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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10-Q/A

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

 

COMMISSION FILE NUMBER: 000-54132

 

11 GOOD ENERGY, INC.


(Exact name of registrant as specified in its charter)


 

 

DELAWARE

26-0299315

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


 

4450 Belden Village Street N.W., Suite 800

Canton, OH 44718

(Address of principal executive offices)

 

(330) 492-3835

(Registrant’s telephone number, including area code)

 

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file).

Yes x   No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large Accelerated Filer

o

Accelerated Filer

o

 

Accelerated Filer

o

Smaller Reporting Company

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

As of September 14, 2011, the registrant had a total of 19,901,239 shares of Common Stock outstanding


Explanatory Note

 

 

 The purpose of this Amendment No. 1 (the “Amendment”) to 11 Good Energy, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, filed with the Securities and Exchange Commission on August 22, 2011 (the “Form 10-Q”), is to correct certain typographical and inadvertent errors and provide additional disclosure information in Item 1 of Part I, Note 12 Options and Warrants and Note 14 Subsequent Events in the notes to the unaudited financial statements for the period ended June 30, 2011, and Item 2 of Part II. The amendment did not have impact on our financial results. This amendment is also to furnish Exhibit 101 to the Form 10-Q/A in accordance with Rule 405 of Regulation S-T. Exhibit 101 to this report provides the condensed consolidated financial statements and related notes from the Form 10-Q/A formatted in XBRL (extensible Business Reporting Language).

 

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


11 GOOD ENERGY, INC. AND SUBSIDIARY

INDEX

 

 

 

 

 

 

 

Page
Number

 

 

 

 

PART I

Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2011 (Unaudited) and December 31, 2010

 

3

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations – Three Months Ended June 30, 2011 and June 30, 2010 and for the period May 23, 2007 (date of inception) to June 30, 2011

 

4

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders Equity – January 1, 2011 to June 30, 2011

 

5

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2011 and June 30, 2010 and for the period May 23, 2007 (date of inception) to June 30, 2011

 

6-7

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20-29

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

Item 4.

Controls and Procedures

 

30

 

 

 

 

PART II

Other Information

 

31

 

 

 

 

 

Exhibits

 

31-32

 

 

 

 

SIGNATURES

 

33

 

 

 

 

Certifications

 

 

2


PART I.

FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

11 GOOD ENERGY, INC. AND SUBSIDIARY
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 


 


 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

12,519

 

$

29,879

 

Inventory

 

 

469,949

 

 

624,739

 

Accounts receivable, net

 

 

38,372

 

 

51,801

 

Available for sale securities

 

 

1,299

 

 

576,990

 

Other current assets

 

 

47,357

 

 

24,974

 

 

 



 



 

Total current assets

 

 

569,496

 

 

1,308,383

 

 

 



 



 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

2,371,022

 

 

2,562,675

 

 

 



 



 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

Patents

 

 

65,479

 

 

58,272

 

Goodwill

 

 

639,504

 

 

639,504

 

Deposits

 

 

2,163

 

 

2,163

 

 

 



 



 

Total other assets:

 

 

707,146

 

 

699,939

 

 

 



 



 

 

 

 

 

 

 

 

 

Total assets

 

$

3,647,664

 

$

4,570,997

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

942,286

 

$

458,043

 

Note payable related party    
50,000
       

Advances, related party

 

 

132,641

 

 

 

Convertible notes payable, net of debt discount

 

 

49,306

 

 

 

 

 



 



 

Total current liabilities

 

 

1,174,233

 

 

458,043

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Series A Preferred stock, $0.0001 par value; 11,000,000 shares authorized, issued and outstanding at June 30, 2011 and December 31, 2010.

 

 

1,100

 

 

1,100

 

Common stock, $0.0001 par value; 65,000,000 shares authorized; 20,856,561 and 20,811,561 issued as of June 30, 2011 and December 31, 2010, respectively; 19,901,239 and 19,856,239 outstanding as of June 30, 2011 and December 31, 2010, respectively.

 

 

2,086

 

 

2,081

 

Additional paid in capital

 

 

24,845,230

 

 

22,498,920

 

Due from related party

 

 

(78,519

)

 

(53,519

)

Deficit accumulated during development stage

 

 

(20,710,566

)

 

(16,551,567

)

Accumulated other comprehensive income

 

 

(88,400

)

 

(286,561

)

Treasury stock, 955,322 shares as of June 30, 2011 and December 31, 2010

 

 

(1,497,500

)

 

(1,497,500

)

 

 



 



 

Total stockholders’ equity

 

 

2,473,431

 

 

4,112,954

 

 

 



 



 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,647,664

 

$

4,570,997

 

 

 



 



 

See the accompanying notes to these unaudited condensed consolidated financial statements

3


11 GOOD ENERGY, INC. AND SUBSIDIARY
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three months ended June 30,

 

Six months ended June 30,

 

From May 23, 2007
(date of inception)
through
June 30, 2011

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 


 


 


 


 


 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

68,291

 

$

30,080

 

$

97,513

 

$

78,507

 

$

567,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

154,112

 

 

97,747

 

 

268,508

 

 

204,995

 

 

1,176,071

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

 

(85,821

)

 

(67,667

)

 

(170,996

)

 

(126,488

)

 

(608,559

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General, selling and administrative expenses

 

 

2,622,851

 

 

1,135,332

 

 

3,584,110

 

 

3,687,772

 

 

14,981,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,162

 

 

125,000

 

 

123,713

 

 

226,323

 

 

935,695

 

Depreciation and amortization

 

 

29,185

 

 

42,373

 

 

58,371

 

 

83,420

 

 

298,583

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

2,675,198

 

 

1,302,705

 

 

3,766,194

 

 

3,997,515

 

 

16,215,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) FROM OPERATIONS

 

 

(2,761,019

)

 

(1,370,372

)

 

(3,937,190

)

 

(4,124,003

)

 

(16,824,165

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

 

55,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(8,726

)

 

 

 

(8,726

)

 

(7,077

)

 

(3,858,708

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized loss on sale of securities

 

 

(195,300

)

 

 

 

(213,083

)

 

 

 

(84,277

)

Gain on sale of property, plant and equipment

 

 

 

 

 

 

 

 

 

 

1,200

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss before provision for income taxes

 

 

(2,965,045

)

 

(1,370,372

)

 

(4,158,999

)

 

(4,131,080

)

 

(20,710,566

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$

(2,965,045

)

$

(1,370,372

)

 

(4,158,999

)

$

(4,131,080

)

$

(20,710,566

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share (basic and fully diluted)

 

$

(0.15

)

$

(0.07

)

$

(0.21

)

$

(0.25

)

$

(1.34

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding (basic and fully diluted)

 

 

19,877,996

 

 

19,443,803

 

 

19,867,177

 

 

16,813,814

 

 

15,504,532

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,965,045

)

$

(1,370,372

)

$

(4,158,999

)

$

(4,131,080

)

$

(20,710,566

)

Unrealized (loss) gain on securities available for sale

 

 

193,320

 

 

(353,839

)

 

198,161

 

(527,175

)

 

(88,400

)

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(2,771,725

)

$

(1,724,211

)

$

(3,960,838

)

$

(4,658,255

)

$

(20,798,966

)

 

 



 



 



 



 



 

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

4




11 GOOD ENERGY, INC. AND SUBSIDIARY
(a development stage company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FROM JANUARY 1, 2011 TO JUNE 30, 2011
(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred

 

Common

 

Additional
Paid in
Capital

 

Receivable
from
shareholders/
officers

 

Treasury
Stock

 

Other
Comprehensive
Income

 

Accumulated
Deficit during
Development
Stage

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

Amount

 

Stock

 

Amount

 

 

 

 

 

 

 

 

 


 


 


 


 


 


 


 


 


 


 

 

Balance, January 1, 2011

 

 

11,000,000

 

$

1,100

 

 

20,811,561

 

$

2,081

 

$

22,498,920

 

$

(53,519

)

$

(1,497,500

)

$

(286,561

)

$

(16,551,567

)

$

4,112,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable from purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

(25,000

)

 

 

 

 

 

 

 

(25,000

)

Sale of common stock

 

 

 

 

 

 

45,000

 

 

5

 

 

224,995

 

 

 

 

 

 

 

 

 

 

225,000

 

Unrealized gain on securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

198,161

 

 

 

 

198,161

 

Fair value of stock options

 

 

 

 

 

 

 

 

 

 

1,911,895

 

 

 

 

 

 

 

 

 

 

1,911,895

 

Beneficial conversion feature and value of warrants in conjunction with convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

209,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

209,420

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,158,999

)

 

(4,158,999

)

 

 



 



 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2011

 

 

11,000,000

 

$

1,100

 

 

20,856,561

 

$

2,086

 

$

24,845,230

 

$

(78,519

)

$

(1,497,500

)

$

(88,400

)

$

(20,710,566

)

$

2,473,431

 

 

 



 



 



 



 



 



 



 



 



 



 

See the accompanying notes to these unaudited condensed consolidated financial statements

5


11 GOOD ENERGY, INC. AND SUBSIDIARY
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

From May 23, 2007
(date of inception) through
June 30, 2011

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 


 


 


 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

Net loss for the period

 

$

(4,158,999

)

$

(4,131,080

)

$

(20,710,566

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

191,653

 

 

198,576

 

 

736,991

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

8,726

 

 

 

 

 

3,316,503

 

Stock-based compensation of services by a related party

 

 

 

 

1,493,840

 

 

2,024,840

 

Stock-based compensation of services to consultant

 

 

 

 

 

 

59,000

 

 

Fair value of options issued for services

 

 

1,911,895

 

 

 

 

2,112,100

 

Gain on sale of property and equipment

 

 

 

 

 

 

(1,200

)

Realized loss on sale of securities available for sale

 

 

213,083

 

 

 

 

84,277

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Inventory

 

 

154,790

 

 

(552,290

)

 

(443,713

)

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

13,429

 

 

32,786

 

 

(38,372

)

Other current assets

 

 

(22,383

)

 

114,703

 

 

110,653

 

Accounts payable and accrued liabilities

 

 

484,243

 

 

(110,476

)

 

982,318

 

 

 



 



 



 

Net cash used in operating activities

 

 

(1,203,563

)

 

(2,953,941

)

 

(11,767,169

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

Acquisition, net of cash acquired

 

 

 

 

 

 

(588,952

)

Proceeds from sale of property and equipment

 

 

 

 

 

 

3,200

 

Purchase of property, plant and equipment

 

 

 

 

(138,623

)

 

(3,039,723

)

Payments for acquisition of patent

 

 

(7,207

)

 

 

 

(65,479

)

Proceeds from sale of securities available for sale

 

 

560,769

 

 

 

 

1,108,516

 

Purchase of securities available for sale

 

 

 

 

(259,691

)

 

(1,282,492

)

 

 



 



 



 

Net cash provided by (used in) investing activities

 

 

553,562

 

 

(398,314

)

 

(3,864,930

)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of shares to founders

 

 

 

 

 

 

2,070

 

Due from related party

 

 

(25,000

)

 

 

 

(865,663

)

Proceeds from note payable to related party

 

 

50,000

 

 

 

 

 

50,000

 

Proceeds from related party advance

 

 

132,641

 

 

 

 

132,641

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from common stock

 

 

225,000

 

 

805,846

 

 

10,478,069

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible notes

 

 

250,000

 

 

 

 

8,289,323

 

Proceeds from related party note payable

 

 

 

 

 

 

25,000

 

Purchase of treasury stock

 

 

 

 

(122,500

)

 

(647,500

)

Payments of related party note payable

 

 

 

 

(25,000

)

 

(25,000

)

Payments of notes payable

 

 

 

 

 

 

(84,322

)

Payments of convertible notes

 

 

 

 

(15,000

)

 

(1,710,000

)

 

 



 



 



 

Net cash provided by financing activities

 

 

632,641

 

 

643,346

 

 

15,644,618

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(17,360

)

 

(2,708,909

)

 

12,519

 

Cash and cash equivalents at beginning of period

 

 

29,879

 

 

4,869,749

 

 

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

12,519

 

$

2,160,840

 

$

12,519

 

 

 



 



 



 

See the accompanying notes to these unaudited condensed consolidated financial statements

6


11 GOOD ENERGY, INC. AND SUBSIDIARY
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From May 23, 2007
(date of inception) through
June 30, 2011

 

 

 

Six months ended June 30,

 

 

 

 

2011

 

2010

 

 

 

 


 


 


 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

Taxes paid

 

$

 

$

 

$

 

Interest paid

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Non cash financing activities:

 

 

 

 

 

 

 

 

 

 

Common stock issued to acquire 11 Good’s Energy, LTD

 

$

 

$

 

$

429

 

 

Common stock issued in exchange for convertible note and accrued interest

 

$

 

$

 

$

20,970

 

Common stock subscribed for conversion of convertible notes

 

$

 

$

 

$

6,498,709

 

 

Treasury stock received in exchange for related party note receivable and accrued interest

 

$

 

$

 

$

787,144

 

See the accompanying notes to these unaudited condensed consolidated financial statements

7


11 GOOD ENERGY, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011 AND 2010
(UNAUDITED)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Basis and business presentation

The accompanying unaudited condensed consolidated financial statements of 11 Good Energy, Inc., (the “Company”), have been prepared in accordance with Regulation S-X of the Securities and Exchange Act, as amended, and instructions to Form 10-Q/A and should be read in conjunction with the audited financials for the year ended December 31, 2010 included in the Company’s SEC on Form 10-K filed on April 15, 2011. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results from operations for the three month and six months periods ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The consolidated financial statements as of December 31, 2010 have been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary 11 Good’s Energy, LTD (“11 Good’s”). All significant intercompany balances and transactions have been eliminated in consolidation.

Dependency on key management

The future success or failure of the Company is dependent primarily upon the continued services of its executive officers. The ability of the company to pursue its business strategy effectively will also depend upon, among other factors, the successful recruitment and retention of additional highly skilled and experienced managerial, marketing, engineering and technical personnel. There can be no assurance that the company will be able to retain or recruit such personnel.

New accounting pronouncements

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

NOTE 2 – GOING CONCERN MATTERS

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements during the six months ended June 30, 2011, the Company incurred net losses attributable to common shareholders of $4,158,999 and used $1,203,563 in cash for operating activities during the six months ended June 30, 2011. The accumulated deficit during development stage amounted to $20,710,566. These factors among others may indicate that the Company will be unable to continue as a going concern.

8


NOTE 2 – GOING CONCERN MATTERS (cont’)

The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

NOTE 3 – INTANGIBLE ASSETS

Patents

Patents are capitalized at incurred costs and are amortized ratably over the lesser of their economic or legal life. The patents are currently in development stage not subject to current period amortization.

Goodwill

The Company does not amortize goodwill. The Company recorded goodwill in the amount of $639,504 as a result of the acquisition of 11 Good’s Energy LTD during the year ended December 31, 2007.

The Company accounts for and reports acquired goodwill under Accounting Standards Codification subtopic 350-10, Intangibles-Goodwill and Other (“ASC 350-10”). In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis or more often if events and circumstances warrant. Any write-downs will be included in results from operations.

During the years ended December 31, 2010 and 2009, the Company management performed an evaluation of its goodwill for purposes of determining the implied fair value of the assets at the end of each respective year. The test indicated that the recorded remaining book value of its goodwill did not exceed its fair value for the years ended December 31, 2010 and 2009. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

9


NOTE 4 - INVENTORIES

Inventory is stated at the lower of cost or market. The cost is determined using the first-in first-out method. Costs of finished goods inventory include costs associated with the procurement and transportation of Soybean oil and other raw materials used in the manufacture of G2 Diesel.

As of June 30, 2011 and December 31, 2010, inventories are comprised of the following:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 

(unaudited)

 

 

 

 

 


 


 

Raw materials

 

$

351,874

 

$

351,874

 

Finished fuel

 

 

118,075

 

 

272,865

 









Total

 

$

469,949

 

$

624,739

 

 

 



 



 

NOTE 5 – OTHER CURRENT ASSETS

Other assets as of June 30, 2011 and December 31, 2010 are comprised of the following:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 

(unaudited)

 

 

 

 

 


 


 

Prepaid fuel/product testing

 

 

 

 

19,637

 

Prepaid insurance

 

 

26,001

 

 

 

Prepaid other expenses

 

 

21,356

 

 

5,337

 









Total

 

$

47,357

 

$

24,974

 

 

 



 



 

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

The Company’s property, plant and equipment at June 30, 2011 and December 31, 2010 consist of the following:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December
31, 2010

 

 

 

(unaudited)

 

 

 

 

 


 


 

Leasehold improvements

 

$

345,381

 

$

345,381

 

Factory equipment

 

 

2,381,478

 

 

2,381,478

 

Furniture and fixtures

 

 

21,709

 

 

21,709

 

Office equipment

 

 

20,545

 

 

20,545

 

Vehicles

 

 

131,225

 

 

131,225

 

Computer equipment and software

 

 

148,300

 

 

148,300

 

Web design

 

 

51,505

 

 

51,505

 









Total

 

 

3,100,143

 

 

3,100,143

 

Less accumulated depreciation

 

 

729,121

 

 

537,468

 









Net

 

$

2,371,022

 

$

2,562,675

 

 

 



 



 

10


NOTE 6 – PROPERTY, PLANT AND EQUIPMENT (cont’)

Property and equipment are recorded on the basis of cost. For financial statement purposes, property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment.

Depreciation expense was $95,826 and $100,015 for the three months ended June 30, 2011 and 2010, respectively, of which $66,641 and $57,642 was included as part of cost of sales for the three months ended June 30, 2011 and 2010, respectively.

Depreciation expense was $191,653 and $198,575 for the six months ended June 30, 2011 and 2010, respectively, of which $133,282 and $115,155 was included as part of cost of sales for the six months ended June 30, 2011 and 2010, respectively.

NOTE 7 – AVAILABLE-FOR-SALE SECURITIES

Cost and fair value of marketable equity securities at June 30, 2011 and December 31, 2010 are as follows:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 

(unaudited)

 

 

 

 

 


 


 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

1,299

 

 

576,990

 

Equity securities:

 

 

 

 

 

 

 

Fair value

 

$

1,299

 

$

576,990

 

Total unrealized (losses) gains in accumulated other comprehensive income

 

$

(88,400

)

 

(286,561

)

During the three months ended June 30, 2011 and 2010, the Company realized an aggregate loss of $195,300 and $0 with the sales of marketable securities, respectively. Unrealized gains (losses) are accounted for as other comprehensive income (loss).

During the six months ended June 30, 2011 and 2010, the Company realized an aggregate loss of $213,083 and $0 with the sales of marketable securities, respectively. Unrealized gains (losses) are accounted for as other comprehensive income (loss).

NOTE 8 – COMMON STOCK

Between August 2009 and February 2010, the Company has received net proceeds of $10,253,069, through the subscription for common stock consisting of 3,977,333 shares of common stock and 1,988,667 warrants. All common shares subscribed were issued during the year ended December 31, 2010. In the six months ended June 30, 2011, the Company received additional gross proceeds of $225,000 from the sale of 22,500 shares of Common Stock and two year Warrants to purchase 45,000 shares, exercisable at $7.50 per share from date of issuance through June 30, 2013.

11


NOTE 9 – RELATED PARTY TRANSACTIONS

Facilities

Since April 1, 2008, the Company has occupied warehouse space provided by one of the Company’s founders. The Company agreed to pay a total of $1 per month for the space. The Company records this fee as rent expense when incurred. During this time period, the Company constructed a leasehold improvement to the leased warehouse space for the purpose of locating our bio-fuel manufacturing facility.

Due to related party

During the six months ended June 30, 2011, the Company’s President and CEO advanced an aggregate of $132,641 for working capital purposes to the Company. The advances are short term, non-interesting bearing and are due upon demand.

During the quarter ended June 30, 2011, the Company borrowed $50,000 from an organization related to the Company’s President and CEO. In connection with this transaction, the Company issued unsecured Notes in the principal amount of $50,000. The Notes charge interest at 9% per annum and are callable on demand.

Receivable from purchase of treasury stock

During the six months ended June 30, 2011, the Company advanced $25,000 to acquire the Company’s common stock (treasury stock). As of June 30, 2011, the common stock has not been received. This amount has been treated as a reduction of stockholder’s equity as a result of the obligation being settled in the Company’s own stock.

12


NOTE 10 – FAIR VALUE

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of June 30, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Quoted
Prices in
Active
Markets for
Identical
Instruments
Level 1

 

Significant
Other
Observable
Inputs
Level 2

 

Significant
Unobservable
Inputs
Level 3

 











Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

$

1,299

 

$

1,299

 

$

 

$

 















Total

 

$

1,299

 

$

1,299

 

$

 

$

 

 

 



 



 



 



 

The following table provides a summary of changes in fair value of the Company’s Level 1 financial assets as of June 30, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

$

576,990

 

Security sold:

 

 

(554,191

)

Unrealized loss:

 

 

(21,500

)

 

 



 

Balance, June 30, 2011

 

1,299

 

 

 



 

The Company adopted the provisions of ASC 825-10 prospectively effective as of the beginning of Fiscal 2008. For financial assets and liabilities included within the scope of ASC 825-10, the Company will be required to adopt the provisions of ASC 825-10 prospectively as of the beginning of Fiscal 2009. The adoption of ASC 825-10 did not have a material impact on our consolidated financial position or results of operations.

The fair value of the assets, securities available for sale, at June 30, 2011 was grouped as Level 1 valuation as the market price was readily available.

13


NOTE 11 - LOAN TRANSACTION

Convertible Note

A summary of convertible debentures payable at June 30, 2011 and December 31, 2010 is as follows:

 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 


 


 

Senior Convertible Debentures, accrue interest at 11% per annum and mature on December 31, 2011

 

$

250,000

 

 

 

Debt Discount - beneficial conversion feature, net of accumulated amortization of $4,363 and $0 at June 30, 2011 and December 31, 2010, respectively.

 

 

(100,347

)

 

 

Debt Discount - value attributable to warrants attached to notes, net of accumulated amortization of $4,363 and $0 at June 30, 2011 and December 31, 2010, respectively.

 

 

(100,347

)

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Total Current Portion

 

$

49,306

 

 

 

 

 



 



 

On June 24, 2011 the Company issued $250,000 in Convertible Promissory Notes that matures December 31, 2011. The Promissory Notes bear interest at a rate of 11% and will be convertible into 50,000 shares of the Company’s common stock, at a conversion rate of $5.00 per share. Interest can also be converted into common stock at the conversion rate of $5.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 62,500 warrants to purchase the Company’s common stock at $5.00 per share over 2 years.

In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $104,710 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (192 days) as interest expense.

In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 62,500 shares of the Company’s common stock at $5.00 per share. The warrants expire two years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $104,710 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 2 years, an average risk free interest rate of 4.95%, a dividend yield of 0%, and volatility of 108%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (192 days) as interest expense.

The Company amortized debt discount of $8,726 to current period operations as interest expense for the three and six months ended June 30, 2011.

14


NOTE 12 – OPTIONS AND WARRANTS

The following table summarizes options outstanding and the related prices for the shares of the Company’s common stock issued to consultants and employees as of June 30, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

 

 

Options Exercisable

 

Exercise
Prices

 

Number
Outstanding

 

Weighted Average
Remaining
Contractual Life
(Years)

 

Weighted
Average
Exercise
Price

 

Number
Exercisable

 

Weighted
Average
Exercise
Price

 


 


 


 


 


 


 

$

3.00

 

 

500,000

 

 

1.00

 

$

3.00

 

 

500,000

 

$

3.00

 

 

3.00

 

 

150,000

 

 

2.08

 

 

3.00

 

 

45,833

 

 

3.00

 

 

5.00

 

 

785,000

 

 

3.00

 

 

5.00

 

 

567,500

 

 

5.00

 

 

 

 

 

1,435,000

 

 

2.21

 

 

4.00

 

 

1,113,333

 

 

4.02

 

Transactions involving stock options issued are summarized as follows:

 

 

 

 

 

 

 

 

 

 

Number of
Shares

 

Weighted
Average
Price
Per Share

 

 

 


 


 

 

Outstanding at December 31, 2010:

 

 

500,000

 

 

3.00

 

Granted

 

 

935,000

 

 

4.53

 

Exercised

 

 

 

 

 

Canceled or expired

 

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2011:

 

 

1,435,000

 

$

4.00

 

 

 



 



 

On June 24, 2011, the Company granted an aggregate of 935,000 stock options to consultants and employees in connection with services rendered at the exercise price of $5.00 over three years.

The fair values of the vested options were determined using the Black Scholes option pricing model with the following assumptions:

 

 

 

 

 

Dividend yield:

 

 

-0-

%

Volatility

 

 

108.00

%

Risk free rate:

 

 

4.95

%

Expected option life

 

 

3 years

 

The fair value of vested options in the amount of $1,911,895 was charged to operations during the three and six months ended June 30, 2011.

15


NOTE 12 – OPTIONS AND WARRANTS (continued)

The following table summarizes in warrants outstanding and the related prices for the shares of the Company’s common stock issued as of June 30, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding

 

 

 

Warrants Exercisable

 

Exercise
Prices

 

Number
Outstanding

 

Weighted Average
Remaining
Contractual Life
(Years)

 

Weighted
Average
Exercise
Price

 

Number
Exercisable

 

Weighted
Average
Exercise
Price

 


 


 


 


 


 


 

$

2.55

 

 

3,519,830

 

 

1.23

 

$

2.55

 

 

3,519,830

 

$

2.55

 

 

4.50

 

 

2,383,599

 

 

1.46

 

 

4.50

 

 

2,383,599

 

 

4.50

 

 

7.50

 

 

22,500

 

 

2.00

 

 

7.50

 

 

22,500

 

 

7.50

 

 

5.00

 

 

62,500

 

 

2.00

 

 

5.00

 

 

62,500

 

 

5.00

 



















 

 

 

 

5,988,429

 

 

1.33

 

$ 

 3.37

 

 

5,988,429

 

$ 

 3.37

 

Transactions involving warrants issued are summarized as follows:

 

 

 

 

 

 

 

 

 

 

Number of
Shares

 

Weighted
Average
Price
Per Share

 







Outstanding at December 31, 2010:

 

 

5,903,429

 

$

3.34

 

Granted

 

 

85,000

 

 

5.66

 

Exercised

 

 

 

 

 

Cancelled or forfeited

 

 

 

 

 









Outstanding at June 30, 2011:

 

 

5,988,429

 

$ 

3.37

 

In connection with the sale of the common stock, the Company issued an aggregate of 22,500 warrants to shareholders and placement agent to purchase the Company’s common stock for $5.00 per share expiring in June 2013 (See Note 8).

In connection with the issuance of convertible notes (see Note 11 above), the Company issued 62,500 detachable warrants during the three and six months ended June 30, 2011 granting the holder the right to acquire an aggregate of shares of the Company’s common stock at $5.00 per share. The warrants expire on June 30, 2013. The Company valued the warrant commitment in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 2 years, an average risk free interest rate of 4.95%, a dividend yield of 0%, and volatility of 108%. The debt discount attributed to the value of the warrant commitment issued is amortized over the notes’ maturity period (till December 31, 2011) as interest expense.

16


NOTE 13 – SUBSEQUENT EVENTS

We are currently in the process of raising capital through a private placement sale of common stock dated July 27, 2011, which outlines the sale of up to 2,200,000 shares of common stock at $5 per share for an aggregate of up to $11,000,000. This placement has similar terms as the memorandum dated January 28, 2011 and updates the private placement memorandum with recent corporate developments occurring since January 2011. As of the date of this filing, we have raised and collected $20,000 as a result of this private placement sale of equity.

17


NOTE 13 – SUBSEQUENT EVENTS (cont’)

On July 11, 2011, the Company and its recently formed subsidiary, namely, 11 Good Energy Sciences, Inc. (hereinafter referred to as “Sciences”) entered into a Stock Purchase Agreement (the “Agreement”) to acquire 100% of the outstanding capital stock of KAI BioEnergy Corp. from the stockholders of KAI (collectively hereinafter referred to as the “Sellers”). Sciences agreed to pay to the Sellers and the Placement Agent, Oracle Capital LLC, the following:

 

 

$300,000 in cash paid to Sellers and $330,000 paid in cash to Oracle;

a 36% interest in Sciences paid to Sellers and a 4% interest in Sciences paid to Oracle;

reimburse Seller’s legal fees up $53,000;

payment at closing of the liabilities of KAI based upon a closing balance sheet up to a maximum of $180,000, it being understood that any liabilities above $180,000 are at the sole and absolute discretion and written consent of Sciences; and

an Earn-Out of $3.3 million (the “Earn-Out”) in the event KAI on or before November 11, 2013, subject to possible extension in the event of financing delays, is able to prove the viability of producing the aerial productivity equivalent of 3,000 gallons per acre, per year of oil from microalgae.

The closing condition of the Agreement is the funding of Sciences with at least $1.1 million by the Company on or before August 3, 2011. These funds would be utilized to meet Sciences’ obligations which are specified above and the balance will be allocated primarily for research and development of KAI. The Agreement has a post closing condition that the Company will raise and contribute to the capital of Sciences at least $2.2 million in accordance with a schedule over a period of approximately two years. Such funding must timely occur to avoid any dilution (up to a maximum of two-thirds) in ownership interest of Sciences. In connection with the Agreement, the Company will enter into employment agreements as well as a non-compete, non-solicitation and non-disclosure agreement with the two stockholders of KAI. These agreements will be for a period of two years, subject to possible extension as provided in the agreements.

Extension of Agreement

To date, the Company has paid Kai an aggregate of $312,000 to extend the closing date to September 7, 2011. On September 9, 2011, Sciences and Sellers agreed to extend the closing date to September 14, 2011. All option payments are non-refundable, but shall be credited towards the $1.1 million closing condition referenced in the preceding paragraph.

Buy-Out Option

In the event that Sellers receive the Earn-Out, Sciences has the option to buy-out Seller’s and Oracle’s collective 40% Common Stock position at a cost of $13.2 million, payable in cash or under certain specified conditions in the Company’s Common Stock. Sellers and Oracle have the right to refuse the Buy-Out on up to one-half of their position.

About KAI BioEnergy Corp.

Kai is a research and development company developing a platform series of technologies that enable efficient and integrated continuous microalgal processing. Focusing on the economics and development of an industrially scalable processing system, KAI has been working on developing a platform system that directly extracts oil from a water based algal-cultivation medium, ultimately separating the “oil-rich” lipids, biomass, and water medium. A biofuel company can then take these oil-rich lipids and use them to produce algal biofuels. KAI’s integrated continuous high flow system is expected to offer low capital costs, ultra-low operating costs with no additives or hazardous chemicals required, ultimately developing industrial scalability.

18


NOTE 13 – SUBSEQUENT EVENTS (cont’)

On July 22, 2011, the Company borrowed $100,000. In connection with this transaction, a note payable in the principal amount of $100,000 was issued and is convertible to common stock at $5.00 per share. The Company also issued two-year Warrants to purchase 25,000 shares of Common Stock exercisable at $5.00 per share at any time from the date of issuance through June 30, 2013.

On August 5, 2011, the Company borrowed $100,000 from a director of the Company. In connection to this transaction, the Company issued a note payable in the principal amount of $100,000 and warrants to purchase 100,000 shares of common stock exercisable for $3.00 per share. In addition, the note carries the right for the holder to vote the common stock of 11 Good Energy Sciences, Inc until the note is paid in full.

On August 12, 2011, the Company borrowed $68,000 from a director of the Company. In connection to this transaction, the Company issued a note payable in the principal amount of $68,000 and warrants to purchase 40,000 shares of common stock exercisable for $3.00 per share. With the exception of the warrants issued, the note carries the same terms and conditions as the August 5, 2011 note payable.

On August 19, 2011, the Company borrowed $68,000 from a director of the Company. In connection to this transaction, the Company issued a note payable in the principal amount of $68,000 and warrants to purchase 40,000 shares of common stock exercisable for $3.00 per share. The note carries the same terms and conditions as the August 12, 2011 note payable.

On September 1, 2011, the Company entered into a Letter of Intent for a joint venture to sell G2 Diesel in Mexico, subject to regulatory approval in Mexico and entering into definitive joint venture agreements to supply the biofuel component of the fuel blend (which blend is expected to be 5% biofuel) required for 500 buses in Mexico for at least 30 days of projected operation and then to gradually increase the order to supply the biofuel component for up to 3,000 buses. In the event that a definitive agreement is entered into, approximately $320,000 would be paid by the Company to cover setup costs of the joint venture project. We can provide no assurance that a definitive agreement for the proposed joint venture project will be entered into on terms satisfactory to us, if at all. As a part of this agreement, the Company’s Chief Executive Officer, Frederick C. Berndt, has entered into two private agreements to purchase an aggregate of 100,000 shares from two stockholders at a total purchase price of $300,000. Separately, the Company has agreed to purchase the same 100,000 shares from the investors in the event that the Company raises at least $1,500,000 (the “Financing Condition”) on or before September 30, 2011 and in the event that Mr. Berndt has not completed the purchases before the Financing Condition has been completed.

On September 8, 2011, the Company entered into an agreement with a non-affiliated investor to loan $200,000 to the Company, which is convertible to common stock at $5.00 per share and repayable to the investor on a maturity date of March 8, 2012. Interest at the rate of 11% per annum is payable on December 8, 2011 and the balance at maturity. The lender also received three year warrants to purchase 180,000 shares, exercisable at $3.00 per share at any time over the life of the warrants.

19


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The information contained in this Form 10-Q/A and documents incorporated herein by reference are intended to update the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and such information presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and other information contained in such Form 10-K and other Company filings with the Securities and Exchange Commission (“SEC”).

This Quarterly Report on Form 10-Q/A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, and actual results could be significantly different than those discussed in this Form 10-Q/A. Certain statements contained in Management’s Discussion and Analysis, particularly in “Liquidity and Capital Resources,” and elsewhere in this Form 10-Q/A are forward-looking statements. These statements discuss, among other things, expected growth, future revenues and future performance. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements, whether oral or written, made by us or on our behalf. The forward-looking statements are subject to risks and uncertainties identified under the “Risk Factors” section of the aforementioned Form 10-K for the fiscal year ended December 31, 2010. The risk factors of said Form 10-K should not be construed as an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by us. All forward-looking statements included in this document are made as of the date hereof, based on information available to the Company on the date thereof, and the Company assumes no obligation to update any forward-looking statements.

Overview

11 Good Energy, Inc. is a Delaware corporation formed on May 23, 2007 for the purposes of developing, testing, manufacturing and distributing bio-fuel with energy related plans and pursuits relying on the commercialization of our proprietary fuel product, G2 Diesel, as discussed below.

On October 23, 2007, we completed the purchase of an existing biodiesel manufacturer, 11 Good’s Energy, LTD, a limited liability company (becoming our wholly-owned subsidiary), formed in the State of Ohio in February 2006. Historically, our subsidiary has been a development stage company, which has primarily engaged in research activities to develop a proprietary manufacturing process to produce bio-fuel for diesel applications.

In early 2008, we began construction on our manufacturing facility at the location of our operating subsidiary in Magnolia, Ohio (Magnolia Plant). In June 2008, we began placing tanks and constructing the infrastructure of the Magnolia Plant. Unfortunately, the industry experienced changes in fire suppression regulations requiring us to invest over $1,500,000 in additional infrastructure not anticipated in the original capital expenditure budget. We had to cease plant construction and operations from November 2008 to October 2009 in order to secure the financing and make the necessary changes to the fire suppression system and design of the Magnolia Plant.

20


Acquisition of 11 Good’s Energy, LTD

As a result of the purchase of 11 Good’s Energy, LTD (“11 Good’s”) all of the assets, liabilities and proprietary technology of 11 Good’s were transferred to us by the former partners of 11 Good’s in exchange for cash of $611,900, $111,230 in assumed liabilities and 4,285,714 shares of common stock of the company valued at $429. The assets and liabilities of 11 Good’s were recorded at fair market value at the time of acquisition. 11 Good’s is our sole subsidiary and operations and the management of 11 Good’s and us are the same. The consolidated financial statements include the accounts of us and our wholly-owned subsidiary and all intercompany balances and transactions have been eliminated.

The Company accounts for acquisitions in accordance with the provisions of ASC 805-10. The Company assigns to all identifiable assets acquired a portion of the cost of the acquired company equal to the estimated fair value of such assets at the date of acquisition. The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired as goodwill. Management determined the fair values assigned to inventory based upon selling prices less cost of disposal and the Company’s profit allowance and the case of work in process less cost to complete. The Fair value of plant and equipment are based on current replacement costs. The Company recorded goodwill in the amount of $639,504 as a result of the acquisition of 11 Good’s Energy LTD during the year ended December 31, 2007. The Company accounts for and reports acquired goodwill under Accounting Standards Codification subtopic 350-10, Intangibles-Goodwill and Other (“ASC 350-10”). The Company does not amortize goodwill. In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis or more often if events and circumstances warrant. Any write-downs will be included in results from operations.

Development Stage Company - Product Development

We are currently in an early stage of our current business plan. We have limited operating history with respect to the construction and operation of biodiesel refineries for our own use. In this respect, from May 23, 2007 (date of inception) through June 30, 2011, our revenues have totaled $567,513 and our deficit accumulated during our development stage was $20,710,566. Further, our operating subsidiary incurred from February 2006 through October 2007, costs of approximately $100,000 in the development of our subsidiary’s proprietary manufacturing process and G2 Diesel product which are not reflected in our accumulated deficit since their costs were incurred prior to the acquisition date of our subsidiary. These costs were primarily comprised of feedstock materials, labor and facilities costs. Since the acquisition, we have further developed our process and product through testing and trials and have expended money on labor, consulting, facilities and media productions in order to further our product development. Currently, the development of the fuel’s functionality is complete, although we continue to incur research and development costs to develop new feedstock alternatives and to improve materials procurement and fuel manufacturing techniques.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

21


Revenue Recognition. We recognize revenue from product sales in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists (through written sales documentation); (2) delivery has occurred (through delivery into customer’s tanks and acceptance); (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. For criteria (1) we generate a sales order and a shipping document defining number of gallons of fuel ordered, delivery and payment terms based on standing customer data and the customers purchase order. For criteria (2) we ensure delivery has occurred by documented delivery terms defining where the customer accepts the fuel delivery. Fuel stored off-site by the company remains as inventory until the customer receives the fuel from the offsite storage facility. For criteria (3) management determines the selling price based on feedstock costs and our desired margin level. Our selling price fluctuates as feedstock prices increase or decrease, primary the cost of soybean oil. Currently, management determines our selling price on a weekly basis. For criteria (4) we establish creditworthiness of the customer based on a review of established credit limits and current financial health of the entity placing the fuel order. Provisions for estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded, although we have not experienced any such items to date and do not expect any significant provisions in the future. We have no discount, rebate or warranty programs. Payments received in advance are deferred until revenue recognition is appropriate. We have no post-delivery obligations related to our products.

Inventory Valuation. We are required to make judgments based on historical experience and future expectations, as to the realizability of our inventory. We make these assessments based on the following factors: (a) existing orders and usage, (b) age of the inventory, and (c) historical experience.

Property and Equipment. We are required to make judgments based on historical experience and future expectations, as to the realizability of our property and equipment. We made these assessments based on the following factors: (a) the estimated useful lives of such assets, (b) technological changes in our industry, and (c) the changing needs of our customers.

Fair Value of Intangible Assets. We have adopted Statement of Accounting Standards Codification subtopic 805-10 (“ASC 805-10”). ASC 805-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period.

We evaluate the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 805-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Stock-Based Compensation

We account for our stock based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

22


We use the fair value method for equity instruments granted to non-employees (if any) and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

Recent Developments

On July 11, 2011, the Company and its recently formed subsidiary, namely, 11 Good Energy Sciences, Inc. (hereinafter referred to as “Sciences”) entered into a Stock Purchase Agreement (the “Agreement”) to acquire 100% of the outstanding capital stock of KAI BioEnergy Corp. from the stockholders of KAI (collectively hereinafter referred to as the “Sellers”). Sciences agreed to pay to the Sellers and the Placement Agent, Oracle Capital LLC, the following:

 

 

$300,000 in cash paid to Sellers and $330,000 paid in cash to Oracle;

a 36% interest in Sciences paid to Sellers and a 4% interest in Sciences paid to Oracle;

reimburse Seller’s legal fees up $53,000;

payment at closing of the liabilities of KAI based upon a closing balance sheet up to a maximum of $180,000, it being understood that any liabilities above $180,000 are at the sole and absolute discretion and written consent of Sciences; and

an Earn-Out of $3.3 million (the “Earn-Out”) in the event KAI on or before November 11, 2013, subject to possible extension in the event of financing delays, is able to prove the viability of producing the aerial productivity equivalent of 3,000 gallons per acre, per year of oil from microalgae.

The closing condition of the Agreement is the funding of Sciences with at least $1.1 million by the Company on or before August 3, 2011. These funds would be utilized to meet Sciences’ obligations which are specified above and the balance will be allocated primarily for research and development of KAI. The Agreement has a post closing condition that the Company will raise and contribute to the capital of Sciences at least $2.2 million in accordance with a schedule over a period of approximately two years. Such funding must timely occur to avoid any dilution (up to a maximum of two-thirds) in ownership interest of Sciences. In connection with the Agreement, the Company will enter into employment agreements as well as a non-compete, non-solicitation and non-disclosure agreement with the two stockholders of KAI. These agreements will be for a period of two years, subject to possible extension as provided in the agreements.

Extension of Agreement

To date, the Company has paid Kai an aggregate of $312,000 to extend the closing date to September 7, 2011. On September 9, 2011, Sciences and Sellers agreed to extend the closing date to September 14, 2011. All option payments are non-refundable, but shall be credited towards the $1.1 million closing condition referenced in the preceding paragraph.

Buy-Out Option

In the event that Sellers receive the Earn-Out, Sciences has the option to buy-out Seller’s and Oracle’s collective 40% Common Stock position at a cost of $13.2 million, payable in cash or under certain specified conditions in the Company’s Common Stock. Sellers and Oracle have the right to refuse the Buy-Out on up to one-half of their position.

23


About KAI BioEnergy Corp.

Kai is a research and development company developing a platform series of technologies that enable efficient and integrated continuous microalgal processing. Focusing on the economics and development of an industrially scalable processing system, KAI has been working on developing a platform system that directly extracts oil from a water based algal-cultivation medium, ultimately separating the “oil-rich” lipids, biomass, and water medium. A biofuel company can then take these oil-rich lipids and use them to produce algal biofuels. KAI’s integrated continuous high flow system is expected to offer low capital costs, ultra-low operating costs with no additives or hazardous chemicals required, ultimately developing industrial scalability.

Results of Operations

By virtue of our purchase of 11 Good’s, which became our sole operations, the company is considered to be in the development stage in accordance with the FASB ASC Topic 915 – Development Stage Enterprises. Since its inception, the company has devoted substantially all of its time to raising capital, obtaining financing, research and development activities and obtaining many governmental organizations, municipalities and corporations to test our G2 Diesel and its performance as a blend with traditional #2 diesel fuel.

Three months Ended June 30, 2011 Compared to the Three months Ended June 30, 2010

The following table sets forth certain selected condensed consolidated statement of operations data for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 


 

 

 

2011

 

%

 

2010

 

%

 

 

 


 


 


 


 

Revenue

 

$

68,291

 

 

100

%

$

30,080

 

 

100

 

Cost of goods sold

 

 

154,112

 

 

>100

%

 

97,747

 

 

>100

%

 

 



 



 



 



 

Gross loss

 

 

(85,821

)

 

 

 

(67,667

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

2,622,851

 

 

>100

%

 

1,135,332

 

 

>100

%

Research and development

 

 

23,162

 

 

>100

%

 

125,000

 

 

>100

%

Depreciation and amortization

 

 

29,185

 

 

<100

%

 

42,373

 

 

<100

%

 

 



 

   

 



 

   

 

Total operating expenses:

 

 

2,675,198

 

 

 

 

 

1,302,705

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from operations

 

 

(2,761,019

)

 

 

 

 

(1,370,372

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized (loss) on sale of securities

 

 

(195,300

)

 

 

 

 

 

 

 

 

Interest Expense

 

 

(8,726

)

 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Net loss

 

$

(2,965,045

)

 

 

 

$

(1,370,372

)

 

 

 

 

 



 

 

 

 



 

 

 

 

The increase in revenues for the three months ended June 30, 2011 of $38,211 compared to the three months ended June 30, 2010 is the result of a customer placing fuel orders in the second quarter of 2011 for one of their terminals that completed a successful test program with G2 Diesel. This customer has agreed to continue to place orders to supply this location and continue to order G2 Diesel for several more terminals.

In general, the testing and pilot programs have continued beyond our original time estimates, which has also led to a longer sales order cycle than originally anticipated. For our testing programs that completed in 2011, results continue to show both efficiency and emissions improvements that remain of great interest to metropolitan bus systems and the rail and trucking industries. We are currently cultivating these pilot programs and relationships to generate sales orders. We expect to complete more pilot programs and regulatory approvals in 2011. The programs continue to show great promise to generate significant demand over the next quarter leading to more significant sales orders and contracts to purchase our fuel.

24


Our most significant efforts have continued to be on the approval of our fuel variance in the state of California. The fuel variance is required for our fuel to meet California regulations to sell bio-diesel fuel, which is the result of G2 Diesel’s flash point being less than traditional Biodiesel. This is the result of the small amount of ethanol in our finished fuel, which creates a lower flashpoint. We have spent considerable resources to meet California’s requirements to meet this regulation and have received positive feedback from our representatives that it should pass in 2011. We currently are licensed to sell fuel in California; however, we must meet this regulation to sell G2 Diesel. The variance requirement has delayed our ability to expand our market presence in California and has delayed our ability to sell our fuel in California. Its passage will allow many of our customers in California, which have tested and approved the use of our fuel, to purchase G2 Diesel.

Cost of goods sold was $154,112 for the three months ended June 30, 2011 and $97,747 for the three months ending June 30, 2010. This correlates to the increase in sales as described in the preceding paragraph.

Current margins for our testing programs resulted in gross losses of $85,821 for the three months ended June 30, 2011 and $67,667 for the three months ending June 30, 2010. We expect sales margins to improve once we have sales contracts in place at our scheduled premium prices after the testing programs are concluded. Currently, our G2 Diesel is being sold to companies and governmental organizations and municipalities to test our G2 Diesel as a blended product for:

 

 

 

 

power performance, maintenance and engine noise;

 

emissions and exhaust smell; and

 

fuel economy.

Research and development costs were $23,162 for the three months ended June 30, 2011 and $125,000 for the three months ending June 30, 2010. Our Research and Development activities have decreased when compared to the three months ended June 30, 2010.

Depreciation and amortization allocated to operating expenses decreased by $13,188.

Selling, general, and administrative expenses for the three months ended June 30, 2011 of $2,622,851. Such costs include, among others, payroll and related expenses, insurance costs and occupancy costs. The increase in selling, general and administrative expenses of $1,487,519 in 2011 over the comparable period of the prior year is primarily related to stock based compensation in the amount of $1,911,895 charged to operations during the three months ended June 30, 2011, offset by a decrease in consulting, legal and audit costs of $272,379. Other overhead costs such as travel, marketing and promotional cost also decreased $185,026 in comparison to the three months ended June 30, 2010.

Net loss was $2,965,045 in the three months ended June 30, 2011 as compared to $1,370,372 for the comparable period in 2010. Basic and fully diluted net loss per share for the three months ended June 30, 2011 and June 30, 2010 was $(0.15) and $(0.07), respectively. Basic and fully diluted weighted average shares outstanding for the fiscal three months ended June 30, 2011 and June 30, 2010 was 19,877,996 and 19,443,803, respectively.

25


Six months Ended June 30, 2011 Compared to the Six months Ended June 30, 2010

The following table sets forth certain selected condensed consolidated statement of operations data for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 


 

 

 

2011

 

%

 

2010

 

%

 

 

 


 


 


 


 

Revenue

 

$

97,513

 

 

100

%

$

78,507

 

 

100

 

Cost of goods sold

 

 

268,509

 

 

>100

%

 

204,995

 

 

>100

%

 

 



 



 



 



 

Gross loss

 

 

(170,996

)

 

 

 

(126,488

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

3,584,110

 

 

>100

%

 

3,687,772

 

 

>100

%

Research and development

 

 

123,713

 

 

>100

%

 

226,323

 

 

>100

%

Depreciation and amortization

 

 

58,371

 

 

<100

%

 

83,420

 

 

>100

%

 

 



 

 

 

 



 

 

 

 

Total operating expenses:

 

 

3,766,194

 

 

 

 

 

3,997,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from operations

 

 

(3,937,190

)

 

 

 

 

(4,124,003

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/expense:

 

 

 

 

<100

%

 

 

 

 

 

Interest, net

 

 

(8,726

)

 

 

 

 

(7,077

)

 

<100

%

Realized (loss) on sale of securities

 

 

(213,083

)

 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Net loss

 

$

(4,158,999

)

 

<100

%

$

(4,131,080

)

 

<100

%

 

 



 

 

 

 



 

 

 

 

The increase in revenues for the six months ended June 30, 2011 of $19,006 compared to the three months ended June 30, 2010 is the result of a customer placing fuel orders in the second quarter of 2011 for one of their terminals that completed a successful test program with G2 Diesel. This customer has agreed to continue to place orders to supply this location and continue to order G2 Diesel for several more terminals.

In general, the testing and pilot programs have continued beyond our original time estimates, which has also led to a longer sales order cycle than originally anticipated. For our testing programs that completed in 2011, results continue to show both efficiency and emissions improvements that remain of great interest to metropolitan bus systems and the rail and trucking industries. We are currently cultivating these pilot programs and relationships to generate sales orders. We expect to complete more pilot programs and regulatory approvals in 2011. The programs continue to show great promise to generate significant demand over the next quarter leading to more significant sales orders and contracts to purchase our fuel.

Our most significant efforts have been focused on approval of our fuel variance in the state of California. The fuel variance is required for our fuel to meet California regulations to sell bio-diesel fuel, which is the result of G2 Diesel’s flash point being less than traditional Biodiesel. This is the result of the small amount of ethanol in our finished fuel, which creates a lower flashpoint. We have spent considerable resources to meet California’s requirements to meet this regulation and have received positive feedback from our representatives that it should pass in 2011. We currently are licensed to sell fuel in California; however, we must meet this regulation to sell G2 Diesel. The variance requirement has certainly delayed our ability to expand our market presence in California and has delayed our ability to sell our fuel in California. Its passage will allow many of our customers in California, which have tested and approved the use of G2 Diesel, to go to order and purchase G2 Diesel.

Cost of goods sold was $268,509 for the six months ended June 30, 2011 and $204,995 for the six months ending June 30, 2010. Cost of goods sold exceeded revenues for both periods as a result of applying fixed factory depreciation and overhead to cost of goods sold, even though only a small volume of sales were generated. For the six months ended June 30, 2011, there was an increase in factory costs associated with operating the plant and selling fuel applied to cost of goods sold when compared to the six months ended June 30, 2010.

26


Current margins for our testing programs resulted in gross losses of $170,966 for the six months ended June 30, 2011 and $126,488 for the six months ending June 30, 2010. We expect sales margins to improve once we have sales contracts in place at our scheduled premium prices after the testing programs are concluded. Currently, our G2 Diesel is being sold to companies and governmental organizations and municipalities to test our G2 Diesel as a blended product for:

 

 

 

 

power performance, maintenance and engine noise;

 

emissions and exhaust smell; and

 

fuel economy.

Research and development costs were $123,713 for the six months ended June 30, 2011 and $226,323 for the six months ending June 30, 2010. Our Research and Development activities have decreased when compared to the three months ended June 30, 2010.

Depreciation and amortization included in operating expenses decreased by $25,049.

Selling, general, and administrative expenses for the six months ended June 30, 2011 of $3,584,110. Such costs include, among others, payroll and related expenses, insurance costs and occupancy costs. The decrease in selling, general and administrative expenses of $103,662 in 2011 over the comparable period of the prior year is primarily related to the decrease in costs associated with consulting, legal, audit and bonus costs.

Net loss was $4,158,999 in the six months ended June 30, 2011 as compared to $4,131,080 for the comparable period in 2010. Basic and fully diluted net loss per share for the six months ended June 30, 2011 and June 30, 2010 was $(0.21) and $(0.25), respectively. Basic and fully diluted weighted average shares outstanding for the fiscal six months ended June 30, 2011 and June 30, 2010 was 19,867,177 and 16,813,814, respectively.

27


Liquidity and Capital Resources

The company had cash and cash equivalents of $12,519 at June 30, 2011. Net cash was used in operating activities of $1,203,563 for the six months ended June 30, 2011. Cash used in operations was a result of a net loss for the period of $4,158,999; a decrease in inventory of $154,790; a decrease in accounts receivable of $13,429; an increase in payables of $484,243, fair value of options granted of $1,911,895, depreciation and amortization of $200,379, realized loss on sale of securities of $213,083 and an increase in other assets of $22,383. Net cash from investing activities of $553,562 for the six months ended June 30, 2011, included patent costs of $7,207 and proceeds from the sale of securities available for sale of $560,769. Net cash provided by financing activities of $632,641 for the six months ended June 30, 2011, included proceeds from common stock of $225,000, proceeds from issuing convertible debt of $250,000, proceeds from issuing notes payable to related party of $50,000 and proceeds from a related party advance of $132,641, partially offset by $25,000 due from a related party.

From May 23, 2007 (date of inception) through December 31, 2009, the company raised $7,930,000 by issuing notes payable convertible into Common Stock, bearing 8% interest per annum. These Notes (including principal and accrued interest thereon) in an aggregate of $8,039,323 became convertible at a price of $2.55 per share (the “Conversion Price”) based upon a 15% discount to the company’s equity raise which was completed at an offering price of $3.00 per share between August 2009 and March 2010. In addition to the number of conversion shares to be delivered to each Holder of this Note, upon conversion of the Principal Amount and accrued interest thereon, the company also delivered Unclassified Warrants expiring June 30, 2012 to purchase a number of shares of Common Stock equal to the number of Conversion Shares. As June 30, 2011and December 31, 2010, the company had outstanding $0 of these convertible notes.

Between August 2009 and February 2010, the company received gross proceeds of $11,932,000 (net proceeds of $10,253,069) through the sale of its Common Stock at a price of $3.00 per share, for a total of 3,977,333 shares.

In the six months ended June 30, 2011, the Company received proceeds of $225,000 from the sale of 45,000 shares of Common Stock and Warrants to purchase 22,500 shares, exercisable at $7.50 per share from date of issuance through June 30, 2013.

During the quarter ended June 30, 2011, the Company borrowed $250,000. In connection with this transaction, Notes in the principal amount of $250,000 were issued and are convertible at $5.00 per share. The Company also issued Warrants to purchase 62,500 shares of Common Stock exercisable at $5 per share at any time from the date of issuance through June 30, 2013.

During the quarter ended June 30, 2011, the Company borrowed $50,000 from a related party. In connection with this transaction, the Company issued Notes in the principal amount of $50,000. The Notes charge interest at 9% per annum and is callable on demand.

We have a history of losses from operations and an accumulated deficit of $20,710,566 at June 30, 2011 and negative working capital (total current liabilities in excess of total current liabilities) of $604,737. As of June 30, 2011, we are operating one production facility; currently have a total of 9 employees, with a burn rate of approximately $230,000 per month.

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In the absence of significant revenues, management believes that we will require capital funding and liquidity needs for our current corporate and plant operations. While the company anticipates more than nominal revenues will result during 2011, our ability to achieve profitable operations will depend on our ability to raise additional financing in 2011, on terms satisfactory to us, particularly if cash flow from operations continues at its current level. Further, there is no guarantee that we will ever be able to operate profitably or derive any significant revenues from our operations.

We anticipate that our future liquidity requirements will arise from the need to finance our accounts receivable and inventories, and from the need to fund our current obligations and capital expenditures. The primary sources of funding for our current operations will be cash generated from operations and the sale of current inventory and raising additional capital from the sale of equity securities.

We are currently in the process of raising capital through a private placement sale of common stock. The current private placement memorandum outlines the sale of up to 2,200,000 shares of common stock at $5 per share for an aggregate of up to $11,000,000. As of the date of this filing, we have raised and collected $20,000 as a result of a private placement sale of equity. Exemption is claimed under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

Our future plans include purchasing and/or leasing a site for the purpose of constructing a second production facility with an estimated annual output capacity of 30,000,000 gallons of G2 Diesel. To date, we have completed engineering and construction plans for such a facility and have made inquiries into potential sites in the State of Ohio for such a facility. However, detailed milestones of these plans and the specific steps needed to accomplish each milestone do not currently exist. Management estimates that once a site is secured, that construction permitting and all the other steps necessary to have such a site constructed and operational would take approximately one year to complete. The actual costs of this new facility will depend upon many factors, including, without limitation, the location and cost of the land, demolition costs of existing facilities (if any) on the site, environmental concerns (if any) and the size of the new plant. We can provide no assurances that the company will be able to obtain adequate financing for its second production facility on terms satisfactory to us, if at all.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for hedging or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements

Item 4. Controls and Procedures

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

          As of the filing date of this Form 10-Q/A, we are not a party to any pending legal proceedings.

Item 1A. Risk Factors

          As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 1A.

Item 2. Changes in Securities

          From January1, 2011 through July 31, 2011, we had limited private sales of our securities, summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

Date of
Sale

 

Title of
Security

 

Number Sold

 

Consideration
Received and
Description of
Underwriting or
Other Discounts
to
Market Price or
Convertible
Security,
Afforded to
Purchasers

 

Exemption
from
Registration
Claimed (3)

 

If Option,
Warrant or
Convertible
Security, terms of
exercise or
conversion


 


 


 


 


 


April, 2011

 

Common stock and warrants

 

45,000 Shares and 22,500 warrants

 

$225,000; 22,500 commissions paid.

 

Rule 506

 

Warrants exercisable at $7.50 per share through June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

June -July
2011

 

Notes and warrants

 

$350,000 principal amount of notes;87,500 warrants

 

$350,000:$35,000 commissions paid.

 

Rule 506

 

Notes are convertible at $5.00 per share. Warrants are exercisable at $5.00 per share through June 30, 2013..

 

 

 

 

 

 

 

 

 

 

 

January-June
2011

 

Options

 

935,000

 

Services rendered; no commissions paid

 

Section 4 (2)

 

Exercisable through June 22, 2014 at $3.00 to $5.00 per share.

Item 3. Defaults Upon Senior Securities

          None.

Item 4. Reserved

Item 5. Other Information

          None

Item 6. Exhibits

          Except for the exhibits listed below, other required exhibits have been previously filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

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The following exhibits were previously filed under a Form S-1 Registration Statement, file No. 333-166149 unless otherwise noted:

 

 

 

Exhibit
No.

 

Description of Exhibit


 


2.1

 

Agreement and Plan of Organization between Registrant and 11 Good’s Energy, LTD.

 

 

 

2.2

 

Corrections to Exhibit 2.1

 

 

 

3.1

 

Certification of Incorporation

 

 

 

3.2

 

By-Laws

 

 

 

3.3

 

Certificate of Amendment to Certificate of Incorporation

 

 

 

3.4

 

Certificate of Designation

 

 

 

10.1

 

Employment Contract - Frederick C. Berndt

 

 

 

10.2

 

Employment Contract - Daniel Lapp

 

 

 

10.3

 

Employment Contract - Aaron Harnar

 

 

 

10.4

 

Consulting Agreement with Clayton R. Livengood

 

 

 

10.5

 

Employment Agreement - Gary R. Smith

 

 

 

10.6

 

Finder’s Agreement - Jesup Lamont

 

 

 

10.7

 

Consulting Agreement with Capital Keys

 

 

 

10.8

 

Consulting Agreement with California Strategies

 

 

 

10.9

 

Office Lease dated April 25, 2007 between the Registrant and Triad Realty, LLC, including a First Lease Amendment dated June 21, 2007 and a Second Amendment dated July 15, 2009.

 

 

 

21.1

 

Subsidiary of Registrant

 

 

 

31.1

 

Principal Executive Officer Rule 13a-14(a)/15d-14(a) Certification (*)

 

 

 

31.2

 

Principal Financial Officer Rule 13a-14(a)/15d-14(a) Certification (*)

 

 

 

32.1

 

Principal Executive Officer Section 1350 Certification (*)

 

 

 

32.2

 

Principal Financial Officer Section 1350 Certification (*)

 

 

 

101.INS XBRL

 

Instance Document (*)

 

 

 

101.SCH XBRL

 

Taxonomy Extension Schema Document (*)

 

 

 

101.CAL XBRL

 

Taxonomy Extension Calculation Linkbase Document (*)

 

 

 

101.DEF XBRL

 

Taxonomy Extension Definition Linkbase Document (*)

 

 

 

101.LAB XBRL

 

Taxonomy Extension Labels Linkbase Document (*)

 

 

 

101.PRE XBRL

 

Taxonomy Extension Presentation Linkbase Document (*)


 

 


 

* Filed herewith.

Note: The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

32


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

11 GOOD ENERGY, INC.

 

 

 

Date: September 14, 2011

 

By: /s/ Frederick C. Berndt

 

 


 

 

Frederick C. Berndt, President (principal executive officer)

 

 

 

Date: September 14, 2011

 

By: /s/ Daniel T. Lapp

 

 


 

 

Daniel T. Lapp,

 

 

Chief Financial Officer (principal financial officer)

33