Attached files
| file | filename |
|---|---|
| EX-10.1 - NUGEN HOLDINGS, INC. | v207525_ex10-1.htm |
| EX-10.7 - NUGEN HOLDINGS, INC. | v207525_ex10-7.htm |
| EX-10.8 - NUGEN HOLDINGS, INC. | v207525_ex10-8.htm |
| EX-31.1 - NUGEN HOLDINGS, INC. | v207525_ex31-1.htm |
| EX-32.1 - NUGEN HOLDINGS, INC. | v207525_ex32-1.htm |
| EX-32.2 - NUGEN HOLDINGS, INC. | v207525_ex32-2.htm |
| EX-31.2 - NUGEN HOLDINGS, INC. | v207525_ex31-2.htm |
| EX-10.29 - NUGEN HOLDINGS, INC. | v207525_ex10-29.htm |
| EX-10.28 - NUGEN HOLDINGS, INC. | v207525_ex10-28.htm |
| EX-10.21 - NUGEN HOLDINGS, INC. | v207525_ex10-21.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, 2010
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)
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Delaware
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26-1946130
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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44645
Guilford Drive
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Suite
201
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Ashburn,
Virginia
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20147
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(Address
of principal executive offices)
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(Zip
Code)
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(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
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. o Yes x No
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. x
Yes o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 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). o Yes o No
Indicate
by checkmark 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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “larger accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Larger
accelerated filer o
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Accelerated
filer o
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Non -
accelerated filer o
(Do not check if a smaller reporting
company) Smaller reporting
company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No
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 $2,725,001.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date: 56,294,064 shares of common stock,
$0.001 par value, were outstanding on January 11, 2011.
DOCUMENTS
INCORPORATED BY REFERENCE
None
NuGen
Holdings, Inc.
FORM
10-K
TABLE
OF CONTENTS
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Page
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PART
I
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3
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ITEM
1. BUSINESS
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3
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ITEM
1A. RISK FACTORS
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10
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ITEM
1 B. UNRESOLVED STAFF COMMENTS
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10
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ITEM
2. PROPERTIES
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10
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ITEM
3. LEGAL PROCEEDINGS
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10
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PART
II
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10
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ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
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10
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ITEM
6. SELECTED FINANCIAL DATA
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11
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ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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12
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ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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17
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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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17
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ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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17
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ITEM
9A. CONTROLS AND PROCEDURES
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18
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ITEM
9B. OTHER INFORMATION
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18
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PART
III
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18
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ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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18
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ITEM
11. EXECUTIVE COMPENSATION
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21
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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26
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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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27
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ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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28
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PART
IV
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28
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ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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28
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2
PART
I
ITEM
1. BUSINESS
Corporate
Background
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. 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. Following the purchase, we declared a stock dividend of 8.7
shares for every share of our common stock issued and outstanding, and
accordingly, issued pursuant to such stock dividend, 870,000 shares of common
stock to Exchequer, Inc. Contemporaneously therewith, we also issued 1,530,000
shares of common stock to five investors for an aggregate purchase price of
$153,000, of which Exchequer purchased 30,000 shares for $3,000.
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 and would pursue a strategic plan to reduce
certain food, pharmaceutical and other products’ costs by using new
technologies. Due to the uncertainty of the state of the economy and the
inability to raise needed capital, InovaChem was unable to pursue this
opportunity, abandoned this strategic plan and sought to acquire an operating
company, which culminated in January 2010 in our acquisition of NuGen Mobility,
Inc. We continue to own the net assets (approximately $(62,000)) of the
Trinterprise business though we do not have any intention of exploiting such
assets. Until our acquisition of NuGen Mobility, we had not engaged in any
significant operational activities and our business activities have generally
been limited to organizational matters, the filing of reports with the SEC and
the search for a viable business opportunity.
NuGen was
organized as a Delaware corporation on September 8, 2006 under the name “NuGen
Mobility, Inc.” for the purpose of engaging in research, development and
manufacture of permanent magnet electric motors and related electric
controls.
In August
2007, NuGen 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. NuGen Mobility and New Generation Motors
had different boards of directors, different officers and different
stockholders. Some of New Generation Motors engineers were hired by NuGen
Mobility. Eric Takamura, the Company’s chief executive officer, had a minor
interest (1.75% ownership) in New Generation Motors, where he served as chief
operating officer. Mr. Takamura believed that the New Generation Motors board
and stockholders were not taking an active role in the company and it was
effectively insolvent. Believing in its value and potential, Mr. Takamura
decided to form NuGen Mobility and purchase New Generation Motors’ assets. None
of New Generation Motors' shares were held by our affiliates at the time of
NuGen Mobility's acquisition of the assets of New Generation
Motors.
We have
used our technology in the solar racing car business, which market requires the
most advanced systems and technology. 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.
Recent
Developments and Change in Control
Merger
and Changes in Control
On
January 29, 2010, pursuant to the Merger Agreement dated January 29, 2010 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.
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.
Effective
upon the closing of the Merger, William Zuo, Shao Jun Xu and Xiaojing Li
resigned from all of 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 and Michael Kleinman remained on the board of directors of our
company.
3
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.
Debt
Conversion and Redemption
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 6,103,167 shares of common stock
(“Debt Conversion”). Included in this amount was $465,476 of indebtedness owed
Ronald Takamura, brother of our 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.
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
5,884,167 shares redeemed from our former Chairman & CEO, William Zuo;
5,884,167 shares redeemed from our former Secretary and VP, Xiaojing Li; 71,667
shares redeemed from our current officer and director, Henry Toh; and 3,433,333
shares redeemed from our former Chief Science and Technical Officer, Shao Jun
Xu.
Private
Placement
On
February 11, 2010, we closed on the private placement and we issued an aggregate
of 9,866,668 shares of common stock in a private placement (the “Private
Placement”) at a purchase price of $0.15 per share for aggregate gross proceeds
of approximately $1,480,000. Said amount excludes 466,667 shares issued to an
individual upon conversion of his $70,000 accounts payable. Each investor in
such private placement had the right to purchase an option from Eric Takamura,
our Chairman, Chief Executive Officer, President and a director, to purchase
until January or February 2012, up to 50,000 shares of his common stock for an
exercise price of $0.50 per share. The purchase price of this option was $250,
and an aggregate of 2,595,000 shares are subject to purchase from Eric Takamura.
We accepted some investments for less than $25,000 and there were also investors
who chose to purchase fewer options than they were entitled to purchase. A total
of 33 investors purchased options to purchase an aggregate of 2,595,000
shares.
In
connection with this private placement, we issued Martinez-Ayme Securities
(“Martinez”), the placement agent, 1,000,000 shares of common stock and a cash
commission of $52,725 as a result of the consummation of the Private
Placement.
In
connection therewith, Mr. Takamura, our chief executive officer, pledged
1,000,000 shares of common stock he owns to a representative of eleven of the
investors to secure his obligation to transfer to such investors his shares if
we issue prior to August 11, 2011, with certain exceptions, shares of common
stock or securities convertible into common stock at a price below $0.15 per
share. We also entered into an agreement with a representative of these eleven
accredited investors confirming that such investors have the right, but not the
obligation, to purchase, in the aggregate, a minimum of $500,000 and a maximum
of $700,000 of our Class A Preferred Stock (the “Preferred Stock”) at a price of
$0.15 per share. This right is exercisable beginning on the effective date of
our registration statement until August 10, 2010, subject to a 60 day extension
if the registration statement is not effective by August 10, 2010. The investors
may exercise this right on August 10, 2010 even if the registration statement is
not effective by such date. Although we have not been contacted by these persons
or their representatives, we believe that the investors may have the right to
exercise their right to purchase the Preferred Stock even though the 60 day
period has expired. We also issued the representative of such investors warrants
to acquire until March 16, 2011, 360,000 shares of our common stock at an
exercise price of $0.001 per share. We have not yet filed a certificate of
designation designating this Preferred Stock. Since we have not heard from the
investors or their counsel, negotiations regarding the terms of the certificate
of designation with respect to the Series A Preferred Stock have not commenced.
When authorized, we expect that the preferred stock will be convertible into one
share of common stock and be subject to adjustment for issuances of securities
to third parties at a price less than $0.15 per share on a “full-ratchet basis”
(i.e., so that we shall issue, free of charge to each holder of such preferred
stock, such additional shares of Preferred Stock so that the total number of
shares held by the such holder equals that number that would have been issued at
the lower price) during the 18 months following a closing with respect to such
issuance. We also expect to provide the holders pre-emptive rights and the right
to designate one person to serve as a member of our board of directors. Upon
exercise of the right to purchase the Preferred Stock, the investors will also
receive options, warrants or other similar rights to acquire our common stock
equal to the total value of the investors’ investment in the Preferred Stock,
based on a share value of $0.15 per share. Since we have not commenced
negotiating the terms of the certificate of designation, we are unsure as to the
form the options, warrants or similar rights would take. We have not heard from
the potential purchasers of the preferred stock or their counsel regarding this
transaction. However, there will be included in either the terms of the
Preferred Stock or pursuant to a separate convertible security, the right to
purchase an additional share of common stock from Mr. Eric Takamura at $0.15 per
share.
4
We
tentatively agreed that if we would ever grant certain rights to shareholders
holding a prescribed percentage of our stock, the holders of the preferred
shares would have the right to cumulate their shareholdings to determine if they
are entitled to such rights. For example, if we would ever provide that more
than 70% of the holders of our shares could require us to file a registration
statement on their behalf, the holders of the preferred shares could aggregate
their holdings to be part of that group. We also agreed to give these 11
investors an additional 10% of the value of their investment in preferred stock
based on a share value of $0.15 per share. The exact value of such additional
equity and the form of the additional consideration and the method for
determining such value has not yet been negotiated and is presently unknown. If
and when the preferred shares are purchased, each investor will also have the
right for 18 months to purchase shares of common stock from Mr. Takamura for an
exercise price of $0.50 per share.
Business
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:
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•
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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
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low
or zero emissions.
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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.
We are in
the process of applying for several U.S. government grants under the American
Recovery Act to facilitate domestic manufacturing and/or sales. If and when
federal grant money becomes available to us, we hope to move quickly to
commercial agreements for the US domestic market.
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). Our relationship with Mahindra has not changed, but the
development of the project has progressed since we first entered the contractual
relationship with Mahindra. The initial phase of the agreement was the
preliminary conceptual work and technology demonstrated to prove that the
intended targets were feasible. Upon completion of this phase and the
consummation of the 2008 agreement with Mahindra, we entered into the June 2009
technical assistance agreement with an objective to complete the final
production design, including setting up the necessary tooling for manufacture.
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. The
total amount payable under this agreement is approximately $726,000(including
approximately $30,000 in reimbursable travel expenses), of which we have billed
Mahindra approximately $633,000 and have been paid approximately $558,000 to
date. We have been delayed in fulfilling this contract because of a six month
delay in the commencement of the project, changes in the allocation of resources
requested by Mahindra and engineering changes that arose during the project due
to internal market feedback requiring modifications for mounting purposes and
use on additional vehicle platforms that Mahindra is considering.
Notwithstanding these delays, the first two payments were paid in accordance
with the agreement with Mahindra. The third payment was paid 9 months after the
scheduled payment date and we have yet to invoice Mahindra for the final
payments due to the delay in the project. The agreement may be terminated
by Mahindra at any time upon 30 days prior notice.
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 thereunder 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 powertrain or new powertrain 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 powertrain 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. We were paid approximately $132,000 under 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, effective September 2009, 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 in late 2010 or early 2011 are being considered with BSA
Motors.
• Further
extension of this vertical market includes such applications as electric
all-terrain vehicles (where 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.
•
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.
7
We hope
to market our advanced electric propulsion systems and components to vehicle
original equipment manufacturers 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 continues 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. In addition, the U.S.
government's Stimulus Bill is expected to award substantial financial grants and
loans to companies engaged in the development and manufacture of energy
efficient, low emission vehicles and the components that enable their operation.
Companies that receive awards under the Stimulus Bill may have substantially
greater financial resources available to them which could improve their ability
to compete with us. 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.
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.
8
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
can vary due to many factors. 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.
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.
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.
India PCT
# 822/MUM/2003- -Compact Drive system for Electrically operated road vehicle-the
Company is in the process of seeking the reinstatement of this lapsed
patent.
9
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 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. No
portion of our current business relies on this patent as it is a form patent
covering the product that was licensed to Bajaj Auto under the master license
agreement with New Generation Motors. In the future, when and if Bajaj Auto
begins production, and if we are able to negotiate an agreement with Bajaj Auto,
then it will apply to those sales.
Employees
We
currently have 14 full-time employees and one part-time employee.
ITEM
1A. RISK FACTORS
Not
Required
ITEM
1 B. UNRESOLVED STAFF COMMENTS
Not
Required.
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. We lease an additional 6,550 square feet of office
space in 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. Our
property is not the subject of any pending legal proceedings.
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.
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,
2010.
10
|
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)
|
2,400,000
|
$ |
0.40
|
2,600,000
|
||||||||
|
Equity
Compensation Plans Not Approved by Security Holders
|
||||||||||||
|
(1)
|
Represents
options to purchase an aggregate of 1,500,000 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. Additional options to purchase an aggregate of 500,000 shares of
our common stock at $0.45 per share were 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.
|
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 5,000,000 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 January 11, 2011,
options to purchase 2,400,000 shares of common stock were outstanding and
2,600,000 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.
Purchases
of equity securities by the issuer and affiliated purchasers
None.
ITEM
6. SELECTED FINANCIAL DATA
Not
required
11
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
We
caution readers that this Form 10-K includes “forward-looking statements”
.Forward-looking statements are based on current expectations rather than
historical facts and they are indicated by words or phrases such as
“anticipate,” “could,” “may,” “might,” “potential,” “predict,” “should,”
“estimate,” “expect,” “project,” “believe,” “intend,” “plan,” “envision,”
“continue,” target,” “contemplate,” or “will” and similar words or phrases or
corporate terminology. We have based such forward-looking statements on our
current expectations, assumptions, estimates and projections. While we believe
these expectations, assumptions, estimates and projections are reasonable, such
forward-looking statements are only predictions and involve known and unknown
risks and uncertainties and other factors that may cause actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements, many of which are beyond our control.
Some of
the factors that could affect our financial performance, cause actual results to
differ from our estimates or underlie such forward-looking statements are set
forth in various places in this Form 10-K. These factors include, but are not
limited to:
|
|
o
|
our
ability to evaluate and predict our future operations and expenses, being
an early stage development company with limited assets and no current
operations,
|
|
|
o
|
the
possibility of future product-related liability
claims,
|
|
|
o
|
our
future capital needs and our ability to obtain
financing,
|
|
|
o
|
our
ability to protect our intellectual property and trade secrets, both
domestically and abroad,
|
|
|
o
|
expenses
involved in protecting our intellectual property and trade
secrets,
|
|
|
o
|
our
ability to attract and retain key management, technical, and research and
development personnel,
|
|
|
o
|
our
ability to research and develop new technology and design and
manufacturing techniques,
|
|
|
o
|
technological
advances, technology for new and competing products, and new design and
manufacturing techniques developed by our
competitors,
|
|
|
o
|
anticipated
and unanticipated trends and conditions in our
industry,
|
|
|
o
|
our
ability to predict consumer
preferences,
|
|
|
o
|
changes
in the costs of operation,
|
|
|
o
|
our
ability to compete,
|
|
|
o
|
our
ability to manage growth and carry out growth strategies, including
international expansion,
|
|
|
o
|
possible
necessity of obtaining government approvals for both new and continuing
operations,
|
|
|
o
|
risks,
expenses and requirements involved in operating in various foreign
markets, including India and China,
|
|
|
o
|
exposure
to foreign currency risk and interest rate
risk,
|
|
|
o
|
possible
foreign import controls and United States-imposed
embargoes,
|
|
|
o
|
possible
disruption in commercial activities due to terrorist activity, armed
conflict and government instability,
and
|
|
|
o
|
other
factors set forth in this Form
10-K.
|
You are
cautioned not to place undue reliance on these forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements to
reflect new information or the occurrence of unanticipated events or
otherwise.
Recent
Developments
On
January 29, 2010, we completed the acquisition of NuGen Mobility. As a result of
this merger, we are now engaged in the research, development and sale of
permanent magnet electric motors and the electronic controls for such motors.
Our offices are located in Ashburn, Virginia. Our revenue is derived primarily
from contract research and development services to customers in the automotive
and industrial markets.
12
Our
merger with NuGen Mobility has been accounted for as a recapitalization rather
than as a business combination. As a result, the historical financial statements
of NuGen Mobility are the historical financial statements. Accordingly, our
financial statements subsequent to the merger consist of the balance sheets of
NuGen Holdings, Inc. and NuGen Mobility, Inc., the historical operations of
NuGen Mobility, Inc. and the operations of both NuGen Holdings and NuGen
Mobility from January 29, 2010 (date of merger) forward. As a result of the
merger, the historical financial statements of NuGen Holdings, Inc. for the
period prior to January 29, 2010, are not presented herein.
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, we reflect our revenue in one line on our financial
statements.
Results
of Operations— Comparison of Fiscal Years ending September 30, 2010 and
2009
Revenues. Our sales decreased
by $363,858 to $432,990 for the fiscal year ended September 30, 2010 from
$796,847 for the fiscal year ended September 30, 2009. For the fiscal year ended
September 30, 2010 the Company had $186,339 in sales to Mahindra, pursuant to
our Technical Assistance Agreement dated June 9, 2009, $140,169 in sales to BSA
Motors, $77,388 in sales pursuant to our SBIR contract with the Department of
Defense and $29,094 in sales to various solar car race participants, versus
sales for the fiscal year ended September 30, 2009 of $671,649 to Mahindra,
pursuant to our Technical Assistance Agreements with Mahindra and $125,198 in
sales to various solar car race participants. The fiscal 2010 sales to BSA
Motors were primarily for engineering services.
The
agreements with Mahindra were structured in this matter to enable us to divide
the project into manageable segments. The preliminary conceptual work and
demonstration of the technology in the initial phase with Mahindra proved that
the intended targets were feasible and generated $465,503 in sales. When we
entered into the second phase with Mahindra by executing the Technical
Assistance Agreement dated June 30, 2009, our objective was the final production
design and setup for any toolings required for manufacturing in order to proceed
to mass production phase. We were more focused on achieving this objective than
on the amount of sales this contract would generate. Accordingly, we only
generated $186,339 in sales from this agreement in fiscal 2010. In the future,
as we expect our technology to be more acceptable we would hope to generate more
revenues as our contractual relationship with our customers continue. We do not
expect to have less revenues from a customer but hope to increase the amount of
revenues generated from each customer.
Gross Profit (Loss). Our
gross (loss) was $259,825 for the fiscal year ended September 30, 2010 versus a
gross profit of $211,860 for the fiscal year ended September 30, 2009, primarily
due to lower revenues in 2010 and increases in direct labor expenses in 2010
versus 2009 as staffing levels were increased from 6 employees in fiscal 2009 to
14 employees in fiscal 2010. The new staff consists of an additional engineer as
well as increases to the production staff.
Operating Expenses. Our
operating expenses increased by $926,099 for the fiscal year ended September 30,
2010 from $376,854 for the fiscal year ended September 30, 2009. Operating
expenses consist primarily of compensation, rent and office, professional fees
and travel expenses. The increase consisted primarily of an increase in our
compensation expense of $624,659. $469,937 of the increase was due primarily to
the increase in the number of executive officers receiving compensation (four in
2010 compared to only one executive in 2009) which includes an increase in the
rate of compensation paid to such officers, in fiscal 2010 as compared to fiscal
2009, of approximately $320,000. We currently estimate that the current
compensation rates will remain steady in the short term. Professional fees and
travel expenses were increased due to the increased cost of being a publicly
reporting company as well as additional travel expense associated with the
increased number of executive officers in 2010.
Other Expenses. These
expenses consist of interest expense and foreign currency transaction losses.
Interest expense for fiscal 2010 decreased by $97,253 from $157,515 in 2009
primarily due to the conversion of a large portion of our debt to equity in
January 2010. Additionally, the bridge loans made by our Chairman and CEO, Eric
Takamura, were forgiven at the end of our fiscal 2009 year resulting in reduced
interest expense in 2010.
Results
of Operations— Comparison of Fiscal Years Ending September 30, 2009 and
2008
Revenues. Our sales increased
by $172,152 to $796,847 for the year ended September 30, 2009 from $624,695 for
the year ended September 30, 2008. The increase in revenues was primarily due to
an increase in sales to Mahindra, pursuant to our Technical Assistance Agreement
dated June 9, 2009, consisting primarily of engineering services, in the amount
of $176,649. The Company also had an increase in its sales to solar car race
participants in the amount of $3,913 and decreases in its sales to the US
Department of Defense’s Small Business Innovation Research (“SBIR”) program of
$7,927.
13
Gross Profit. Our gross
profit increased by $169,865 to $211,860 for the year ended September 30, 2009
from $41,995 for the year ended September 30, 2008. The increase in gross profit
was primarily due to$172,152 increase in our sales, increases in our direct
costs of $51,601 and decreases in our direct labor costs of $49,315. The
increases in our direct costs was the result of the Mahindra work done in fiscal
year 2009 which included the building and delivering of certain prototype motors
and controllers. The Mahindra services provided in FY 2008 were strictly for
engineering services pursuant to our Technical Assistance Agreement dated
February 22, 2008. The decrease in direct labor costs was due to allocating less
of our engineers’ time to specific jobs.
Operating Expenses. Our
operating expenses decreased by $5,485 for the year ended September 30, 2009
from $382,339 for the year ended September 30, 2008. Operating expenses consist
primarily of compensation, rent and office, professional fees and travel
expenses. The increase consisted primarily of an increase in our compensation
expense of $53,484 due to the additional expense of hiring more employees as
well as a lesser allocation of engineer’s wages to direct labor. Our rent and
office expense increased by $9,415; our travel expense increased by $5,719; and,
other expenses increased by $6,928. These expenses were reduced by a decrease in
our professional fees expense of $81,031 due to a decrease in our consultation
with legal counsel.
Other Expenses. These
expenses consist of interest expenses. Interest expenses for fiscal 2009
increased by $8,276 from $149,239 in 2008 primarily due to a higher level of
indebtedness in fiscal 2009 than in 2008. The bridge loans made by our Chairman
and CEO, Eric Takamura, were forgiven at the end of our fiscal 2009 which had no
effect on the interest expense in fiscal 2009.
Liquidity
and Capital Resources
Our
principal source of funds has been equity provided by our stockholders, various
borrowings (including borrowings from a principal stockholder) and sales to our
customers. Our principal use of funds has been for operating expenses and direct
labor costs. We estimate that we have sufficient funds to continue operations
until approximately March 2011 (without giving effect to exercise of options to
acquire our Series A Preferred Stock which if exercised, as to which no
assurance can be given, would raise between $500,000 to $700,000) and we will
require additional funds to continue operations thereafter. There can be no
assurance that we will be able to raise such funds if and when we wish to do so
or on terms acceptable to us. This raises substantial doubt about our ability to
continue as a going concern. Specifically, in the event that we are not
successful at raising capital to a level sufficient to pay our expenditures, we
are prepared to reduced our administrative overhead and reduce our marketing and
public relations expenditures. If we are unable to cut expenses to earn profits
or raise additional debt or equity capital we will have to discontinue
operations. The doubt about our ability to continue as a going concern was
reflected in the opinion of our auditors expressed with respect to our financial
statements for the years ended September 30, 2010 and 2009 which opinion was
qualified on a “going concern basis”. The auditors noted that in light of our
negative cash flow from operations, our working capital deficiency and
stockholders’ deficiency, there was substantial doubt about our ability to
continue as a going concern. Management currently intends to attempt to raise
additional capital through public or private offerings, the conversion of its
preferred stock option, the acquisition of a company; or merger with or into
another company.
Our
working capital was $708,475, at September 30, 2010 compared to a working
capital deficiency of $801,592 at September 30, 2009. Net cash used in operating
activities was $1,492,451 and $154,326 for the fiscal years ended September 30,
2010 and 2009, respectively. Cash flow used in operations increased during the
2010 fiscal year primarily due to the increase in our net loss. Cash flows from
financing activities provided, in the fiscal year ended September 30, 2010,
$2,310,627 and was primarily due to the net proceeds from the sale of our equity
securities as well as two bridge loans, which were converted in the Private
Placement to common stock. At September 30, 2010, we had $863,876 of cash on
hand.
In
connection with the private offering of our common stock, on January 29, 2010
and February 16, 2010, we 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 we issued 1,000,000 shares to our placement agent
in connection with the offering. We 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.
14
On
September 29, 2010, and December 5, 2010, we entered into subscription
agreements with foreign accredited investors pursuant to which, among other
things, we issued an aggregate of 5,500,000 shares and 412,500 shares of our
common stock, par value $0.001 per share, at a purchase price of $0.16 per
share, for aggregate gross proceeds of $880,000 and $66,000, 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.
As of
September 30 2010, we had a total of $617,344 of debt outstanding. The primary
component of this total, $596,108 owed to New Generation Motors, is the only
material financing agreement that we have in place at the present time. Also,
the exercise of options to acquire our Series A Preferred Stock could
potentially raise between $500,000-$700,000. We are not currently in default
with respect to any material financing arrangement.
At
September 30, 2009, the loans with Four M and Jardine were in technical default
because NuGen Mobility did not provide the lenders with the financial
information required pursuant to the loan and had not paid principal or interest
which was due. The notice regarding such default was provided on January 22,
2009. Accordingly, they are classified under the current portion of long-term
debt on our balance sheets. These loans were converted to equity in the Merger
in January 2010.
Critical
Accounting Policies
We have
identified the accounting policies outlined below as critical to our business
operations and an understanding of our results of operations. The list is not
intended to be a comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management's judgment in their application.
Revenue and Cost Recognition
- We
currently generate revenue primarily from contract research and development
services and may derive additional revenues in the future from the sale of our
products to customers. Our products are specialty electric drive engines and
related components. These products are a direct result of the services to design
and build each unit, which each are built to each customer’s specifications. We
account for the products sold as one unit. We intend in the future to derive
revenue from sales of products and will recognize the sale at the time title to
the goods and the benefits and risks of ownership passes to the customer which
is typically when products are shipped based on the terms of the customer
purchase agreement.
Some
customers are asked to provide deposits prior to the Company accepting their
orders. Customer Deposits are reflected on the balance sheet as a current
liability and are reclassified to revenue at the time when title to the goods
and the benefits and risks of ownership passes to the customer.
Revenue
relating to long-term fixed price contracts is recognized using the percentage
of completion method. Under the percentage of completion method, contract
revenues and related costs are recognized based on the percentage that costs
incurred to date bear to total estimated costs.
The
Company recently entered into Small Business Innovation Research contracts with
both the US Army and the US Navy, the revenue under these contracts will be
recognized in the same period as allowable and billable costs are
incurred.
Changes
in job performance, estimated profitability and final contract settlements may
result in revisions to cost and revenue, and are recognized in the period in
which the revisions are determined. 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.
In
accordance with ASC 360, "Accounting for the Impairment or Disposal of
Long-Lived Assets", we review the carrying value of intangibles and other
long-lived assets for impairment at least annually or whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value.
At
inception, we 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. We value any
employee or non-employee stock based compensation at fair value using the
Black-Scholes Option Pricing Model.
15
Recent
Accounting Pronouncements
In May
2009, the FASB issued ASC 805 “Subsequent Events”. ASC 805 establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. ASC 805 sets forth (1) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. ASC 805 is
effective for interim or annual financial periods ending after June 15, 2009.
The adoption of this statement did not have a material effect on our financial
statements.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860. ASC
860 improves the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial statements
about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. ASC 860 is effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. We are
evaluating the impact the adoption of ASC 860 will have on our financial
statements.
In June
2009, the FASB issued ASC 105 Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting
Standards Codification TM (the “Codification”) has become the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with generally accepted accounting principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative GAAP for SEC registrants. Effective September 30, 2009, all
references made to GAAP in our consolidated financial statements will include
references to the new Codification. The Codification does not change or alter
existing GAAP and, therefore, will not have an impact on our financial position,
results of operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on our financial position,
results of operations or cash flows.
Off
Balance Sheet Arrangements
In August
2007, our subsidiary, NuGen Mobility entered into an asset purchase agreement
pursuant to which it acquired substantially all of the assets, and specified
liabilities of New Generation Motors Corporation, a Delaware corporation. The
agreement requires the payment to New Generation Motors of $1,000,000 pursuant
to a promissory note, which bears simple interest at the rate of six percent.
The principal amount of this note was reduced to $596,108 by the application of
$403,892 in credits. These credits consist of:
|
|
(i)
|
an
aggregate of $273,741 in operational loans made by our principal
shareholders to New Generation Motors to allow them to continue operations
prior to August 2007,
|
|
|
(ii)
|
$101,804
in customer deposits that they retained though we were responsible for
fulfilling such customer orders,
and
|
|
|
(iii)
|
$29,068
in amounts we agreed to pay to New Generation Motors’s landlord for back
rent.
|
The
principal and interest on the loan is to be repaid, on a quarterly basis, until
all amounts due thereon have been paid. The amount of each payment is equal to
the greater of:
|
|
(i)
|
$7,500,
and
|
|
|
(ii)
|
the
product obtained by multiplying our Gross Revenues (as defined) for the
quarter by the applicable percentage
rate.
|
16
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 $ 67,500
has been paid (nine 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.
Although
the purchased assets included a license agreement with Bajaj Auto pursuant to
which Bajaj Auto licensed our technology which is embedded in Bajaj Auto’s
three-wheel Auto-Rickshaw , we do not have a consent from Bajaj Auto to the
assignment of this agreement with New Generation Motors to us or any other
agreement with Bajaj Auto. Bajaj Auto is an Indian based manufacturer of two and
three-wheel vehicles.
As part
of the asset purchase agreement, we agreed to assume New Generation Motor’s
commitment to reimburse a conditional grant of $700,000 that they had received
from The ICICI Limited, an Indian public banking company (“ICICI”). We do not
have a written assignment from ICICI Limited regarding our assumption of this
commitment. This conditional grant is only required to be paid back once Bajaj
Auto is required to begin paying licensing fees under the license agreement. If
the agreement had been assigned to us by Bajaj Auto, we would have been
obligated to pay ICICI a royalty on licensing fees received from Bajaj Auto
until $1,400,000 is repaid based upon a schedule in the agreement, as may be
adjusted to reflect actual sales as provided in the agreement. Additionally, the
Indian export bank also provided a loan of $500,000 to New Generation Motors. In
connection with this asset purchase agreement, NuGen Mobility assumed this
$500,000 loan on the condition that the loan would be converted to a conditional
grant (similar to the conditional grant executed by New Generation Motors and
ICICI in 2001). In 2006, both New Generation Motors and ICICI agreed to convert
this second $500,000 loan to a conditional grant under the same terms and
conditions as the previous 2001 agreement. We have commenced discussions with
ICICI with respect to an agreement for the conditional grant which we currently
expect to enter into by March 2011. However, we currently do not have a signed
document indicating such agreement and there can be no assurances that our
discussions will result in such conditional grant agreement. To date, no demand
has been made to us for payment; accordingly, we do not reflect this as a
liability on our balance sheet but rather we include it under “Commitments and
Contingencies” in our financial statement footnotes.
As of
September 30, 2010, no payments are owed to ICICI, as Bajaj Auto 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
See pages
F-1 to F-16 appearing at the end of this 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. On December
28, 2009, we changed auditors as reported in our Form 8-K filed on December 29,
2009.
17
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, 2010. 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.
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, 2010. 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, 2010, 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, 2010.
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
|
41
|
Chairman,
Chief Executive Officer, President and Director
|
||
|
John
Salatino
|
55
|
Vice
President of Engineering and Programs
|
||
|
Henry
Toh
|
53
|
Vice
Chairman, Executive Vice President of Corporate Development and
Director
|
||
|
Alan
Pritzker
|
56
|
Chief
Financial Officer and Secretary
|
||
|
Michael
Kleinman, M.D.
|
54
|
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.
18
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.
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 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. Mr. Toh is currently
serving as a director of four other publicly traded companies. Since April 2007,
Mr. Toh has served as a director of American Surgical Holdings Inc, a
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.
19
Alan
Pritzker, Chief Financial Officer
Mr.
Pritzker has served as Chief Financial Officer and Secretary of InovaChem since
February 2008. Mr. Pritzker’s corporate experience includes supervision of
finance, accounting, information technology, office services, human resources
and risk management. Additionally, Mr. Pritzker has expertise in SEC reporting
having been the chief financial officer of publicly traded entities for over 16
years. Mr. Pritzker is employed by North Point Consultants, Inc. (“North
Point”), a consulting firm that he founded in 2001. North Point provides
accounting and administrative services to various companies. Mr. Pritzker was
the Chief Financial Officer of Labock Technologies, Inc., an armored vehicle and
armoring products manufacturer, from March 2005 until December 2006 and was
Chief Financial Officer of Commodore Cruise Lines, a publicly traded cruise line
company from July 1995 until May 2002. Mr. Pritzker was the principal accounting
officer of Regency Cruises from 1985 to 1995. Prior thereto, Mr. Pritzker was
employed by Holland America Line and Vacation Travel Concepts in various
accounting and finance positions. Mr. Pritzker is a graduate of Brooklyn
College.
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 company
quoted on the Over the Counter Bulletin Board, 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.
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.
20
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 $100,000 during our 2010 fiscal
year.
SUMMARY
COMPENSATION TABLE
| Non-Equity |
Nonqualified
|
All
|
||||||||||||||||||||||||||||||||
|
Name and
|
Stock
|
Option
|
Incentive Plan
|
Deferred
|
Other
|
|||||||||||||||||||||||||||||
|
Principal
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Compensation
|
Compensation
|
Total
|
||||||||||||||||||||||||||
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
Earnings ($)
|
($)
|
($)
|
|||||||||||||||||||||||||
|
Eric
Takamura
|
2010
|
135,000 | 30,000 | - | 135,000 | (8)(9) | - | - | - | 300,000 | ||||||||||||||||||||||||
|
Chairman
and Chief Executive Officer
|
2009
|
150,000 | (1) | - | - | - | - | - | - | 150,000 | ||||||||||||||||||||||||
|
Henry
Toh
|
2010
|
67,500 | (2) | - | - | 67,500 | (8)(9) | - | - | - | 135,000 | |||||||||||||||||||||||
|
Executive
Vice President of Corporate Development
|
2009
|
37,500 | (3) | - | - | - | - | - | - | 37,500 | ||||||||||||||||||||||||
|
John
Salatino
|
2010
|
92,308 | 20,000 | - | 60,000 | (8)(9) | - | - | - | 172,308 | ||||||||||||||||||||||||
|
Vice
President of Engineering
|
2009
|
- | - | - | - | - | - | - | ||||||||||||||||||||||||||
|
Alan
Pritzker
|
2010
|
105,000 | (4) | 10,000 | - | 22,500 | (8)(9) | - | - | - | 137,500 | |||||||||||||||||||||||
|
Chief
Financial Officer
|
2009
|
31,250 | (5) | - | - | - | - | - | - | 31,250 | ||||||||||||||||||||||||
|
William
Zuo (7)
|
2010
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
|
Former
Chairman and Chief Executive Officer
|
2009
|
75,000 | (6) | - | - | - | - | - | - | 75,000 | ||||||||||||||||||||||||
21
(1) The
base salary represents accrual of salary for the year ending September 30, 2009.
Mr. Takamura was never paid his compensation for the year ending September 30,
2009 and forgave the debt owed him by the Company for unpaid salary, as well as
other debts owed him, as of September 30, 2009. Includes his compensation from
NuGen Mobility for services rendered to NuGen Mobility prior to our acquisition
of such entity.
(2)
Beginning January 1, 2010 Mr. Toh receives compensation of $7,500 per
month.
(3)
Represents a pro rata three-month accrual of Mr. Toh’s annual base salary
of $150,000 for the period October 1, 2008, through December 31, 2008. Mr. Toh
was entitled to receive an annual base salary of $150,000, subject to review and
increase at our board of directors' discretion. We deferred payment of $63,750
to Mr. Toh until such time as our financial situation would permit payment of
such compensation. Mr. Toh forgave such accrued salary in November 2009,
pursuant to the written Forgiveness of Debt filed as Exhibit 10.24. All deferred
amounts are reflected in the table. The total cash amount paid to Mr. Toh in
fiscal 2009 was $5,625. From January 1, 2009, through December 31, 2009, we did
not pay or accrue salary for Mr. Toh.
(4) From
October 1, 2009 through December 31, 2009, we paid Mr. Pritzker $5,000 per
month. Beginning January 1, 2010 Mr. Pritzker receives compensation of $10,000
per month.
(5)
Represents a pro rata three-month accrual of Mr. Pritzker’s annual base
salary of $125,000 for the period October 1, 2008, through December 31, 2008.
Pursuant to the terms of his employment agreement, Mr. Pritzker was entitled to
receive an annual base salary of $125,000, subject to review and increase at our
board of directors' discretion. We deferred payment of $32,500 to Mr. Pritzker
until such time as our financial situation would permit payment of such
compensation. Mr. Pritzker forgave such accrued salary in November 2009,
pursuant to the written Forgiveness of Debt filed as Exhibit 10.25. All deferred
amounts are reflected in the table. The total cash amount paid Mr. Pritzker in
fiscal 2009 was $15,000. From January 1, 2009 through September 30, 2009, we
paid Mr. Pritzker $5,000 per month.
(6)
Represents a pro rata three-month accrual of Mr. Zuo’s annual base salary
of $300,000 from October 1, 2008, through December 31, 2008. Pursuant to the
terms of his employment agreement, Mr. Zuo was entitled to receive an annual
base salary of $300,000, subject to review and increase at our board of
directors' discretion. We deferred payment of $127,500 to Mr. Zuo until such
time as our financial situation would permit payment. Mr. Zuo forgave such
accrued salary in November 2009, pursuant to the written Forgiveness of Debt
filed as Exhibit 10.23. All deferred amounts are reflected in the table. The
total cash amount paid to Mr. Zuo in fiscal 2009 was $11,250. Beginning January
1, 2009, we stopped paying and accruing salary for Mr. Zuo.
(7) Mr.
Zuo resigned from our company upon the closing of the Merger on January 29,
2010.
(8) On
February 9, 2010, options to purchase 900,000 shares, 450,000 shares, 400,000
shares and 150,000 shares of our common stock were granted to Messrs. Takamura,
Toh, Salatino and Pritzker, 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, Toh and Pritzker and $0.15 for Mr. Salatino.
22
(9)
Reports the grant date fair value, as calculated in accordance with FASB ASC
Topic 718, of options granted pursuant to the 2009 Stock Option Plan. The
amounts reported assume that all option grants vest at 100%. For a discussion of
the assumptions made in the valuation of the awards, see Note F to our
consolidated financial statements for the fiscal year ended September 30,
2010.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR ENDED SEPTEMBER 30, 2010
|
Number of
|
Number of
|
||||||||||||
|
Securities
|
Securities
|
||||||||||||
|
Underlying
|
Underlying
|
||||||||||||
|
Unexercised
|
Unexercised
|
Option
|
|||||||||||
|
Options
|
Options
|
Exercise
|
Option
|
||||||||||
|
Exercisable
|
Unexercisable
|
Price
|
Expiration
|
||||||||||
|
Name
|
(#)
|
(#)
|
($/Sh)
|
Date
|
|||||||||
|
Eric
Takamura
|
300,000 | 600,000 | (1) | $ | 0.45 |
2/9/2020
|
|||||||
|
Chairman
and Chief Executive Officer
|
|||||||||||||
|
Henry
Toh
|
150,000 | 300,000 | (2) | $ | 0.45 |
2/9/2020
|
|||||||
|
Executive
Vice President of Corporate Development
|
|||||||||||||
|
John
Salatino
|
133,333 | 266,667 | (3) | $ | 0.15 |
2/9/2020
|
|||||||
|
Vice
President of Engineering
|
|||||||||||||
|
Alan
Pritzker
|
50,000 | 100,000 | (4) | $ | 0.45 |
2/9/2020
|
|||||||
|
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.
Pritzker'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.
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 Messrs. Takamura and Pritzker
On
February 9, 2010, we Inc. entered into agreements pursuant to which we employed
Eric Takamura as our Executive Chairman and Chief Executive Officer and Alan
Pritzker as our Chief Financial Officer. Mr. Takamura’s annual base salary is
$180,000 and he is entitled to a signing bonus of $30,000 and Mr. Pritzker’s
annual base salary is $120,000 and he is entitled to a signing bonus of $10,000.
The signing bonuses were paid. We granted Messrs. Takamura and Pritzker,
pursuant to our 2010 Stock Option Plan, options to acquire 900,000 shares and
150,000 shares of our common stock, respectively. The employment agreements also
provide that they are 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 and Mr. Pritzker’s employment agreement provides that it is
anticipated that he will receive an annual bonus of 25% of his base
salary.
The term
of employment is, in the case of Mr. Takamura for three years, and in the case
of Mr. Pritzker, one year, in each case commencing January 1, 2010 (the
effective date of these agreements), 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, in the case of Mr. Takamura, nine months, and, in the
case of Mr. Pritzker, three months, following termination of
employment.
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) in the case of Mr. Takamura twelve (12) months, and
in the case of Mr. Pritzker, four 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 and upon 90 days
upon the voluntary termination of service by Mr. Pritzker if not for “Good
Reason.”
24
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, 20111, 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
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:
|
Eric
Takamura
|
900,000
|
|||
|
Henry
Toh
|
450,000
|
|||
|
Alan
Pritzker
|
150,000
|
Subject
to vesting, these options are exercisable during the ten years from the grant
date at an exercise price of $0.45 per share. The options vest pro rata in 24 equal monthly
installments as of the last day of each fiscal month), with the first
installment vesting as of February 28, 2010. All of the options vest immediately
upon a Change of Control Event. These options terminate immediately following
the termination of such person’s employment with 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
180 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.
25
Director
Compensation
We did
not pay any compensation to our directors in fiscal 2010 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.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table lists, as of January 11, 2011, the number of shares of our
common stock that are beneficially owned by (i) each person or entity known to
us to be the beneficial owner of more than 5% of our common stock; (ii) each
executive officer and director of our company; and (iii) all executive officers
and directors as a group. Information relating to beneficial ownership of Common
Stock by our principal shareholders and management is based upon information
furnished by each person using “beneficial ownership” concepts under the rules
of the Securities and Exchange Commission. Under these rules, a person is deemed
to be a beneficial owner of a security if that person has or shares voting
power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60 days.
Under the Securities and Exchange Commission rules, more than one person may be
deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may not have
any pecuniary beneficial interest. Except as noted below, each person has sole
voting and investment power.
The
percentages below are calculated based on 56,294,064 shares of our common stock
issued and outstanding. Unless otherwise indicated, the address of each person
listed is NuGen Holdings, Inc, 44645 Gilford Drive, Suite 201, Ashburn, Virginia
20147.
|
Percentage of
|
||||||||
|
Number of Shares
|
Common Stock
|
|||||||
|
of Common Stock
|
Beneficially
|
|||||||
|
Name of Beneficial Owner
|
Beneficially Owned
|
Owned
|
||||||
|
Eric
Takamura
|
28,649,375 | (1) (2) (3) (4) | 50.46 | % | ||||
|
Henry
Toh
|
1,772,362 | (5) | 3.13 | % | ||||
|
Alan
Pritzker
|
297,917 | (6) | * | |||||
|
John
Salatino
|
216,667 | (7) | * | |||||
|
Michael
Kleinman, M.D.
|
116,667 | (8) | * | |||||
|
All
directors and executive officers as a group (5 persons)
|
31,052,988 | 54.17 | % | |||||
|
Ronald
Takamura
|
7,987,182 | 14.19 | % | |||||
*
Less than 1%
(1)
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
August 11, 2011. Does not include shares owned by his brother, Ronald Takamura,
over which he disclaims beneficial ownership.
26
(2)
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.
(3)
Includes options exercisable within 60 days of the date hereof to acquire
487,500 shares of common stock. Does not include options to acquire 412,500
shares which are not exercisable within 60 days of the date hereof.
(4)
Includes 5,912,500 of shares subject to irrevocable voting proxies held by Mr.
Takamura.
(5)
Includes options exercisable within 60 days of the date hereof to acquire
243,750 shares of common stock. Does not include options to acquire 206,250
shares which are not exercisable within 60 days of the date hereof.
(6)
Includes options exercisable within 60 days of the date hereof to acquire 81,250
shares of common stock. Does not include options to acquire 68,750 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
216,667shares of common stock. Does not include options to acquire 183,333
shares which are not exercisable within 60 days of the date hereof.
(8)
Includes 50,000 shares held jointly with his wife.
None of
the individuals listed in the table above beneficially own or have the right to
acquire preferred stock if we issue such preferred stock.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Certain
Relationships and Related Transactions
From
October 2006 to January 2009, 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 $551,382 at an interest rate of 10.2% per
annum. On September 30, 2009, Eric Takamura agreed to forgive $1,346,693 owed to
him by our company ($686,169 of which was pursuant to such outstanding loans and
accrued interest thereon, and $660,524 was for accrued and unpaid
salary).
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, we entered into subscription agreements with three foreign
accredited investors pursuant to which, among other things, we issued an
aggregate of 5,500,000 shares of common stock at a purchase price of $0.16 per
share, for aggregate gross proceeds of $880,000. In connection therewith, each
investor executed and delivered an irrevocable proxy appointing Eric Takamura,
our Chief Executive Officer, as his proxy to vote his shares.
27
On
December 5, 2010, we entered into a subscription agreement with one foreign
accredited investor pursuant to which, among other things, we issued an
aggregate of 412,500 shares of common stock at a purchase price of $0.16 per
share, for aggregate gross proceeds of $66,000. In connection therewith, the
investor executed and delivered an irrevocable proxy appointing Eric Takamura,
our Chief Executive Officer, as his proxy to vote his shares.
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, 2010 and 2009 were $24,636 and $16,500, respectively.
Audit
Related Fees
We did
not incur fees during the last two fiscal years ended September 30, 2010 and
2009 by our principal accountant for the performance of audit related services
or other audit related consulting except that during fiscal year ending
September 30, 2010, fees of $23,365 were incurred related to the audit of our
subsidiary, NuGen Mobility, Inc. and related to the filing of our registration
statement on Form S-1.
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 2010, 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.
(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
28
|
Exhibit No.
|
Description
|
|
|
2.1
|
Merger
Agreement, dated as of January 29, 2010, among NuGen Mobility, Inc.,
InovaChem, Inc. and InovaChem Mergerco II, Inc. (2)
|
|
|
2.2
|
Certificate
of Merger, dated January 29, 2010, between NuGen Mobility, Inc. and
InovaChem Mergerco II, Inc.(2)
|
|
|
3.1
|
Certificate
of Incorporation , as amended(8)
|
|
|
3.2
|
Amended
and Restated Bylaws(8)
|
|
|
4.1
|
Warrant
dated March 24, 2010 issued to Uzi Halevy(1)
|
|
|
4.2
|
Option
Agreement with John Salatino dated March 18, 2010(8)
|
|
|
10.1
|
Form
of Subscription Agreement for the Private Placement
|
|
|
10.2
|
Stock
Redemption, dated as of November 17, 2009, among Inovachem, Inc., William
Zuo, Xiaojing Li, Shao Jun Xu and Lu Yiu (3)
|
|
|
10.3.1
|
Conversion
Agreement, dated as of January 29, 2010, among InovaChem and Jardine
Capital Corp. (8)
|
|
|
10.3.2
|
Conversion
Agreement, dated as of January 29, 2010, among InovaChem and Four M
International, Inc. (8)
|
|
|
10.3.3
|
Conversion
Agreement, dated as of January 29, 2010, among InovaChem and Po Shin
Wong(8)
|
|
|
10.3.4
|
Conversion
Agreement, dated as of January 29, 2010, among InovaChem and Ron
Takamura(8)
|
|
|
10.4
|
Asset
Purchase Agreement, dated July 13, 2007, between NuGen Mobility, Inc. and
New Generation Motors Corporation (5)
|
|
|
10.5
|
Technical
Assistance Agreement, dated June 9, 2009, between NuGen Mobility Inc. and
Mahindra & Mahindra Ltd.* (5)
|
|
|
10.6
|
Technical
Support Agreement, dated as of September 23, 2009, between NuGen
Mobility, Inc. and Tube Investments of India Limited: Division BSA
Motors & TI Cycles of India *
(5)
|
29
|
10.7
|
Master
License Agreement, dated December 17, 2005 between New
Generation Motors Corporation and Bajaj Auto, Ltd.
|
||
|
10.8
|
SBIR
Contract with the US Department of Defense
|
||
|
10.9
|
Engagement
letter between NuGen Mobility, Inc. and Martinez-Ayme Securities, dated
November 9, 2009(3)
|
||
|
10.10
|
6%
Promissory Note, dated August 23, 2007 made by NuGen Mobility, Inc in
favor of New Generation Motors(3)
|
||
|
10.11
|
Employment
Agreement dated as of January 1, 2010 by and between Eric Takamura and
InovaChem, Inc.(4)
|
||
|
10.12
|
Employment
Agreement dated as of January 1, 2010 by and between Alan Pritzker and
InovaChem, Inc.(4)
|
||
|
10.13
|
2010
Stock Option Plan(4)
|
||
|
10.14
|
Letter
Agreement dated as of February 11, 2010 by and between Inovachem, Inc
and the representative of certain investors (5)
|
||
|
10.15
|
Stock
Pledge Agreement dated as of February 11, 2010, between Eric Takamura and
Uzi Halevy (5)
|
||
|
10.16
|
Letter
between InovaChem, Inc and John Salatino(4)
|
||
|
10.17
|
Conditional
Grant Agreement, dated October 3, 2001 with The ICICI Limited
(5)
|
||
|
10.18
|
Conversion
Agreement dated January 29, 2010, among InovaChem, Inc., NuGen Mobility,
Inc. and Four M International, Inc. (7)
|
||
|
10.19
|
Acknowledgments
dated December 11, 2009 from each of William Zuo, Henry Toh, Xiaojing Li,
Shao Jun Xu, Alan Pritzker and Michael Kleinman(8)
|
||
|
10.20
|
Employee
Secrecy, Invention and Noncompetition Agreement dated November 1, 1995
between Joel Jermakian and New Generation Motor
Corporation(8)
|
||
|
10.21
|
Form
of Option Agreement granted by Eric
Takamura
|
||
30
|
10.22
|
Stock
Purchase Agreement dated November 9, 2009 among Eric Takamura, Hamilton
Clark & Co. and NuGen Mobility, Inc. (8)
|
|
|
10.23
|
Forgiveness
of Debt dated November 17, 2009 from William Zuo (9)
|
|
|
10.24
|
Forgiveness
of Debt dated November 17, 2009 from Henry Toh (9)
|
|
|
10.25
|
Forgiveness
of Debt dated November 17, 2009 from Alan Pritzker (9)
|
|
|
10.26
|
Form
of Regulation S Subscription Agreement (10)
|
|
|
10.27
|
Form
of Subscription Agreement (10)
|
|
|
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 (5)
|
|
| 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
Registration Statement on Form S-1 on March 25, 2010.
(2)
Incorporated by reference to the corresponding exhibit filed with our Current
Report on Form 8-K/A on February 9, 2010
(3)
Incorporated by reference to the corresponding exhibit filed with our Current
Report on Form 8-K on February 4, 2010.
(4)
Incorporated by reference to the corresponding exhibit filed with our Current
Report on Form 8-K on February 17, 2010.
(5)
Incorporated by reference to the corresponding exhibit filed with our
Registration Statement on Form S-1on June 25, 2010
(6)
Incorporated by reference to the corresponding exhibit filed with our Current
Report on Form 8-K on March 8, 2010.
(7)
Incorporated by reference to the corresponding exhibit filed with our
Registration Statement on Form S-1 on August 24, 2010.
(8)
Incorporated by reference to the corresponding exhibit filed with our
Registration Statement on Form S-1 on October 7, 2010
(9)
Incorporated by reference to the corresponding exhibit filed with our
Registration Statement on Form S-1 on November 8, 2010
(10)
Incorporated by reference to the corresponding exhibit filed with our Current
Report on Form 8-K on January 6, 2011
*
Confidential Treatment has been requested with respect to certain portions of
this Exhibit.
31
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
11, 2011
|
||
|
By:
|
/s/Alan Pritzker
|
|
|
Alan
Pritzker
|
||
|
Chief
Financial Officer (principal financial
and accounting officer) |
||
January
11, 2011
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
11, 2011
|
||
|
Eric
Takamura
|
Officer and Director
|
|||
|
(Principal Executive Officer)
|
||||
|
/s/ Alan Pritzker
|
Chief Financial Officer
|
January
11, 2011
|
||
|
Alan Pritzker
|
(Principal Financial and
|
|||
|
Accounting Officer)
|
||||
|
/s/ Henry Toh
|
Executive Vice President of
|
January
11, 2011
|
||
|
Henry Toh
|
Corporate Development and
|
|||
|
Director
|
||||
|
/s/ Michael Kleinman
|
Director
|
January
11, 2011
|
||
|
Michael Kleinman
|
32
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
NUGEN
HOLDINGS, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
As of
September 30, 2010
Table of
Contents
|
Page #
|
||
|
FINANCIAL
STATEMENTS
|
||
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
F-3
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F-4
|
|
|
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
|
F-5
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F-6
|
|
|
|
||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-
7
|
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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, 2010 and 2009, and the related
consolidated statements of operations, changes in stockholders’ equity (deficit)
and cash flows for the two years ended September 30, 2010 and 2009. 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides 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, 2010 and 2009 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 loss of $1,642,086 an
accumulated deficit of $4,532,289 and negative cash flows from operations of
$1,492,451. 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
11, 2011
F-2
NUGEN
HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
|
For Years Ended
|
||||||||
|
September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 863,876 | $ | 58,929 | ||||
|
Accounts
receivable, net
|
253,754 | 214,006 | ||||||
|
Prepaid
expenses
|
11,309 | 5,491 | ||||||
|
Inventory
|
222,915 | - | ||||||
|
Total
current assets
|
1,351,854 | 278,426 | ||||||
|
Machiney
& Equipment, Net
|
43,325 | 5,596 | ||||||
|
Other
Assets
|
7,365 | 7,365 | ||||||
| $ | 1,402,544 | $ | 291,387 | |||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
Current
liabilities
|
||||||||
|
Current
portion of long term liabilities
|
$ | 13,428 | $ | 388,640 | ||||
|
Accounts
payable and accrued expenses
|
479,951 | 199,447 | ||||||
|
Customer
deposits
|
150,000 | - | ||||||
|
Due
to related parties
|
- | 491,931 | ||||||
|
Total
current liabilities
|
643,379 | 1,080,018 | ||||||
|
Long-Term
Notes Payable
|
603,916 | 599,339 | ||||||
|
Total
liabilities
|
1,247,295 | 1,679,357 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity (deficit)
|
||||||||
|
Preferred
stock - $0.001 par value; 50,000,000 shares authorized, none issued and
outstanding
|
- | - | ||||||
|
Common
stock - $0.001 par value; 200,000,000 shares authorized, 55,881,564 and
27,133,384 shares issued and outstanding
|
55,882 | 27,133 | ||||||
|
Additional
paid-in capital
|
4,631,656 | 1,475,100 | ||||||
|
Accumulated
deficit
|
(4,532,289 | ) | (2,890,203 | ) | ||||
|
Total
stockholders' equity (deficit)
|
155,249 | (1,387,970 | ) | |||||
| $ | 1,402,544 | $ | 291,387 | |||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-3
NUGEN
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
For the Years Ended
|
||||||||
|
September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenues
|
$ | 432,989 | $ | 796,847 | ||||
|
Direct
costs
|
70,437 | 103,122 | ||||||
|
Direct
labor
|
622,377 | 481,865 | ||||||
|
Gross
profit (loss)
|
(259,825 | ) | 211,860 | |||||
|
Operating
expenses
|
||||||||
|
Compensation
|
821,477 | 196,818 | ||||||
|
Rent
& office
|
103,417 | 96,995 | ||||||
|
Professional
fees
|
109,232 | 12,817 | ||||||
|
Travel
expenses
|
192,577 | 36,827 | ||||||
|
Other
general and administrative expenses
|
76,250 | 33,397 | ||||||
|
Total
operating expenses
|
1,302,953 | 376,854 | ||||||
|
Net
loss from operations
|
(1,562,778 | ) | (164,994 | ) | ||||
|
Other
income and (expense)
|
||||||||
|
Interest
income
|
1,619 | - | ||||||
|
Interest
expense
|
(60,262 | ) | (157,515 | ) | ||||
|
Foreign
currency transaction loss
|
(20,665 | ) | - | |||||
|
Total
other income and (expense)
|
(79,308 | ) | (157,515 | ) | ||||
|
Net
loss
|
$ | (1,642,086 | ) | $ | (322,509 | ) | ||
|
Net
loss per share - basic and diluted
|
$ | (0.04 | ) | $ | (0.01 | ) | ||
|
Weighted
average number of shares outstanding during the period - basic and
diluted
|
42,512,167 | 27,133,384 | ||||||
The
accompanying notes are an integral part of these
consolidated financial statements
F-4
NUGEN
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE
YEARS ENDED SEPTEMBER 30, 2009 AND 2010
|
Preferred Stock
|
Common Stock
|
Additional
|
||||||||||||||||||||||||||
|
Number of
|
Par
|
Number of
|
Par
|
Paid-in
|
Accumulated
|
|||||||||||||||||||||||
|
Shares
|
Value
|
Shares
|
Value
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
|
Balance
at September 30, 2008
|
- | $ | - | 27,133,384 | $ | 27,133 | $ | 128,407 | $ | (2,567,694 | ) | $ | (2,412,154 | ) | ||||||||||||||
|
Forgiveness
of debt, related party
|
- | - | - | - | 1,346,693 | - | 1,346,693 | |||||||||||||||||||||
|
Net
loss from October 1, 2008 to September 30, 2009
|
- | - | - | - | - | (322,509 | ) | (322,509 | ) | |||||||||||||||||||
|
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 | |||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
NUGEN
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For Years Ended
|
||||||||
|
September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
loss
|
$ | (1,642,086 | ) | $ | (322,509 | ) | ||
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities:
|
||||||||
|
Contributed
services
|
37,500 | - | ||||||
|
Vesting
of stock options
|
25,996 | - | ||||||
|
Depreciation
expense
|
2,872 | 1,865 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(39,748 | ) | (84,803 | ) | ||||
|
Prepaid
expenses
|
(4,223 | ) | (2,500 | ) | ||||
|
Inventory
|
(222,915 | ) | - | |||||
|
Customer
deposits
|
150,000 | - | ||||||
|
Due
to related parties
|
95,174 | |||||||
|
Accounts
payable and accrued expenses
|
200,153 | 158,447 | ||||||
|
Net
cash used in operating activities
|
(1,492,451 | ) | (154,326 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Cash
acquired in recapitalization
|
4,060 | - | ||||||
|
Purchase
of property and equipment
|
(17,289 | ) | - | |||||
|
Net
cash used in investing activities
|
(13,229 | ) | - | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from sale of common stock, net
|
2,268,599 | - | ||||||
|
Proceeds
from issuance of notes payable
|
70,000 | 150,000 | ||||||
|
Principal
payments on debt
|
(27,972 | ) | (3,804 | ) | ||||
|
Principal
payments on related party debt
|
(5,001 | ) | ||||||
|
Net
cash provided by financing activities
|
2,310,627 | 141,195 | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
804,947 | (13,131 | ) | |||||
|
Cash
and cash equivalents at beginning of period
|
58,929 | 72,060 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 863,876 | $ | 58,929 | ||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for interest
|
$ | 45,319 | $ | 55,047 | ||||
|
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
|
||||||||
|
In
September 2009, the Company’s Chairman, CEO & President, who is also a
major shareholder, forgave $1,346,693 of indebtedness owed him by the
Company. This amount was credited to Additional Paid-in
Capital.
|
||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merger
On
January 29, 2010, InovaChem, Inc., a Delaware corporation, completed the
acquisition of NuGen Mobility, Inc., a Delaware corporation (“NuGen” or “NuGen
Mobility”), pursuant to the Merger Agreement dated January 29, 2010(the “Merger
Agreement”), by and among InovaChem, Inc., NuGen and InovaChem Mergerco II,
Inc., a wholly-owned subsidiary of InovaChem, Inc. Pursuant to the terms of the
Merger Agreement, NuGen merged (the “Merger”) with and into InovaChem Mergerco
II, and NuGen, as the surviving corporation, became a wholly-owned subsidiary of
InovaChem, Inc. On February 26, 2010, the board of directors and stockholders
approved an amendment to the Company’s Certificate of Incorporation changing the
Company’s name from InovaChem, Inc. to NuGen Holdings, Inc. (the “Company” or
“NuGen Holdings”). The Certificate of Amendment to the Certificate of
Incorporation became effective on March 4, 2010.
Upon the
closing of the Merger contemplated by the Merger Agreement, each issued and
outstanding share of NuGen’s common stock was converted into 24,422.48 shares of
NuGen Holdings’ common stock. As a result, an aggregate of 27,133,384 shares of
NuGen Holdings’ common stock, par value $0.001 per share (“Common Stock”) were
issued to the two shareholders of NuGen. Simultaneous with the closing of the
Merger, 15,236,667 shares of Common Stock were redeemed by NuGen Holdings for a
cash payment of $152. Following the redemption of these shares, the two
shareholders of NuGen owned approximately 81% of NuGen Holdings.
The
Merger is being accounted for as a reverse acquisition and recapitalization.
NuGen is the acquirer for accounting purposes and NuGen Holdings is the
acquiree. Accordingly, NuGen’s historical financial statements for periods prior
to the acquisition become those of the acquirer retroactively restated for the
equivalent number of shares received in the Merger. The accumulated deficit of
NuGen is carried forward after the acquisition. Operations prior to the Merger
are those of NuGen. Earnings per share for the period prior to the Merger are
restated to reflect the equivalent number of shares outstanding.
Description of
Business
The
Company is engaged, through its wholly-owned subsidiary NuGen, in the research,
development and sale of permanent magnet electric motors and the electronic
controls for such motors. Our facility is located in Ashburn, Virginia. Our
revenue is derived primarily from contract research and development engineering
services. Our technology relates to specialty electric drive engines and related
components. This technology is currently being sold directly to original
equipment manufacturers (“OEMs”) pursuant to technical assistance agreements.
The agreements generally provide for us to engineer our technology to run in
various platforms (e.g. vehicles, electric generators and motors) and to be
adapted to a customer’s particular application. We offer these services from our
facility located in Virginia, to customers that require high-efficiency,
reliable, compact permanent magnet electrical motor systems, controllers,
vehicle interface modules (including energy storage, management and monitoring
systems) and related software. Our technology is used primarily to convert
electrical power into mechanical power so that mechanical power can be used to
propel a vehicle or run a generator and may be used in markets ranging from
electric/hybrid electric vehicles to materials handling equipment, distributive
power, ground support equipment, motion control, and military
systems.
Basis of
Presentation
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Estimates are required for the preparation of consolidated financial statements
in accordance with generally accepted accounting principles and actual results
could differ from these estimates. All significant intercompany accounts and
transactions are eliminated in consolidation. We evaluated subsequent events
through January 11, 2011, the date our financial statements were
issued.
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 $491,497 in
excess of FDIC insurance limits as of September 30, 2010.
F-7
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
Accounts
Receivable
We extend
unsecured credit to most of our customers following a review of the customers'
financial condition and credit history. We establish an allowance for doubtful
accounts based upon a number of factors including the length of time accounts
receivables are past due, the customer's ability to pay its obligation to us,
the condition of the general economy, estimates of credit risk, historical
trends and other information. Accounts receivable are deemed to be past due when
they have not been paid by their contractual due date. We write off accounts
receivable when they become uncollectible against our allowance for doubtful
accounts. At September 30, 2010, no allowance for doubtful accounts was deemed
necessary.
Inventory
Inventory
is stated at the lower of cost (first-in, first-out basis) or market (net
realizable value). At September 30, 2010 and 2009 the Company had $222,915 and
$0, respectively, of work in process inventory.
Machinery and
Equipment
Machinery
and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, computer
equipment, which is 5 years. Maintenance and repairs are charged to expense as
incurred. Depreciation expense for the years ended September 30, 2010 and 2009
was $2,872 and $1,865, 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.
Some
customers are asked to provide deposits prior to the Company accepting their
orders. Customer Deposits are reflected on the balance sheet as a current
liability and are reclassified to revenue at the time when title to the goods
and the benefits and risks of ownership passes to the customer.
Revenue
relating to long-term fixed price contracts is recognized using the percentage
of completion method. Under the percentage of completion method, contract
revenues and related costs are recognized based on the percentage that costs
incurred to date bear to total estimated costs.
The Company recently entered into Small
Business Innovation Research contracts with both the US Army and the US Navy,
the revenue under these contracts will be recognized in the same period
as allowable and billable costs are incurred.
Changes
in job performance, estimated profitability and final contract settlements may
result in revisions to cost and revenue, and are recognized in the period in
which the revisions are determined. Contract costs include all direct materials,
subcontract and labor costs. Selling, general and administrative costs are
charged to expense as incurred. At the time a loss on a contract becomes known,
the entire amount of the estimated loss is accrued.
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.
F-8
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
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. The Company applies this statement prospectively.
Equity
instruments (“instruments”) issued to other than employees are recorded on the
basis of the fair value of the instruments, as required by FASB Accounting
Standards Codification No. 718. FASB Accounting Standards Codification No. 505,
Equity Based Payments to
Non-Employees defines the measurement date and recognition period for
such instruments. In general, the measurement date is when either a (a)
performance commitment, as defined, is reached or (b) the earlier of (i) the
non-employee performance is complete or (ii) the instruments are vested. The
measured value related to the instruments is recognized over a period based on
the facts and circumstances of each particular grant as defined in the FASB
Accounting Standards Codification.
Loss per Common
Share
Basic
earnings per share is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding during
the periods presented. Diluted earnings per share is computed by dividing income
or loss available to common stockholders by all outstanding and potentially
dilutive shares during the periods presented, unless the effect is
anti-dilutive. As of September 30, 2010 and 2009, there were 360,000 and 0
warrants outstanding, respectively, and 2,400,000 and 0 options outstanding,
respectively, to purchase the Company’s common stock. These options and warrants
have not been included in the weighted average number of shares as their effect
would have been anti-dilutive.
Use of
Estimates
The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial
Instruments
The
carrying amounts on the Company’s financial instruments including accounts
payable, approximate fair value due to the relatively short period to maturity
for this instrument.
Recent Accounting
Pronouncements
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued an
Accounting Standard Update (“ASU”) No. 2009-13, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services separately rather than as a combined unit and modifies the manner in
which the transaction consideration is allocated across the separately
identified deliverables. The ASU significantly expands the disclosure
requirements for multiple-deliverable revenue arrangements. The ASU will be
effective for the first annual reporting period beginning on or after June 15,
2010, and may be applied retrospectively for all periods presented or
prospectively to arrangements
entered into or materially modified after the adoption date. Early adoption is
permitted, provided that the guidance is retroactively applied to the beginning
of the year of adoption. The Company does not expect the adoption of ASU No.
2009-13 to have any effect on its financial statements upon its required
adoption on October 1, 2010.
F-9
NUGEN
HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
NOTE
B – GOING CONCERN
As
reflected in the accompanying financial statements, the Company has an
accumulated deficit of $4,532,289, a net loss of $1,642,086 and negative cash
flows from operations of $1,492,451 during the year ended September 30, 2010.
This raises substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the
Company’s ability to generate additional revenues from operations, raise
additional funds and implement its business plan. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. Management believes that actions presently being
taken to obtain additional revenues and funding, and to implement its strategic
plans provide the opportunity for the Company to continue as a going concern.
There can be no assurance that the Company will be able to raise such funds if
and when it wishes to do so or on terms acceptable to us. This raises
substantial doubt about our ability to continue as a going concern.
Specifically, in the event that the Company is not successful at raising capital
to a level sufficient to pay its expenditures, the Company will have to reduce
administrative overhead and reduce marketing and public relations expenditures.
If the Company is unable to cut expenses to earn profits or raise additional
debt or equity capital the Company will have to discontinue
operations.
NOTE
C – DEBT
Long-term
debt consists of:
|
September 30, 2010
|
September 30, 2009
|
|||||||
|
Promissory
note dated August 23, 2007
|
$ | 596,108 | $ | 596,108 | ||||
|
Promissory
notes dated July 13, 2007
|
- | 230,089 | ||||||
|
Promissory
note dated June 5, 2009
|
- | 150,000 | ||||||
|
Related
Parties
|
- | 491,931 | ||||||
|
Other
|
21,236 | 11,782 | ||||||
| 617,344 | 1,479,910 | |||||||
|
Less:
current portion
|
13,428 | 880,571 | ||||||
|
Total
long term debt
|
$ | 603,916 | $ | 599,339 | ||||
Pursuant
to the Promissory Note dated as of August 23, 2007 the Company accrues interest
on the loan at the rate of 6% per annum. Quarterly payments are made based on a
formula that multiplies the revenue of NuGen’s gross revenues by 2% for calendar
year 2007, 3% for calendar year 2008, 4% for calendar year 2009, 5% for calendar
year 2010 and 6% for calendar year 2011 and for all subsequent years until the
loan is paid in full. In all years NuGen is required to pay a minimum of $7,500
per quarter and any payment made that exceeds the amount that would be due under
the formula shall be treated as an advance against subsequent quarterly amounts
due in excess of the $7,500 minimum payment.
As of
September 30, 2010, no payments of principal have been made as NuGen’s quarterly
revenues, multiplied by the appropriate percentage, have not exceeded the $7,500
minimum payment. The payments made have gone towards accrued interest only.
Additionally, further revenue contingent payments may be owed, in the future
(see Note F – Commitments and Contingencies – below).
Pursuant
to the Promissory Notes dated as of July 13, 2007, the Company accrued interest
on these loans at the rate of 10% per annum. As the Company has not made
payments of principal that were due in the past, the loans were in technical
default. Accordingly, they are classified under the Current portion of long-term
debt on the Company’s September 30, 2009 Balance Sheet. These amounts were
converted to equity in January 2010 (See Note G – Stockholders’ Equity
(Deficit)).
Pursuant
to the Promissory Note dated as of June 5, 2009, the Company accrued interest on
this loan at the rate of 5.6% per annum. As the note was due on demand, it is
classified under the current portion of long-term debt on the Company’s
September 30, 2009 Balance Sheet. These amounts were converted to equity in
January 2010 (See Note G – Stockholders’ Equity (Deficit)).
In
November 2007, the Company purchased computer equipment and issued a four year
note payable, included in “Other” on the above table, in the amount of $9,326.
The Company accrues interest on this loan at the rate of 18.45% per annum and
makes monthly fixed payments of interest and principal.
In
January 2008, the Company converted $35,650 of accounts payable, for advisory
services and expenses, from a consultant into a note payable. The Company
accrued interest on this loan at the rate of 1% per annum. During the year ended
September 30, 2010, $25,000 was repaid by the Company and the remaining balance
was forgiven by the consultant.
F-10
NUGEN
HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
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, in the amount of $12,910. The
Company accrues interest on this loan at the rate of 0.38% per annum and makes
monthly fixed payments of interest and principal.
NOTE
D - INCOME TAXES
The
Company’s tax expense differs from the tax expense based on statutory rate for
the period ended September 30, 2010 and 2009 (computed by applying the U.S.
federal income tax rate of 34 percent to the loss before taxes), as
follows:
|
Year Ended
|
Year Ended
|
|||||||
|
September
30, 2010
|
September
30, 2009
|
|||||||
|
Computed
"expected" tax benefit – Federal (34%)
|
$
|
(558,309
|
)
|
$
|
(166,458
|
)
|
||
|
Computed
"expected" tax benefit – State (3.96%)
|
(65,027
|
)
|
(19,387
|
)
|
||||
|
Increase
in taxes resulting from:
|
||||||||
|
In
kind contribution of services
|
14,235
|
1,815
|
||||||
|
Disallowed
meals and entertainment
|
2,334
|
-
|
||||||
|
Change
in valuation allowance
|
606,767
|
184,030
|
||||||
|
$
|
-
|
$
|
-
|
|||||
The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and liabilities at September 30, 2010 and 2009 is as
follows:
|
September
30, 2010
|
September
30, 2009
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carry-forwards
|
$
|
(1,697,989
|
)
|
$
|
(1,091,222
|
)
|
||
|
Total
deferred tax assets
|
(1,697,989
|
)
|
(1,091,222
|
)
|
||||
|
Less
valuation allowance
|
1,697,989
|
1,091,222
|
||||||
|
Net
deferred tax assets, net
|
$
|
-
|
$
|
-
|
||||
As of
September 30, 2010 we had net operating loss carry-forwards (NOL) of
approximately $4,473,100 for U.S. income tax purposes that expire in varying
amounts through 2030. The valuation allowance increased by $606,767 for the year
ended September 30, 2010.
The
valuation allowance for deferred tax assets of $1,697,989 and $1,091,222 at
September 30, 2010 and September 30, 2009, respectively, relates principally to
the uncertainty of the utilization of certain deferred tax assets, primarily net
operating loss carry forwards in various tax jurisdictions. The Company
continually assesses both positive and negative evidence to determine whether it
is more-likely-than-not that the deferred tax assets can be realized prior to
their expiration. Based on the Company's assessment it has determined the
deferred tax assets are not currently realizable.
NOTE
E - RELATED PARTY TRANSACTIONS
Related
Parties
A
significant shareholder of the Company is the brother of the Company’s Chairman,
CEO and President. This shareholder loaned a total of $371,500 to the Company
between August 2007 and September 2009 which is included in the Balance Sheet of
the Company in Due to related parties, along with $93,976 of accrued interest at
December 31, 2009. These amounts were converted to 3,103,173 shares of the
Company’s common stock in January 2010 valued at a recent cash offering price
(See Note G Stockholders’ Equity (Deficit)).
On
September 29, 2010, we entered into subscription agreements with three foreign
accredited investors pursuant to which, among other things, we issued an
aggregate of 5,500,000 shares of common stock at a purchase price of $0.16 per
share, for aggregate gross proceeds of $880,000. In connection therewith, each
investor executed and delivered an irrevocable proxy appointing our Chief
Executive Officer, as his proxy to vote his shares.
F-11
NUGEN
HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
NOTE
F - COMMITMENTS AND CONTINGENCIES
In August
2007, our subsidiary, NuGen Mobility entered into an asset purchase agreement
pursuant to which it acquired substantially all of the assets, and specified
liabilities of New Generation Motors Corporation, a Delaware corporation. The
agreement requires the payment to New Generation Motors of $1,000,000 pursuant
to a promissory note, which bears simple interest at the rate of six percent.
The principal amount of this note was reduced to $596,108 by the application of
$403,892 in credits. These credits consist of (i) an aggregate of $273,741 in
operational loans made by our principal shareholders to New Generation Motors to
allow them to continue operations prior to August 2007, (ii) $101,804 in
customer deposits that they retained though we were responsible for fulfilling
such customer orders, and (iii) $29,068 in amounts we agreed to pay to New
Generation Motors’s landlord for back rent.
The
principal and interest on the loan is to be repaid, on a quarterly basis, until
all amounts due thereon have been paid. The amount of each payment is equal to
the greater of (i) $7,500 and (ii) the product obtained by multiplying our Gross
Revenues (as defined) for the quarter by the applicable percentage rate. The
applicable percentage rate increases by one percentage point per year beginning
at 2% for 2007 increasing to 6% for 2011 and all subsequent years. The payment
is first applied to the accrued interest on the loan and the remainder, if any,
to the principal amount owed. As of the date hereof, an aggregate of $75,000 has
been paid (10 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.
In
connection with this transaction, , NuGen also agreed to assume the commitment,
entered into by New Generation Motors, for a conditional grant of $700,000 from
an Indian export bank, which will be paid back through a 2% royalty on the
license agreement until $1,400,000 is paid back. Additionally, the Indian export
bank also provided a loan of $500,000 to New Generation Motors. In connection
with this asset purchase agreement, NuGen Mobility assumed this $500,000 loan on
the condition that the loan would be converted to a conditional grant (similar
to the $700,000 conditional grant). The Company reached such agreement with the
Indian export bank but the Company and such bank never ratified such agreement.
As of September 30, 2010 no payments are owed to the Indian export bank, as the
Indian manufacturer is not actively marketing the product at present and no
payments are required until sales from this product are generated.
Lease
Commitments
Rental
expense for the years ended September 30, 2010 and 2009 was $81,362 and $79,744
respectively.
Employment
Agreements
During
the quarter ending March 31, 2010, we entered into employment agreements with
our Executive Chairman and Chief Executive Officer (CEO), our Chief Financial
Officer (CFO) and our Vice President of Engineering and Programs (VP
Engineering). The agreements, for the CEO, VP Engineering and CFO, provide for
annual salaries, of $180,000, $160,000 and $120,000 respectively; signing
bonuses of $30,000, $20,000 and $10,000 respectively; and, grants of options to
purchase 900,000, 400,000 and 150,000 shares of our common stock, respectively.
The shares subject to the options for the CEO and CFO have an exercise price of
$0.45 per share and vest pro ratably in 24 equal monthly installments as of the
last day of each month commencing February 28, 2010. The shares subject to the
options for the VP Engineering are at an exercise price of $0.15 per share and
vest pro ratably in 24 equal monthly installments as of the last day of each
month commencing February 28, 2010, which option may be exercised on a cashless
basis and may be exercised until February 29, 2012. Generally, options to
acquire 100,000 shares may be exercised on a cumulative basis during the two
weeks preceding August 31, 2010, February 28, 2011, August 31, 2011, and
February 29, 2012 subject to accelerated exercise upon a change in control as
provided therein and the right to exercise his remaining option in the event of
the termination of his employment.
F-12
NUGEN
HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
As part
of the asset purchase agreement in August 2007, NuGen also agreed to assume the
commitment, entered into by New Generation Motors, for a conditional grant of
$700,000 from an Indian export bank, which is only required to be paid back once
the Indian manufacturer begins paying licensing fees. NuGen does not have a
written assignment from the Indian export bank regarding its assumption of this
commitment. NuGen will then be obligated to pay the Indian export bank a royalty
received from the Indian manufacturer until $1,400,000 is repaid based on a
schedule in the agreement. Since the dates provided for in the schedule to the
agreement have passed, the agreement provides that if the actual sales deviate
substantially, the royalty schedule will have to be changed. To date, the
parties have not updated the schedule of royalty payments. Additionally, the
Indian export bank also provided a loan of $500,000 to New Generation Motors. In
connection with this asset purchase agreement, NuGen assumed this $500,000 loan
on the condition that the loan would be converted to a conditional grant
(similar to the $700,000 conditional grant). In 2006, both New Generation Motors
and the Indian export bank agreed to convert this second $500,000 loan to a
conditional grant under the same terms and conditions as the previous agreement.
However NuGen does not have a signed document indicating such agreement.
Currently, no demand has been made to NuGen for payment; accordingly, it is not
reflected as a liability on the Company’s balance sheet but rather it is
included under “Commitments and Contingencies”. As of September 30, 2010 no
payments are owed to the Indian export bank, as the Indian manufacturer is not
actively marketing the product at present and no payments are required until
sales from this product are generated.
Concentration of Credit
Risk
We have
historically derived significant revenue from a few key customers. Revenue from
one of our customers totaled $186,339 and $671,649 for the years ended September
30, 2010 and 2009 respectively which was 39 percent and 84 percent of total
revenue respectively. Revenue from another customer totaled $140,169 for the
year ended September 30, 2010 which was 39 percent of our 2010 revenues.
Accounts receivable from these two customers equaled 100 percent of our total
accounts receivable as of September 30, 2010.
NOTE
G – STOCKHOLDERS’ EQUITY (DEFICIT)
Immediately
prior to the Merger described in Note A, 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.
In
connection with the Merger an aggregate of 27,133,384 shares of the Company’s
common stock, par value $0.001 per share (“Common Stock”) were issued to the
shareholders of NuGen. Following the redemption of the shares, the two
shareholders of NuGen owned approximately 81% of NuGen Holdings.
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 1,000,000 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, the Company entered into subscription agreements with three
foreign investors pursuant to which, among other things, the Company issued an
aggregate of 5,500,000 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 $880,000 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.
Conversion of debt to
equity
In
connection with the Merger, holders of an aggregate of $915,475 of outstanding
indebtedness of NuGen converted their promissory notes (based on a recent cash
offering price of $0.15 per share) into an aggregate of 6,103,166 shares of
Common Stock (“Debt Conversion”). As the shares were valued at a recent cash
offering price, no gain or loss was recorded on the conversion.
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.
F-13
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
Preferred
Stock
The
Company entered into an agreement with a representative of eleven accredited
investors confirming that such investors have the right, but not the obligation,
to purchase, in the aggregate, a minimum of $500,000 and a maximum of $700,000
of our Class A Preferred Stock (the “Preferred Stock”) at a price of $0.15 per
share. This right is exercisable beginning on the effective date of our
registration statement until August 10, 2010, subject to a 60 day extension if
the registration statement is not effective by August 10, 2010. The investors
may exercise this right on August 10, 2010 even if the registration statement is
not effective by such date. Although we have not been contacted by these persons
or their representatives, we believe that the investors may have the right to
exercise their right to purchase the Preferred Stock even though the 60 day
period has expired. We also issued the representative of such investors warrants
to acquire until March 16, 2011, 360,000 shares of our common stock at an
exercise price of $0.001 per share. We have not yet filed a certificate of
designation designating this Preferred Stock. Since we have not heard from the
investors or their counsel, negotiations regarding the terms of the certificate
of designation with respect to the Series A Preferred Stock have not commenced.
When authorized, we expect that the preferred stock will be convertible into one
share of common stock and be subject to adjustment for issuances of securities
to third parties at a price less than $0.15 per share on a “full-ratchet
basis”
(i.e., so that we shall issue, free of charge to each holder of such preferred
stock, such additional shares of Preferred Stock so that the total number of
shares held by the such holder equals that number that would have been issued at
the lower price) during the 18 months following a closing with respect to such
issuance. We also expect to provide the holders pre-emptive rights and the right
to designate one person to serve as a member of our board of directors. Upon
exercise of the right to purchase the Preferred Stock, the investors will also
receive options, warrants or other similar rights to acquire our common stock
equal to the total value of the investors’ investment in the Preferred Stock,
based on a share value of $0.15 per share. Since we have not commenced
negotiating the terms of the certificate of designation, we are unsure as to the
form the options, warrants or similar rights would take. We have not heard from
the potential purchasers of the preferred stock or their counsel regarding this
transaction. However, there will be included in either the terms of the
Preferred Stock or pursuant to a separate convertible security, the right to
purchase an additional share of common stock from the Company’s CEO at $0.15 per
share.
Valuation of Stock-Based
Awards, Common Stock and Warrants
Stock-Based
Compensation
We
adopted the fair value method of accounting for our stock options granted to
employees which requires us to measure the cost of employee services received in
exchange for the stock options, based on the grant date fair value of the award.
The fair value of the awards is estimated using the Black-Scholes option-pricing
model. The resulting cost is recognized over the period during which an employee
is required to provide service in exchange for the award, usually the vesting
period which is generally two years.
We
amortize the fair value of our stock-based compensation for equity awards
granted on a straight-line basis, which we believe better reflects the level of
service to be provided by our employees over the vesting period of the
awards.
The fair
value of each new employee option awarded was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions.
|
2010
|
2009
|
|||||||
|
Risk-free
interest rate
|
2.2 | % | - | |||||
|
Expected
term (in years)
|
2 | - | ||||||
|
Expected
volatility
|
82 | % | - | |||||
|
Dividend
yield
|
0 | % | - | |||||
The
Black-Scholes option-pricing model requires inputs such as the risk-free
interest rate, expected term and expected volatility. Further, the forfeiture
rate also affects the amount of aggregate compensation. These inputs are
subjective and generally require significant judgment.
The
risk-free interest rate that we use is based on the United States Treasury yield
in effect at the time of grant for zero coupon United States Treasury notes with
maturities approximating each grant’s expected life. Given our limited history
with employee grants, we use the “simplified” method in estimating the expected
term for our employee grants. The “simplified” method, as permitted by the SEC,
is calculated as the average of the time-to-vesting and the contractual life of
the options.
Our
expected volatility is derived from the historical volatilities of several
unrelated public companies within industries related to our business, including
the automotive OEM and battery technology industries, because we have no trading
history on our common stock. When making the selections of our peer companies
within industries related to our business to be used in the volatility
calculation, we also considered the stage of development, size
and financial leverage of potential comparable companies. Our historical
volatility is weighted based on certain qualitative factors and combined to
produce a single volatility factor. We have not estimated our forfeiture rate as
these are the first options granted by us after our merger in January
2010.
F-14
We
account for stock options issued to nonemployees also based on their estimated
fair value determined using the Black-Scholes option-pricing model. However, the
fair value of the equity awards granted to nonemployees is re-measured as the
awards vest, and the resulting increase in value, if any, is recognized as
expense during the period the related services are rendered.
Stock-based
compensation expense for the years ended September 30, 2010 and 2009 was $25,996
and $0, respectively.
Common
Stock Valuation
We
granted stock options with exercise prices equal or greater than the fair value
of our common stock as determined at the date of grant by our Board of
Directors. Because there has been no public market for our common stock, our
Board of Directors has determined the fair value of our common stock by
considering a number of objective and subjective factors, including the
following:
• arm’s
length, third-party sales of our stock;
•
our operating and financial performance; and
• the
lack of liquidity of our capital stock;
Equity
Awards
On
February 9, 2010, pursuant to the 2010 Stock Option Plan, the Company granted
options to acquire an aggregate of 2,000,000 shares of the Company’s common
stock to several executive officers and employees. Subject to vesting, these
options are exercisable during the ten years from the
grant date at an exercise price of $0.45 per share. The options vest pro rata in
24 equal monthly installments as of the last day of each fiscal month, with the
first installment vesting as of January 1, 2010. All of the options vest
immediately upon a Change of Control Event. These options terminate immediately
following the termination of such person’s employment with the Company for
“Cause” (as defined in such employee’s employment agreement described above and
other than Cause relating to the employee’s material uncured breach of his
employment agreement in which case the options terminate in accordance with
their stated term) and 180 days after such person voluntarily terminates his
employment other than for “Good Reason” (as defined in such person’s employment
agreement).
On
February 11, 2010, the Company granted an option to acquire an aggregate of
400,000 shares of its common stock to an executive officer of the Company at an
exercise price of $0.15 per share, which option may be exercised on a cashless
basis and may be exercised until February 29, 2012. Generally, options to
acquire 100,000 shares may be exercised on a cumulative basis during the two
weeks preceding August 31, 2010, February 28, 2011, August 31, 2011, and
February 29, 2012, subject to accelerated exercise upon a change in control and
the right to exercise the remaining option in the event of the termination of
employment.
The
following tables summarize all stock option and warrant grants to employees and
consultants for the years ended September 30, 2010 and 2009, and the related
changes during these periods are presented below.
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
|||||||
|
Stock
Options
|
||||||||
|
Balance
at September 30, 2009
|
-
|
-
|
||||||
|
Granted
|
2,400,000
|
$
|
0.40
|
|||||
|
Exercised
|
-
|
|||||||
|
Forfeited
|
-
|
|||||||
|
Balance
at September 30, 2010
|
2,400,000
|
$
|
0.40
|
|||||
|
Options
Exercisable at September 30, 2010
|
779,167
|
$
|
$0.40
|
|||||
|
Weighted
Average Fair Value of Options Granted During 2010
|
$
|
$0.40
|
||||||
Of the
total options granted, 779,167 are fully vested, exercisable and
non-forfeitable.
The
following table summarizes information about stock options and warrants for the
Company as of September 30, 2010:
F-15
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2010
|
2010 Options Outstanding
|
Options Exercisable
|
||||||||||||||||||
|
Range of
Exercise
Price
|
Number
Outstanding at
September 30, 2010
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable at
September 30, 2010
|
Weighted
Average Exercise
Price
|
||||||||||||||
| $ | 0.15 | 400,000 |
9.25
years
|
$ | 0.15 | 133,333 | $ | 0.15 | |||||||||||
| $ | 0.45 | 2,000,000 |
9.25
years
|
$ | 0.45 | 645,833 | $ | 0.45 | |||||||||||
|
2010 Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||
|
Range of Exercise
Price
|
Number
Outstanding at
September 30, 2010
|
Weighted
Average
Remaining
Contractual Life
|
Weighted
Average Exercise
Price
|
Number
Exercisable at
September 30, 2010
|
Weighted
Average Exercise
Price
|
||||||||||||||
| $ | 0.001 | 360,000 |
.67
years
|
$ | 0.001 | 360,000 | $ | 0.001 | |||||||||||
In
February 2010, we issued the representative of eleven investors warrants to
acquire until March 16, 2011, 360,000 shares of our common stock at an exercise
price of $0.001 per share.
NOTE H - SUBSEQUENT
EVENTS
Regulation S private
offering
On
December 5, 2010, the Company entered into a subscription agreement with a
foreign investor pursuant to which, among other things, the Company issued an
aggregate of 412,500 shares of its common stock, par value $0.001 per share, at
a purchase price of $0.16 per share, for aggregate gross
proceeds of $66,000. Such issuances were made in reliance on an exemption from
registration under Regulation S promulgated under the Securities Act. Pursuant
to the Subscription Agreement the 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 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. 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 in certain circumstances, including fundamental
transactions. 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
Leases
On
October 7, 2010, the Company’s wholly owned subsidiary, NuGen Mobility Inc.
entered into a three year lease for a combined office / warehouse space in the
same building complex as the Company’s current space. The rent, which commenced
effective December 1, 2010, is approximately $5,595 per month and increases by
3% on each anniversary date of the lease. We also entered into a one-year lease
commencing October 1, 2010 for our current space of approximately 6,500 square
feet, for a monthly rental of $4,860.
F-16