
 
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 the repayment of 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. 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. Therefore, under the terms of the asset purchase agreement, we are obligated to make payments to New Generation Motors on a conditional grant basis in accordance with the asset purchase 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, 2011, no payments are owed to New Generation Motors, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are contained in pages F-1 through F-22 which appear at the end of this annual report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements with our accountants since our formation that are required to be disclosed pursuant to Item 304(b) of Regulation S-K.
 
ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we 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, as of September 30, 2011. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities 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.
 
 
18

 
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2011. In making this assessment, management used the framework in “Internal Control - Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on the assessment performed, management believes that as of September 30, 2011, the Company’s internal control over financial reporting was effective based upon the COSO criteria. Additionally, based on management’s assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of September 30, 2011.

There were no changes in our internal controls over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permits us to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers
 
The following table sets forth certain information regarding the members of our board of directors and our executive officers:
 
Name
 
Age
 
Title
         
Eric Takamura
 
42
 
Chairman, Chief Executive Officer, President and Director
         
John Salatino
 
56
 
Vice President of Engineering and Programs
         
Henry Toh
 
54
 
Vice Chairman, Executive Vice President of Corporate Development and Director
         
Marshall G. Webb
 
69
 
Chief Financial Officer
         
Michael Kleinman, M.D.
 
55
 
Director

Our directors hold office for one-year terms and until their successors have been elected and qualified. Our officers are elected annually by the board of directors and serve at the discretion of the board.
 
There are no familial relationships among any of our directors or officers. None of our directors or officers has served, during the past five years, as a director in any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940, as amended except Mr. Toh who serves on the board of directors of four-public companies as described in his biography below and Dr. Kleinman who is a director of American Surgical Holdings, Inc We are not aware of any proceedings to which any of our officers or directors, or any associate of any such officer or director, is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
 
 
19

 
 
If we issue Series A Preferred Stock, the holders of such stock will be entitled to designate one person to serve as a member of our board of directors.
 
Biographies
 
Eric Takamura, Chairman, Chief Executive Officer and President
 
Mr. Takamura became our Chairman, Chief Executive Officer and President on January 29, 2010. Mr. Takamura served as President and Chief Executive Officer and director of NuGen since its inception in 2006. Mr. Takamura has 16 years experience in PM motors, having previously served as Chief Operating Officer of New Generation Motors from May 2004 to January 2007, and Director of Engineering and Marketing, from May 2002 to May 2004. Prior to joining New Generation Motors, from 1994 to1996, Mr. Takamura was a lab researcher and engineer at the Naval Research Laboratory in Washington, D.C. where he worked on tribology assignments. Mr. Takamura has a BS degree in Mechanical Engineering and a Masters in Transportation & Safety from The George Washington University. Mr. Takamura’s engineering background and extensive experience in our industry and in senior management roles provides us with an in-depth understanding of our industry and its opportunities and challenges and operational experience. As our President and Chief Executive Officer, Mr. Takamura provides essential insight and guidance to our board of directors from an insider perspective of our day-to-day operations. The foregoing led to the conclusion of our board that Mr. Takamura should serve as a director of our company.
 
John Salatino, Vice President of Engineering and Programs
 
Mr. Salatino has served as Vice President of Engineering and Programs since the Merger on January 29, 2010. Mr. Salatino has 25 years of experience in developing control and monitoring systems for vehicles ranging from military ground and air transport and fighting vehicles to commercial electric bicycles, scooters, assisted mobility and mining equipment. Mr. Salatino has 20 years experience at GE Aerospace, a defense and aerospace company, where he held positions in engineering development and management for military and commercial control systems and electronics packaging for turrets, propulsion systems and vehicle systems, and for advanced development of core technologies. From July 2007 to February 2010, Mr. Salatino was an engineering manager at Texas Instruments, a semiconductor company focusing on battery management integrated circuits for hybrid and battery electric vehicles. From March 2006 to June 2007, Mr. Salatino was VP Engineering and Programs at New Generation Motors. From November 2002 to February 2006, Mr. Salatino was the Engineering Director for EV motor and controls at WaveCrest Laboratories, an automotive company. Additionally, Mr. Salatino has a BS degree in Electrical Engineering from Northeastern University and a MS degree in Computers and Systems from Rensselaer Polytechnic Institute.
 
Henry Toh, Vice Chairman and Executive Vice President of Corporate Development
 
Mr. Toh has served as Vice Chairman of our board of directors and Executive Vice President of Corporate Development since February 2008.  Since April 2007, Mr. Toh has served as a director of American Surgical Holdings Inc, a privately held company specializing in staffing of surgical assistants. From January 2004 until June 2009, Mr. Toh has served as a director of Isolagen, Inc., a company which specialized in cellular therapy. Since 2001, Mr. Toh has served as a director of Teletouch Communications Inc., a wireless communications company. Since 1992, Mr. Toh has served as an officer and director of C2 Global Technologies Inc., a publicly held voice-over-IP company. Since December 1998, Mr. Toh has served as a director of IDNA, Inc., a specialized finance and entertainment company. From September 2004 until August 2005, Mr. Toh served as a director of Vaso Active Pharmaceuticals Inc., a healthcare products manufacturer. From 1992 to August 2008, Mr. Toh served as an officer and director of Four M International, Inc., a privately held offshore investment entity. Mr. Toh began his career with KPMG Peat, Marwick from 1980 to 1992, where he specialized in international taxation and mergers and acquisitions. Mr. Toh is a graduate of Rice University. Mr. Toh’s experience and skill in financial matters and his experience as a director of other public companies provides our board with insight into the financial markets, various financing strategies and strategic advice and led to the conclusion of our board that Mr. Toh should serve as a director of our company.
 
 
20

 
 
Marshall G. Webb, Chief Financial Officer.

Mr. Webb joined NuGen on July 1, 2011. Since 1999, Mr. Webb has served as President and Chief Financial Officer of Polaris Group, a financial advisory firm he founded to provide financial consulting, mergers and acquisitions services and capital sourcing to public and private companies. Since 2001, Mr. Webb has served as a Director of Teletouch Communications, Inc., a wireless communications company, and is Chairman of its Audit Committee, and member of its Compensation and Governance Committees. Mr. Webb is a designated “financial expert” as that term is defined in Section 407 of the Sarbanes-Oxley Act of 2002 and under federal securities law. From March 2006 until August 2007, Mr. Webb served as a Director of ACR Group, Inc., a wholesale distributor of air conditioning, heating and refrigeration equipment, and was Chairman of its Audit Committee. From February 2004 until April 2005, he served as Director and Audit Committee Chairman of Omni Energy Services Corp., a service provider to the oil and gas industry. From April 2004 until June 2009, Mr. Webb served as a Director of Isolagen, Inc., a development stage company involved in cellular therapy. Mr. Webb attended Southern Methodist University, is a Certified Public Accountant (Texas), and began his business career with KPMG Peat Marwick.

Michael Kleinman, Director
 
Dr. Kleinman, M.D. has served as a director of InovaChem since June 2008. Dr. Kleinman has served as a director of American Surgical Holdings Inc., a privately held company, since April 2007. Dr. Kleinman graduated from Rice University and attained his medical degree at the University of Texas, Albert Einstein College of Medicine in Dallas, Texas in 1983. He is a Board certified surgeon with a private practice in Houston, Texas, Clinical Assistant Professor of Surgery at Baylor University and at the University of Texas, Physician Liaison for Memorial Care System, Fellow of the American College of Surgeons, Member of the American Society of General Surgeons, the Society of American Gastrointestinal Laparoscopic Surgery, Houston Surgical Society, Harris County Medical Society, the American Medical Association and past member of the Texas Medical Association, International College of Surgeons, American College of Physician Executives, and the American Board of Utilization Review Physicians. He also received the Physicians’ Recognition Award in 2003 and 2006, and 10 citations for top doctors. Further, as he is not employed by us, Dr. Kleinman is in a position to provide the board with an independent perspective on our activities. Dr. Kleinman’s science background, as well as his qualification as a director of another company, facilitates his understanding of, and ability to contribute to, technical issues that are addressed from time to time by our board and led to the conclusion of our Board that Dr. Kleinman should serve as a director of our company.
 
Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act requires our directors, executive officers and holders of more than 10% percent of our common stock to file reports of beneficial ownership and changes in ownership of our common stock with the Securities and Exchange Commission. Such persons are required to furnish us with copies of all Section 16(a) forms they file.

Based solely on a review of Forms 3 and 4 during fiscal 2010, all filing requirements applicable to our directors and officers who are subject to Section 16(a) were complied with except that Ronald Takamura filed a late Form 3 to report his 10% beneficial ownership; Eric Takamura filed a late Form 3 to report his appointment as an officer and director and his 10% beneficial ownership and an option grant; John Salatino filed a late Form 3 to report his appointment as an officer and an option grant; Alan Pritzker filed a late Form 4 to report a purchase of shares and an option grant; Henry Toh filed two late Form 4s to report three sales of shares and an option grant; and Michael Kleinman filed a late Form 4 to report a purchase of shares.

Corporate Governance

Code of Ethics
 
We intend to adopt a code of ethics that applies to our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer, but have not done so to date due to our relatively small size.
 
Board Committees
 
Our board of directors has established an audit committee, a compensation committee and a corporate governance committee. The members of each committee are appointed by the board of directors and serve one year terms. The composition and responsibilities of each committee are described below. Our board of directors has not appointed a nominating committee and has not yet adopted procedures by which security holders may recommend nominees to our board of directors.
 
 
21

 
 
Audit Committee. The sole member of our audit committee is Dr. Michael Kleinman. The audit committee’s functions include overseeing the integrity of our financial statements, our compliance with legal and regulatory requirements, , the performance of our internal audit function and controls regarding finance, accounting, legal compliance and ethics that management and our board of directors have established and making recommendations with respect to the selection and qualifications of our independent registered public accounting firm. In this oversight capacity, the audit committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered accounting firm, including any recommendations to improve the system of accounting and internal controls. The audit committee is comprised of an outside director who is not an officer or employee of us or our subsidiaries. We do not currently have an audit committee financial expert serving on the audit committee. We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” We believe that Dr. Kleinman currently meets the definition of “independent” as promulgated by the rules and regulations of the American Stock Exchange.
 
Compensation Committee. The sole member of our compensation committee is Dr. Michael Kleinman. The compensation committee determines the goals and objectives, and makes determinations regarding the salary and bonus for the CEO, approves salaries and bonuses for the other executive officers, administers our incentive compensation plans and makes recommendations to the board of directors and senior management regarding our compensation programs.
 
Governance Committee. The sole member of our nominating and governance committee is Dr. Michael Kleinman. The governance committee is responsible for evaluating our governance and the governance of our board and its committees, monitoring our compliance and that of the board and its committees with our corporate governance guidelines, evaluating our corporate governance guidelines and reviewing those matters that require the review and consent of the independent directors of the board and that are not otherwise within the responsibilities delegated to another committee of the board.
 
ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The table below sets forth information concerning compensation paid, earned or accrued by our chief executive officer and each of our executive officers ( each a “Named Executive Officer”) for the last two fiscal years. No other executive officer earned compensation in excess of $100,000 during our 2011 and 2010 fiscal years.
 
SUMMARY COMPENSATION TABLE
 
                               
Non-Equity
   
Nonqualified
   
All
     
Name and
                 
Stock
 
Option
     
Incentive Plan
   
Deferred
   
Other
     
Principal
     
Salary
   
Bonus
   
Awards
 
Awards
     
Compensation
   
Compensation
   
Compensation
 
Total
 
Position
 
Year
 
($)
   
($)
   
($)
 
($)
     
($)
   
Earnings ($)
   
($)
 
($)
 
Eric Takamura
 
2011
    180,000     0           0                         180,000  
Chairman and Chief  Executive Officer
 
2010
    135,000       30,000           23,670 (1)(3)                       188,670  
                                                           
Henry Toh
 
2011
    90,000                   0                         90,000  
Executive Vice President of Corporate Development
 
2010
    67,500                   11,835 (1)(3)                       79,335  
                                                           
John Salatino
 
2011
    172,449       0           0                         172,449  
Vice President of Engineering
 
2010
    92,308       20,000           27,040 (1)(3)                       139,348  
                                                           
Marshall G. Webb (7)
 
2011
    40,000                   6,875 (2)(3)                       46,875  
Chief Financial Officer
 
2010
    0                   0                         0  
 
 
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(1)
On February 9, 2010, options to purchase 900,000 shares, 450,000 shares and 400,000 shares of our common stock were granted to Messrs. Takamura, Toh, and Salatino, respectively. The shares subject to these options vest and become exercisable in equal monthly installments on the last day of each month for twenty-four consecutive months, commencing on February 28, 2010. The options were granted with an exercise price of $0.45 per share for Messrs. Takamura, and Toh and $0.15 for Mr. Salatino. 

(2)
On July 1, 2011, an option to purchase 250,000 shares of our common stock was granted to Mr. Webb.  125,000 shares vest and become exercisable immediately with the balance to vest and become exercisable in equal monthly installments on the last day of each month for twelve consecutive months, commencing on July 31, 2011.  The options were granted with an exercise price of $0.45 per share.

(3)
Reports the grant date fair value, as calculated in accordance with FASB ASC Topic 718, of options granted pursuant to the 2010 Stock Option Plan. The amounts reported assume that all option grants vest at 100%. For a discussion of the assumptions made in the valuation of the awards, see Note F to our consolidated financial statements for the fiscal year ended September 30, 2011.
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR ENDED SEPTEMBER 30, 2011
 
   
Number of
   
Number of
           
   
Securities
   
Securities
           
   
Underlying
   
Underlying
           
   
Unexercised
   
Unexercised
   
Option
     
   
Options
   
Options
   
Exercise
   
Option
   
Exercisable
   
Unexercisable
   
Price
   
Expiration
Name
 
(#)
   
(#)
   
($/Sh)
   
Date
Eric Takamura
   
750,000
     
150,000
(1)
 
$
0.45
   
2/9/2020
Chairman and Chief Executive Officer
                           
                             
Henry Toh
   
375,000
     
75,000
(2)
 
$
0.45
   
2/9/2020
Executive Vice President of Corporate Development
                           
                             
John Salatino
   
333,333
     
66,667
(3)
 
$
0.15
   
2/9/2020
Vice President of Engineering
                           
                             
Marshall G. Webb
   
156,250
     
93,750
(4)
 
$
0.45
   
7/1/2021
Chief Financial Officer
                           

(1)
Mr. Takamura's options were granted on February 9, 2010. The shares subject to this option vest and become exercisable in equal monthly installments on the last day of each month for twenty-four consecutive months, commencing on February 28, 2010.

(2)
Mr. Toh's options were granted on February 9, 2010. The shares subject to this option vest and become exercisable in equal monthly installments on the last day of each month for twenty-four consecutive months, commencing on February 28, 2010.

(3)
Mr. Salatino's options were granted on February 9, 2010. The shares subject to this option vest and become exercisable in equal monthly installments on the last day of each month for twenty-four consecutive months, commencing on February 28, 2010.

(4)
Mr. Webb’s options were granted July 1, 2011.  125,000 shares vest and become exercisable immediately with the balance to vest and become exercisable in equal monthly installments on the last day of each month for twelve consecutive months, commencing on July 31, 2011.
 
 
23

 
 
Employment Agreements
 
As a result of the Merger, employment agreements with all of our executive officers at such time were terminated and such individuals released us from any liability under such agreements.
 
Employment Agreements with Mr. Takamura
 
On February 9, 2010, we entered into an agreement pursuant to which we employed Eric Takamura as our Executive Chairman and Chief Executive Officer.   Mr. Takamura’s annual base salary is $180,000 and he is entitled to a signing bonus of $30,000. The signing bonus was paid. We granted Mr. Takamura, pursuant to our 2010 Stock Option Plan, options to acquire 900,000 shares of our common stock. The employment agreements also provide that he is entitled to receive such other benefits as may be made available by us to our employees and key executive officers (and with respect life, medical, health and death plans, such coverage is, with specified exceptions and limitations, to be provided to the employee and his family at our expense until the expiration of the applicable employee’s non-compete period (which may be as long as one year following termination of his employment)) and, in the discretion of our board of directors, annual bonuses (including a pro-rata annual bonus following termination without cause or for good reason if such bonus was awarded by the board). Mr. Takamura’s employment agreement provides that it is anticipated that he will receive an annual bonus of 100% of his base salary.
 
The term of employment is for three years, effective January 1, 2010 and the term of employment is renewed automatically for successive one year periods unless we or the employee gives notice of non-renewal at least 90 days prior to the expiration of the applicable term. We may terminate the employment of an employee before the stated expiration date for “Cause” (as defined in the applicable employment agreement) in which case we are only obligated to pay the employee his unpaid base salary through the termination date; provided, however, if the reason for terminating him for “Cause” is due to his material uncured breach of his employment agreement, we must pay him his base salary (as in effect at the time of termination) for nine months
 
We may also terminate either of these employees without “Cause” (which is defined as either: (i) the indictment of, or the bringing of formal charges against the executive on charges involving criminal fraud or embezzlement; (ii) the indictment of, or the brining of formal charges against executive of a crime involving an act or acts of dishonesty, fraud or moral turpitude by the executive, which act or acts constitute a felony; (iii) executive negligently or knowingly having caused the Company to violate the Company’s Bylaws or other policies; (iv) executive having committed acts or omissions constituting gross negligence or willful misconduct with respect to the Company, including with respect to any valid contract to which the Company is a party; (v) executive having committed acts or omissions constituting a breach of executive’s duty of loyalty or fiduciary duty to the Company or any material act of dishonesty or fraud with respect to the Company which are not cured or substantially cured to the satisfaction of the Board of Directors of the Company in a reasonable time, which time shall be at least 5 days from receipt of written notice from the Company of such material breach; (vi) executive having committed acts or omissions constituting a material breach of his employment Agreement which are not cured or substantially cured to the satisfaction of the Board of Directors of the Company in a reasonable time, which time shall be at least 5 days from receipt of written notice from the Company setting forth with specificity the particulars of any such material breach as well as the corrective actions required. or either employee may, if he determines in good faith that he has “Good Reason” (as defined below), to terminate his employment. In either of such events, we are obligated to (A) continue to pay the employee his base salary (as in effect at the time of such termination) for the longer of (i) the balance of his employment term or (ii) twelve (12) months from the date of termination, (B) pay the employee his pro rata share of his annual bonus, if any, is awarded and (C) provide such employee with outplacement services. The term “Good Reason” means (w) our failure to appoint or reappoint the employee to his position or his removal from his office or position, (x) the employee is assigned duties materially inconsistent with his position or his position, authority, duties, or responsibilities are materially diminished, (y) our uncured breach of any material provision of the employee’s employment agreement, or (z) within twelve months following a “Change in Control” (as defined Rule 405 promulgated under the Securities Act of 1933, as amended), a sale of substantially all of our assets or we are merged out of existence (collectively, a “Change of Control Event”).
 
In the event of change of control), sale of substantially all of the assets of the Company or the merger out of existence of the Company should occur, all stock options awarded under the employment agreement will immediately vest and become exercisable. Notwithstanding the foregoing, the stock options will terminate immediately following a termination of the executive for “Cause” and upon 180 days upon the voluntary termination of service by Mr. Takamura.
 
 
24

 
 
Employment Agreement with Mr. Webb

Under the Employment Agreement dated July 1, 2011, Mr. Webb will be entitled to a base salary of $120,000 per annum, which the board of directors may periodically increase but not decrease, and an annual bonus at the discretion of the Board, currently anticipated at 25% of Mr. Webb’s base salary. Mr. Webb will be paid a special bonus of $15,000 for each $1,000,000 raised or 1.5% of any amount raised less than $1,000,000 raised following the current Series B financing effort underway.  Further, in the event Executive is directly involved in a Series B financing, Executive shall be paid a bonus calculated in the aforementioned manner, i.e., fifteen thousand US Dollars (US $15,000) for each one million US Dollars (US $1,000,000) raised, or one and one-half percent (1.5%) of any amount less than one million US Dollars (US $1,000,000) raised.  The Employment Agreement also provides for the grant of a ten-year option to purchase 250,000 shares of the Company’s common stock at an exercise price of $0.45 per share which will vest as to 125,000 shares upon the execution of the Agreement (July 1, 2011) and as to the balance ratably over a 12-month period beginning on July 31, 2011. All options will immediately vest and become exercisable upon a change of control, sale of substantially all of the Company’s assets, a merger in which the Company is not the surviving company, the Company replaces Mr. Webb for other than cause, or Mr. Webb is replaced by Series B investors.  The option will immediately terminate if Mr. Webb is terminated for cause and in 90 days if Mr. Webb resigns other than for good reason.

In the event Mr. Webb is terminated due to a material breach of the Employment Agreement which remains uncured for 30 days, the Company will be obligated to pay Mr. Webb’s base salary for three months from the date of termination. If the Company terminates Mr. Webb’s employment without cause, or Mr. Webb resigns for good reason, the Company will be obligated to pay Mr. Webb’s base salary for the longer of (i) the remaining term of the Employment Agreement or (ii) four months from the date of termination (“Termination Payments”) and any outstanding options will immediately vest and become exercisable.  If Mr. Webb is terminated without cause or resigns for good reason, he will be entitled to a pro rata share of his annual bonus and to outplacement services for so long as he receives Termination Payments.

Pursuant to the Employment Agreement, Mr. Webb agreed not to compete with the Company during his term of employment and any period he is receiving Termination Payments and for one year thereafter (“Non-Compete Period”) and not to solicit or interfere with the Company’s employees, customers, suppliers or other business relationships for twelve months after the termination of his employment.

Unless terminated for cause, Mr. Webb and his family will be entitled to continued life, medical, health and death insurance coverage during any Non-Compete Period but only so long as Mr. Webb receives Termination Payments.

Letter with John Salatino
 
Effective February 11, 2010, InovaChem, Inc. signed a letter with John Salatino pursuant to which he is to serve as our VP of Engineering and Programs. The letter contemplates that, among other things, the terms of his employment will be formalized in an employment agreement, which to date has not been entered into. Mr. Salatino will serve in such capacity for two years, his annual base salary will be $160,000 and $180,000 in the first and second year of his employment, respectively, he will receive a $20,000 signing bonus within ten days of entering into an agreement, he will be eligible for a variable performance based bonus plan with the envisioned annual bonus, if all our goals are met, of 25% of his base salary, he will be entitled to other benefits provided to management employees, in the event he is terminated, he will be entitled to severance equal to the greater of the remaining term of his contract or six months of his annual salary, and he will be granted an option to acquire an aggregate of 400,000 shares of our common stock 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 as provided therein and the right to exercise his remaining option in the event of the termination of his employment.
 
On February 9, 2010 we granted Mr. Salatino an option for a cashless purchase of 400,000 shares of common stock at an exercise price of $0.15 per share which option expires on February 29, 2012. In the event of a change of ownership of our company or if Eric Takamura is no longer Chairman of the Board or Chief Executive Officer, all the shares will be allowed to be exercised by a cashless exercise. Upon a change of control, the option will become vested
 
 
25

 
 
Compensation of Mr. Toh
 
Henry Toh, our Vice Chairman and Executive Vice President of Corporate Development, is an employee at will and receives a base salary of $90,000 per year.
 
Equity Awards
 
On February 9, 2010, pursuant to the 2010 Stock Option Plan, we granted to the following executive officers stock options to acquire the number of shares of our common stock set forth next to such person’s name:
 
Executive Officer
 
Date of Award
 
Options to Acquire Common
Stock
 
             
Eric Takamura (2)
 
February 9, 2010
    900,000  
Henry Toh (2)
 
February 9, 2010
    450,000  
Alan Pritzker (1)
 
February 9, 2010
    150,000  
Marshall G. Webb (3)
 
July 1, 2011
    250,000  
 
(1)
Mr. Pritzker resigned effective June 30, 2011 and did not exercise his vested options by September 30, 2011.  These options were forfeited.

(2)
The shares subject to these options vest and become exercisable in equal monthly installments on the last day of each month for twenty-four consecutive months, commencing on February 28, 2010.

(3)
125,000 shares vest and become exercisable immediately with the balance to vest and become exercisable in equal monthly installments on the last day of each month for twelve consecutive months, commencing on July 28, 2011.

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 us 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 90 days after such person voluntarily terminates his employment other than for “Good Reason.”
 
See “Letter with John Salatino” for information regarding his options.
 
Employment Agreements and Potential Payout upon Termination or Change in Control

See Employment agreements above.

Retirement Plans

At present we do not provide executive officers with any retirement or pension plans. We may institute these plans in the future.

Perquisites and Other Personal Benefits

At present we do not provide executive officers with perquisites and other personal benefits. We may institute perquisites and other personal benefits for our officers in the future.

Director Compensation

We did not pay any compensation to our directors in fiscal 2011 for serving in such capacity. In February 2010, our board of directors that determined that an independent director will receive $1,000 for each board meeting attended and $500 for each committee meeting attended. No compensation for serving on a committee will be paid to a committee member without the approval of the board. Our Chairman will pre-approve any committee meeting of a one-person committee.
 
 
26

 
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information regarding beneficial ownership of the Company’s Common Stock as of the date of the closing of the Offering.  Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security.  Accordingly, more than one person may be deemed to be a beneficial owner of the same security.  A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock

Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder.
 
To the Company’s knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
   
         
Percentage of
 
   
Number of shares
   
Common Stock
 
   
of Common Stock
   
Beneficially
 
Name of Beneficial Owner
 
Beneficially Owned
   
Owned (1)
 
Eric Takamura
    29,374,375 (2)(3)(4)(5)     50.70 %
Henry Toh
    1,978,612 (6)     3.45 %
Marshall G. Webb
    208,333 (7)     *  
John Salatino
    400,000 (8)     *  
Michael Kleinman, M.D.
    251,296 (9) (10)     *  
                 
All directors and executive officers as a group (5 persons)
    32,212,616       55.71 %
                 
Ronald Takamura
    7,987,182 (2)     14.02 %
                 
Zhou Tao
Tower 2, No. 520
WangJiang West Road
HeFei An Hui Province 230088
China
    3,000,000 (11)     5.27 %
 
* Less than 1%

(1)
Based upon 56,966,564 shares of our common stock outstanding plus common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of January 15, 2012.
(2)
Includes 1,200,000 shares which are pledged to secure the repayment of a two-year 5% promissory note in the principal amount of $300,000 entered into by Mr. Takamura in November 2009. Also, includes the pledge of 1,000,000 of his shares of common stock to a representative of eleven investors to secure his obligation to transfer to such investors his shares if we issue, with certain exceptions shares of common stock or securities convertible into, or exercisable for, common stock at a price below $0.15 per share during the period ending February, 2012. Does not include shares owned by his brother, Ronald Takamura, over which he disclaims beneficial ownership.
(3)
Includes an aggregate of up to 2,595,000 shares that may be purchased by investors in the Private Placement who acquired options from Mr. Takamura (at a purchase price of $250) entitling them to purchase, until January or February 2012, depending on when the holder invested in the Private Placement, such shares of his common stock for a purchase price of $0.50 per share.
 
 
27

 
 
(4)
Includes options exercisable within 60 days of the date hereof to acquire 900,000 shares of common stock. Does not include options to acquire 0 shares which are not exercisable within 60 days of the date hereof.
(5)
Includes 6,225,000 of shares subject to irrevocable voting proxies held by Mr. Takamura over which he has sole voting power.
(6)
Includes options exercisable within 60 days of the date hereof to acquire 450,000 shares of common stock. Does not include options to acquire 0 shares which are not exercisable within 60 days of the date hereof.
(7)
Includes options exercisable within 60 days of the date hereof to acquire 208,333 shares of common stock. Does not include options to acquire 41,667 shares which are not exercisable within 60 days of the date hereof.
(8)
Includes options exercisable within 60 days of the date hereof to acquire 400,000 shares of common stock. Does not include options to acquire 0 shares which are not exercisable within 60 days of the date hereof.
(9)
Includes 50,000 shares held jointly with wife.
(10)
Includes 111,111 shares of common stock which could be issued for the conversion of Series B preferred stock and warrants totaling 20% of Series B preferred shares purchased
(11)
These shares are subject to an irrevocable voting proxy held by Mr. Eric Takamura over which Mr. Takamura has sole voting power.
 
With the exception of Dr. Kleinman, no individuals listed in the table above beneficially own or have the right to acquire preferred stock.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

Eric Takamura was Chief Operating Officer of New Generation Motors from June 2004 to February 27, 2007. Henry Toh, Vice Chairman of our board of directors and an officer, is an officer and a director of Four M International, Inc. (“Four M”). In connection with the Asset Purchase Agreement dated July 13, 2007, NuGen Mobility, among other things, assumed outstanding indebtedness to Four M in the amount of $62,500, pursuant to a one-year promissory note, dated April 23, 2003, payable at an interest rate of 5.5% per annum, in monthly installments commencing May 23, 2003. NuGen Mobility assumed this debt as a condition to the completion of the transaction imposed by New Generation Motors. In connection with the Merger, Four M received 386,250 shares in exchange for the cancellation of indebtedness of $57,938 which was still outstanding.
 
From August 2006 to June 2009, Ron Takamura, a principal stockholder and brother of Eric Takamura, our Chairman, Chief Executive Officer, President, and a director and a principal stockholder, made loans to us in the aggregate principal amount of $371,500, at interest rates of 10.2%. As of December 31, 2009 these loans accrued a total of $93,976 of interest thereon. We issued 3,103,173 shares of Common Stock to Ron Takamura in the Private Placement as a result for the cancellation of his debt (including accrued interest).
 
The agreements pursuant to which Eric Takamura and Ronald Takamura lent money to our company, as well as the agreement of Eric Takamura to forgive these loans and the agreement by which 71,667 shares of our common stock owned by Henry Toh were redeemed for $0.71 prior to the merger with NuGen Mobility were all oral agreements.
 
In December 2006, NuGen Mobility entered into an agreement with Hamilton Clarke, an investor relations firm that was a 10% shareholder at that time and whose shares were acquired by Eric Takamura in November 2009, to provide financial advisory services. NuGen Mobility granted the firm 111 shares of its Common Stock per the terms of the agreement. In January 2008 NuGen terminated its agreement with the firm and converted the $35,650 it owed the firm into a note payable. Interest accrued on this loan at the rate of 1% per annum. $25,000 was repaid by NuGen Mobility on February 22, 2010 and the remaining balance was forgiven by the consultant and the note was terminated
 
On September 29, 2010, December 5, 2010 and March 30, 2011, the Company entered into subscription agreements with four foreign investors pursuant to which, among other things, the Company issued an aggregate of 6,225,000 shares of its common stock, par value $0.001 per share, at a purchase price of $0.16 per share, for total cash proceeds of $996,000 and paid offering costs of $5,645. Such issuances were made in reliance on an exemption from registration under Regulation S promulgated under the Securities Act. Pursuant to the Subscription Agreements each investor executed and delivered to the Company (i) an irrevocable proxy appointing the Company’s Chief Executive Officer as his 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 the Company’s securities for a nine-month period.
 
 
28

 
 
At September 30, 2011 and 2010, the Company had accounts payable and accrued expenses - related parties of $408,272 and $0 which includes unpaid salaries, reimbursable travel expenses and miscellaneous fees and expenses owed to corporate officers of the Company.
  
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
Audit Fees
  
The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements and review of interim quarterly financial statements for the fiscal year ended September 30, 2011 and 2010 were $34,831 and $24,636, respectively.
  
Audit-Related Fees
 
The aggregate fees billed for our fiscal years ended September 30, 2011 and September 30, 2010 for S-1 filings by the principal accountants and  not reported under the caption “Audit Fees” above were $2,493 and $23,365, respectively.
 
Tax Fees

We did not incur any fees during the last two fiscal years for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.

All Other Fees

None

Our Audit Committee pre-approves all audit services and permitted non-audit services (including the fees and terms thereof) to be performed by our independent registered public accounting firm, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act, which are approved by our Audit Committee prior to the completion of the audit. Our Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

During fiscal 2011, our Audit Committee pre-approved all audit services performed by our independent registered public accounting firm and did not rely upon the de minimus exceptions described in Section 10A(i)(1)(B) of the Exchange Act.

PART IV

ITEM 15. EXHIBITS

(a) Financial Statements and Financial Statement Schedules:

The following documents are filed as part of this report on Form 10-K:

(1) See the index to our consolidated financial statements on page F-1 for a list of the financial statements being filed herein.

(2) All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or other notes thereto.
 
 
29

 
 
(3) See the Exhibits under Item 15(b) below for all Exhibits being filed as part of or incorporated by reference in this report on Form 10-K.

(b) Exhibits 
 
1.01
Investment Banking Agreement dated as of November 14, 2011. (1)
   
10.26
Form of Regulation S Subscription Agreement (2)
   
10.27
Form of Subscription Agreement (2)
   
10.28
First Amendment to Lease, dated October 1, 2010
   
10.29
Deed of Lease, dated October 31, 2010
   
21.1
Subsidiaries of the Registrant (3)
   
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  
(1) Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K on November 14, 2011.
(2) Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K on January 6, 2011
(3) Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1on September 19, 2011
 
 
 
32

 
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 (principal
executive officer)
 
January 12, 2012
   
By:
/s/Marshall G. Webb
Marshall G. Webb
Chief Financial Officer (principal financial
and accounting officer)
 
January 12, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE
 
TITLE
 
DATE
         
/s/ Eric Takamura
 
Chairman, Chief Executive
 
January 12, 2012
Eric Takamura
 
Officer and Director
   
   
(Principal Executive Officer)
   
         
/s/ Marshall G. Webb
 
Chief Financial Officer
 
January 12, 2012
Marshall G. Webb
 
(Principal Financial and
   
   
Accounting Officer)
   
         
/s/ Henry Toh
 
Executive Vice President of
 
January 12, 2012
Henry Toh
 
Corporate Development and
   
   
Director
   
         
/s/ Michael Kleinman
 
Director
 
January 12, 2012
Michael Kleinman
       
 
 
33

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

NUGEN HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2011

Table of Contents

   
Page #
     
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
F-1
     
CONSOLIDATED BALANCE SHEETS
 
F-2
     
CONSOLIDATED STATEMENTS OF OPERATIONS
 
F-3
     
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
 
F-4
     
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
F-5
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
F- 6
 
 
34

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of:
NuGen Holdings, Inc.
 
To the Board of Directors of:
NuGen Holdings, Inc.

We have audited the accompanying consolidated balance sheets of NuGen Holdings, Inc. and subsidiaries (the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the two years ended September 30, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of NuGen Holdings, Inc. and subsidiaries   as of September 30, 2011 and 2010 and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, the Company has a net working capital deficiency of $1,289,660, net loss of $1,850,016, accumulated deficit of $6,382,305 and negative cash flows from operations of $1,211,946. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/s/ WEBB & COMPANY, P.A.
 
WEBB & COMPANY, P.A.
 
Certified Public Accountants
 

Boynton Beach, Florida
January 12, 2012

 
F-1

 

NUGEN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
 
   
For Years Ended
 
   
September 30,
 
   
2011
   
2010
 
             
ASSETS
           
Current assets
           
Cash and cash equivalents
 
$
97,564
   
$
863,876
 
Accounts receivable, net of allowance for doubtful accounts of $109,901 at 2011 and  $0 at 2010
   
95,237
     
253,754
 
Prepaid expenses
   
11,499
     
11,309
 
Inventories
   
118,761
     
222,915
 
                 
Total current assets
   
323,061
     
1,351,854
 
                 
Machinery & equipment, net
   
47,953
     
43,325
 
Other assets
   
12,960
     
7,365
 
                 
   
$
383,974
   
$
1,402,544
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Current liabilities
               
Current portion of long term liabilities
 
$
609,082
   
$
13,428
 
Convertible notes
   
70,000
     
-
 
Accounts payable and accrued expenses
   
524,892
     
479,951
 
Customer deposits
   
475
     
150,000
 
Accounts payable and accrued expenses-related parties
   
408,272
     
-
 
                 
Total current liabilities
   
1,612,721
     
643,379
 
                 
Long-Term Notes Payable
   
13,036
     
603,916
 
                 
Total liabilities
   
1,625,757
     
1,247,295
 
                 
Commitments and contingencies
               
                 
Stockholders' equity (deficit)
               
Preferred stock - $0.001 par value; 50,000,000 shares authorized,  14,645,000 designated as Series B, 35,355,000 undesignated shares:
               
Series B - 14,645,000 shares designated, 1,627,778 and 0  shares issued and outstanding
   
1,628
     
-
 
Common stock - $0.001 par value; 200,000,000 shares authorized, 56,966,564 and 55,881,564 shares issued and outstanding
   
56,967
     
55,882
 
Additional paid-in capital
   
5,081,927
     
4,631,656
 
Accumulated deficit
   
(6,382,305
)
   
(4,532,289
)
Total stockholders' equity (deficit)
   
(1,241,783
   
155,249
 
                 
   
$
383,974
   
$
1,402,544
 

The accompanying notes are an integral part of these consolidated financial statements
 
 
F-2

 

NUGEN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

   
For the Years Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Revenues
 
$
1,433,602
   
$
432,989
 
                 
Direct costs
   
622,894
     
70,437
 
Direct labor
   
1,010,204
     
622,377
 
                 
Gross loss
   
(199,496
)
   
(259,825
)
                 
Operating expenses
               
Compensation
   
905,640
     
821,477
 
Rent & office
   
154,270
     
103,417
 
Professional fees
   
134,584
     
109,232
 
Travel expenses
   
199,115
     
192,577
 
Bad debt expense
   
109,901
     
-
 
Other general and administrative expenses
   
98,328
     
76,250
 
Total operating expenses
   
1,601,838
     
1,302,953
 
                 
Net loss from operations
   
(1,801,334
)
   
(1,562,778
)
                 
Other income (expense)
               
Interest income
   
211
     
1,619
 
Interest expense
   
(43,893
)
   
(60,262
)
Foreign currency transaction loss
   
(5,000
)
   
(20,665
)
Total other (expense)
   
(48,682
)
   
(79,308
)
                 
Net loss
   
(1,850,016
)
   
(1,642,086
)
                 
Preferred stock dividends
   
(3,634
)
   
-
 
                 
Net loss available to common shareholders
 
$
(1 ,853,650
)
 
$
(1,642,086
)
Net loss per share - basic and diluted
 
$
(0.03
)
 
$
(0.04
)
                 
Weighted average number of shares outstanding during the period - basic and diluted
   
56,670,242
     
42,512,167
 

The accompanying notes are an integral part of these consolidated financial statements

 
F-3

 

NUGEN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010

   
Preferred Stock-
Series B
   
Common Stock
   
Additional
             
   
Number of
Shares
   
Par Value
   
Number of
Shares
   
Par Value
   
Paid-in
Capital
   
Accumulated
Deficit
   
Total
 
Balance at September 30, 2009
  $ -       -       27,133,384     $ 27,133     $ 1,475,100     $ (2,890,203 )   $ (1,387,970 )
Contributed services
    -       -       -       -       37,500       -       37,500  
Recapitalization
    -       -       6,278,346       6,279       (68,544 )     -       (62,265 )
Issuance of common stock for cash, net of offering costs of $145,041
    -       -       15,366,668       15,366       2,199,593       -       2,214,959  
Issuance of warrants
    -       -       -               53,640       -       53,640  
Issuance of common stock in exchange for debt
    -       -       6,103,166       6,104       909,371       -       915,475  
Issuance of common stock for services
    -       -       1,000,000       1,000       (1,000 )     -       -  
Vesting of stock options
    -       -       -       -       25,996       -       25,996  
Net loss from October 1, 2009 to September 30, 2010
    -       -       -       -       -       (1,642,086 )     (1,642,086 )
Balance at September 30, 2010
    -       -       55,881,564       55,882       4,631,656       (4,532,289 )     155,249  
Issuance of common stock for cash
    -       -       725,000       725       115,275       -       116,000  
Issuance of preferred stock for cash
    1,627,778       1,628       -       -       291,372       -       293,000  
Issuance of common stock upon exercise of  warrants
    -       -       360,000       360       -       -       360  
Vesting of stock options
    -       -       -       -       43,624       -       43,624  
Net loss from October 1, 2010 to September 30, 2011
    -       -       -       -       -       (1,850,016 )     (1,850,016 )
Balance at September 30, 2011
  $ 1,627,778       1,628       56,966,564     $ 56,967     $ 5,081,927     $ (6,382,305 )   $ (1,241,783 )

The accompanying notes are an integral part of these consolidated financial statements

 
F-4

 

NUGEN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
 
For Years Ended
 
   
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net loss
 
$
(1,850,016
)
 
$
(1,642,086
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Contributed services
   
-
     
37,500
 
Vesting of stock options
   
43,624
     
25,996
 
Depreciation expense
   
15,050
     
2,872
 
Provision for bad debt expense
   
109,901
     
-
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
48,616
     
(39,748
)
Prepaid expenses
   
(190
)
   
(4,223
)
Inventories
   
104,154
     
(222,915
)
Other assets
   
(5,595
)
   
-
 
Accounts payable and accrued expenses
   
63,763
     
200,153
 
Customer deposits
   
(149,525
   
150,000
 
Accounts payable and accrued expenses-related parties
   
408,272
     
-
 
                 
Net cash used in operating activities
   
(1,211,946
)
   
(1,492,451
)
                 
Cash flows from investing activities:
               
Cash acquired in recapitalization
   
-
     
4,060
 
Purchase of property and equipment
   
(19,678
)
   
(17,289
)
                 
Net cash used in investing activities
   
(19,678
)
   
(13,229
)
                 
Cash flows from financing activities:
               
Proceeds from sale of common stock, net
   
116,360
     
2,268,599
 
Proceeds from sale of preferred stock
   
293,000
     
-
 
Proceeds from issuance of notes
   
70,000
     
70,000
 
Principal payments on debt
   
(14,048
   
(27,972 
)
                 
Net cash provided by financing activities
   
465,312
     
2,310,627
 
                 
Net increase (decrease) in cash and cash equivalents
   
(766,312
)
   
804,947
 
                 
Cash and cash equivalents at beginning of period
   
863,876
     
58,929
 
                 
Cash and cash equivalents at end of period
 
$
97,564
   
$
863,876
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for interest
 
$
28,626
   
$
45,319
 
Cash paid during the period for taxes
 
$
-
   
$
-
 
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Conversion of debt to equity in connection with merger
 
$
-
   
$
915,475
 
Net non-cash assets and (liabilities) assumed in recapitalization
 
$
-
   
$
(62,265
)
  
During 2010, the Company purchased computer equipment and  issued a note payable for $12,910.

 
The accompanying notes are an integral part of these consolidated financial statements

 
F-5

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2011

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.

Pursuant to 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 revenues are 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.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. Actual results may differ from those estimates.  The significant estimates are allowance for doubtful accounts, allowance for inventory obsolescence and valuation of equity instruments.

 
F-6

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 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.

 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 had approximately $0 and $491,497 in excess of FDIC insurance limits as of September 30, 2011 and 2010, respectively.

Accounts Receivable
 
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company has established an allowance for doubtful accounts which represents the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company evaluates the adequacy of its allowances for doubtful accounts each quarter performing evaluations of its customers and their ability to make payments. The Company determines the adequacy of the allowance based on length of time past due, historical experience and judgment of economic conditions.  Account balances are charged off against the allowance after all options have been exhausted and recovery is considered unlikely.  As these factors change, the Company’s allowances for doubtful accounts may change in subsequent periods. Historically, losses have been within management’s expectations and have not been significant.
 
The allowance for doubtful accounts amounted to $109,901 and $0 at September 30, 2011 and 2010, respectively and is recorded as a reduction of accounts receivable.
 
Inventories
 
Inventories are stated at the lower of cost (first-in, first-out method) or market, net of adjustments for estimated excess inventory and obsolescence based upon the Company’s best estimate of future product demand.  Inventories at September 30, 2011 and 2010 consist of the following:
 
   
2011
   
2010
 
Raw materials
  $ 118,642     $ 0  
Work in progress
    119       222,915  
Total
  $ 118,761     $ 222,915  

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, which is 5 years for computer equipment and 3 years for software.  Maintenance and repairs are charged to expense as incurred. Depreciation expense for the years ended September 30, 2011 and 2010 was $15,050 and $2,872, 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 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.

 
F-7

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2011

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 has 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.

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.

Given the substantial net operating losses and the related valuation allowance established against such amounts, the Company has concluded that it does not have any uncertain tax positions. There have been no income tax related interest or penalties for the periods presented in these consolidated financial statements. In the normal course of business, the Company and its subsidiaries are subject to examination by Federal and state taxing authorities. The Company's income tax returns for years subsequent to fiscal 2006 are currently open, by statute, for review by authorities. However, there is no examinations currently in progress and the Company is not aware of any pending audits.  The Company has filed all income tax returns.
 
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.

 
F-8

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2011

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 the loss available to common stockholders by the weighted average number of common shares outstanding during the periods presented.

Diluted earnings per share are computed by dividing the loss available to common stockholders by all outstanding and potentially dilutive shares during the periods presented, unless the effect is anti-dilutive.

Potentially dilutive shares consist of the following at September 30, 2011 and 2010:
 
   
2011
   
2010
 
Warrants outstanding to purchase the Company’s common stock
    -       360,000  
                 
Employee options outstanding to purchase the Company’s common stock
    2,500,000       2,400,000  
                 
Series B-Preferred Stock and PIK dividends that provides for the conversion to common stock of the Company on a one to one ratio
    1,647,967       -  
                 
Series B-Warrants that can be converted to shares of common stock
    325,556       -  
                 
Conversion of notes
    388,889       -  
                 
Total potentially dilutive shares
    4,862,412       2,760,000  
 
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.

Fair Value of Financial Instruments
 
The carrying amounts of the Company’s financial instruments including accounts receivable, accounts payable and accrued expenses, customer deposits, accounts payable and accrued expenses-related parties, notes payable and convertible notes approximate fair value due to the relatively short period to maturity for these instruments.

Reclassification

Certain amounts from prior periods have been reclassified to conform to the current period presentation.
 
 
F-9

 
 
Recent Accounting Pronouncements

ASU No. 2011-03; Reconsideration of Effective Control for Repurchase Agreements.  In April, 2011, the FASB issued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.

The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.   In May, 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed.  This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs.  The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted.

The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income.  In June, 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Due to the recency of this pronouncement, the Company is evaluating its timing of adoption of ASU 2011-05, but will adopt the ASU retrospectively by the due date.

On September 15, 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other, which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment.  The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.

 
F-10

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2011

 
NOTE B – GOING CONCERN
 
As reflected in the accompanying financial statements, the Company has a working capital deficiency of $1,289,660, accumulated deficit of $6,382,305, net loss of $1,850,016 and negative cash flows from operations of $1,211,946 during the year ended September 30, 2011. 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 at September 30, 2011 and 2010 consists of:
 
   
2011
   
2010
 
Promissory note dated August 23, 2007
 
$
596,108
   
$
596,108
 
                 
Other
   
26,010
     
21,236
 
                 
     
622,118
     
617,344
 
                 
Less: current portion
   
609,082
     
13,428
 
                 
Total long term debt
 
$
13,036
   
$
603,916
 
 
Pursuant to the Promissory Note dated 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, 2011 and 2010, no payments of principal have been made as NuGen’s quarterly revenues, multiplied by the appropriate percentage and reduced by advanced payments 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).
 
The Company is delinquent in its quarterly payments due August 15, 2011 and November 15, 2011.  On January 6, 2012, New Generation Motors granted a waiver to defer these quarterly payments until March 7, 2012.
 
Pursuant to the Asset Purchase Agreement dated August 23, 2007, the Company agreed to pay certain past due rent for New Generation Motors Corporation.  The balance owed to the landlord pursuant to this agreement amounted to $6,178 at September 30, 2010.  This amount is non interest bearing and has no set repayment terms.  This balance was converted to a term loan in October, 2010.

In November 2007, the Company purchased computer equipment and issued a four year note payable, included in “Other” on the above table.  The balance due at September 30, 2011 and 2010 amounted to $272 and $3,219, respectively. The Company accrues interest on this loan at the rate of 18.45% per annum and makes monthly fixed payments of interest and principal.

 
F-11

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2011

In December 2009 and January 2010, the Company received $50,000 and $20,000, respectively as bridge loans. The loans bear interest at 5% per annum and were converted in January 2010 in exchange for 466,667 shares of the Company’s common stock in connection with its private placement.

In August 2010, the Company purchased computer equipment and issued a three year note payable, included in “Other” on the above table.  The balance due at September 30, 2011 and 2010 amounted to $7,548 and $11,839, respectively. The Company accrues interest on this loan at the rate of 0.38% per annum and makes monthly fixed payments of interest and principal.

In October 2010, the Company converted certain past due amounts for rent pursuant to the Asset Purchase Agreement dated August 23, 2007 and certain other past due rent, charges and late fees owed to the landlord incurred after August 23, 2007 to a term loan and is included in “Other” on the above table. The balance due at September 30, 2011 amounted to $18,190.  The Company accrues interest on this loan at the rate of 9.22% per annum and makes monthly fixed payments of interest and principal.

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 proceedings are instituted
 
The Company is in default of these agreements because it did not convert the promissory notes and accrued interest into common stock or repay the debt within the one year period.  The Company on January 6, 2012 began negotiations with these investors to convert this debt.  The Company believes it will be ultimately successful in converting this debt to stock per the original terms of the agreement.
 
NOTE D - INCOME TAXES

The Company provides for income taxes under ASC Topic 740 which requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently.   ASC Topic 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Therefore, the net deferred tax asset and income tax expense have been fully offset by a valuation allowance of $2,378,394 and $1,697,989 at September 30, 2011 and September 30, 2010, respectively and leaving a balance of $0 for both periods.

At September 30, 2011 the Company had net operating losses of approximately $6,000,000 for U.S. and state tax return purposes. Internal Revenue Code Section 382 places a limitation on future utilization of the federal and state net operating losses, to the extent that the Company incurs an ownership change as defined by Section 382. The Company has determined that it has experienced multiple ownership changes under Section 382. As a result of previous business combinations and changes in its ownership, there are NOLs that are subject to annual limitations on utilization. The U.S. NOLs begin to expire in 2021.

 
F-12

 

NUGEN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2011

For purposes of the reconciliation between the benefit (provision) for income taxes at the statutory rate and the effective tax rate, a national U.S. 34% rate is applied as follows as of September 30, 2011 and 2010:

   
2011
   
2010
 
Federal statutory tax rate
   
34.0
%
   
34.0
                 
State taxes, net of federal benefit
   
3.9
     
3.9
 
                 
Other
   
(6.4
)
   
(1.0
)
                 
Valuation allowance
   
(31.5
)
   
(36.9
                 
Effective tax rate
   
0.0
   
0.0
 
Deferred tax assets and liabilities that arise as a result of temporary differences are as follows September 30, 2011 and 2010:

   
2011
   
2010
 
Accounts receivable allowance
 
$
41,718
   
$