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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 SEPTEMBER 30, 2012

 

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 [  ]

 

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 [  ]   No [X]

 

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 [  ] Accelerated Filer [  ]
  Accelerated Filer [  ] Smaller Reporting Company [X]

 

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

 

Yes [  ]   No [X]

 

As of November 19, 2012, the registrant had a total of 18,038,240 shares of Common Stock issued and outstanding.

 

 

 

 
 

 

EXPLANATORY NOTE 

 

The sole purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q (the “Form 10-Q”) of 11 Good Energy, Inc., for the period ended September 30, 2012, filed with the Securities and Exchange Commission on November 19, 2012, is to make certain numerical corrections to the financial statements and notes thereto and to furnish Exhibit 101 to the Form 10-Q/A in accordance with Rule 405 of Regulation S-T. Exhibit 101 to the Form 10-Q/A provides the financial statements and related notes from the Form 10-Q/A formatted in XBRL (eXtensible Business Reporting Language).

 

No other changes have been made to the Form 10-Q/A. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date.

 

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.

  

2
 

  

11 GOOD ENERGY, INC. AND SUBSIDIARY

 

INDEX

 

       

Page Number 

         
PART I   Financial Information    
         
Item 1.   Financial Statements (unaudited)    
         
    Condensed Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011   F-1
         
    Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (loss) for the three and nine months ended September 30, 2012 and 2011 and for the period from May 23, 2007 (date of inception) to September 30, 2012   F-2
         
    Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2012 and 2011 and for the period from May 23, 2007 (date of inception) to September 30, 2012   F-3
         
    Notes to Unaudited Condensed Consolidated Financial Statements   F-4
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   4
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   9
         
Item 4.   Controls and Procedures   9
         
PART II   Other Information   10
         
    Exhibits   11
         
SIGNATURES   12
         
Certifications    

  

3
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30, 2012   December 31, 2011 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $5,998   $12,895 
Inventory   308,298    323,422 
Accounts receivable, net   24,543    43,906 
Available for sale securities   260    940 
Other current assets   7,571    25,678 
           
Total current assets   346,670    406,841 
           
Property, plant and equipment, net   1,908,835    2,167,434 
           
Other assets:          
Patents   19,968    79,874 
Deposits   2,163    2,163 
Total other assets   22,131    82,037 
           
Total assets  $2,277,636   $2,656,312 
           
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $1,650,010   $1,362,922 
Advances, related party   99,656    67,427 
Notes payable, related party   320,000    306,000 
Convertible notes payable, net of deferred debt discount of $0 and $75,139,respectively   650,000    474,861 
           
Total current liabilities   2,719,666    2,211,210 
           
Commitments and contingencies   -    - 
           
Stockholders’ equity:          
Series A Preferred stock, $0.0001 par value; 11,000,000 shares authorized, issued and outstanding at September 30, 2012 and December 31, 2011   1,100    1,100 
Common stock, $0.0001 par value; 65,000,000 shares authorized; 20,993,562 and 20,856,562 shares issued as of September 30, 2012 and December 31, 2011, respectively; 18,038,240 and 19,901,240 shares outstanding as of September 30, 2012 and December 31, 2011, respectively   2,100    2,086 
Additional paid in capital   26,613,533    24,853,960 
Common stock subscription   49,767    270,000 
Due from shareholder   -    (108,519)
Deficit accumulated during development stage   (25,521,390)   (22,987,265)
Accumulated other comprehensive loss   (89,440)   (88,760)
Treasury stock, 2,955,322 and 955,322 shares as of September 30, 2012 and December 31, 2011   (1,497,700)   (1,497,500)
           
Total stockholders’ (deficit) equity   (442,030)   445,102 
           
Total liabilities and stockholders’ (deficit) equity  $2,277,636   $2,656,312 

 

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

 

F-1
 

 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited) 

 

  Three months ended
September 30,
   Nine months ended
September 30,
   From
May 23, 2007
(date of inception)
through
 
   2012   2011   2012   2011   September 30, 2012 
                     
Sales  $55,314   $71,853   $171,862   $169,366   $879,627 
Cost of sales   55,870    129,523    318,109    398,031    1,756,363 
                          
Gross profit (loss)   (556)   (57,670)   (146,247)   (228,665)   (876,736)
                          
OPERATING EXPENSES:                         
General, selling and administrative expenses   312,891    377,921    2,055,531    3,962,031    17,634,554 
Research and development   -    19,708    -    143,421    1,334,070 
Impairment of goodwill   -    -    -    -    639,504 
Depreciation and amortization   21,180    27,047    107,386    85,418    454,832 
                          
Total operating expenses   334,071    424,676    2,162,917    4,190,870    20,062,960 
                          
LOSS FROM OPERATIONS   (334,627)   (482,346)   (2,309,164)   (4,419,535)   (20,939,696)
                          
Other income/(expense):                         
Interest income                   55,384 
Interest expense   (23,438)   (345,758)   (250,709)   (354,484)   (4,577,901)
Realized (loss) gain on sale of securities               (213,083)   (84,277)
Gain on sale of plant and equipment           25,748        25,100 
Total other (expense)   (23,438)   (345,758)   (224,961)   (567,567)   (4,581,694)
                          
Loss before provision for income taxes   (358,065)   (828,104)   (2,534,125)   (4,987,102)   (25,521,390)
Provision for income taxes                    
                          
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS  $(358,065)  $(828,104)   (2,534,125)  $(4,987,102)  $(25,521,390)
                          
Net loss per common share basic and fully diluted  $(0.02)  $(0.04)  $(0.13)  $(0.25)  $(1.49)
                          
Weighted average number of shares outstanding basic and fully diluted   18,496,735    19,901,238    19,418,493    19,878,656    17,107,133 
                          
Comprehensive loss:                         
Net loss  $(358,065)  $(828,104)  $(2,534,125)  $(4,987,102)  $(25,521,390)
Unrealized (loss) gain on securities available for sale   (530)   (260)   (680)   197,901    (89,440)
                          
Comprehensive loss  $(358,595)  $(828,364)  $(2,534,805)  $(4,789,201)  $(25,610,830)

 

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

 

F-2
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   Nine months ended September 30,   From
May 23, 2007
(date of inception)
through
 
   2012   2011   September 30, 2012 
Cash flows from operating activities:               
Net loss  $(2,534,125)   (4,987,102)  $(25,521,390)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization of intangible assets   303,498    285,342    1,222,729 
Amortization of debt discount   175,139    168,154    3,785,687 
Equity compensation of services by a related party   -    -    2,024,840 
Equity compensation of services to consultant   30,000    -    89,000 
Reserve for due from shareholder   108,519         108,519 
Fair value of warrants issued in conjunction with related party debt   557,270    171,185    696,415 
Fair value of stock options and warrants issued for services   696,117    1,944,511    2,509,312 
Expenses paid by related party on behalf of the Company in exchange for notes payable   34,000    -    34,000 
Impairment of goodwill   -    -    639,504 
Gain on sale of property and equipment   (25,748)   -    (25,100)
Realized loss on sale of securities available for sale   -    213,083    84,277 
Changes in operating assets and liabilities:               
Inventory   15,124    196,226    (282,062)
Accounts receivable   19,363    26,633    (24,543)
Other current assets   18,107    4,584    150,439 
Accounts payable and accrued liabilities   336,855    583,758    1,739,809 
                
Net cash used in operating activities   (265,881)   (1,393,626)   (12,768,564)
                
Cash flows from investing activities:               
Acquisition, net of cash acquired   -    -    (588,952)
Proceeds from sale of property and equipment   40,755    -    63,455 
Purchase of property, plant and equipment   -    -    (3,039,723)
Payment of investment in KAI Bioenergy   -    (312,000)   - 
Payments for acquisition of patent   -    (36,307)   (79,874)
Proceeds from sale of securities available for sale   -    560,768    1,108,515 
Purchase of securities available for sale   -    -    (1,282,492)
                
Net cash provided by (used in) investing activities   40,755    212,461    (3,819,071)
                
Cash flows from financing activities:               
Proceeds from sale of shares to founders   -    -    2,070 
Due from shareholder/related party   -    (55,000)   (895,663)
(Repayment of) proceeds from related party advance   12,229    139,580    67,427 
Proceeds from stock subscriptions and sale of common stock   106,000    245,000    10,854,069 
Proceeds from issuance of convertible notes   100,000    550,000    8,689,323 
Proceeds from related party note payable   -    286,000    331,000 
Purchase of treasury stock   -    -    (647,500)
Payments of related party note payable   -    -    (12,771)
Payments of notes payable   -    -    (84,322)
Payments of convertible notes   -    -    (1,710,000)
                
Net cash provided by financing activities   218,229    1,165,580    16,593,633 
                
Net increase (decrease) in cash and cash equivalents   (6,897)   (15,585)   5,998 
Cash and cash equivalents at beginning of period   12,895    29,879    - 
                
Cash and cash equivalents at end of period  $5,998    14,294   $5,998 
                
Supplemental disclosures of cash flow information:               
Income taxes paid  $-    -   $- 
Interest paid  $-    -   $- 
Non cash investing and financing activities:               
Common stock issued to acquire 11 Good’s Energy, LTD  $-    -   $429 
Common stock issuable for payment of accounts payable  $49,767        $49,767 
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 
Beneficial conversion feature and value of warrants in conjunction with debt  $175,139    -   $3,785,687 

 

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

 

F-3
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

 

Interim Financial Statements

 

The following (a) condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q/A and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP 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. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the year ending December 31, 2012. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission (“SEC”) on April 16, 2012.

  

Consolidated Financial Statements

 

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

 

Dependency on key management

 

Gary R. Smith, Chief Operating Officer and a director, has tentatively agreed to act as interim Chief Executive Officer and E. Jamie Schloss, a director of the Company, has agreed to serve as interim Chief Financial Officer. As both of these appointments are expected to be for a short term, the success of the Company and its ability to pursue its business strategy will depend upon the successful recruitment and retention of highly skilled and experienced managerial, marketing and technical personnel. The Company can provide no assurances that such personnel will be obtained by us on terms satisfactory to us, if at all.

 

Reclassifications

 

Certain reclassifications have been made to prior period consolidated financial statements and notes thereto for comparative purposes to conform to the current period’s presentation. These reclassifications have no effect on previously reported results of operations.

 

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.

 

Estimates

 

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain amounts and disclosure. Accordingly, actual results could differ from these estimates.

 

F-4
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 2 – GOING CONCERN MATTERS

 

The Company’s 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, the Company incurred net losses attributable to common shareholders of $2,534,125 and used $265,881 in cash for operating activities for the nine months ended September 30, 2012, has a negative working capital (current liabilities exceeded current assets) of $2,372,996 and a deficit accumulated during development stage of $25,521,390 as of September 30, 2012. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time without additional financing.

 

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. Effective January 1, 2012 the patents are being amortized over a 12 month life and $19,968 and $59,905 was amortized during the three and nine months ended September 30, 2012, respectively.

 

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 September 30, 2012 (unaudited) and December 31, 2011 (audited) inventories are comprised of the following:

 

   2012   2011 
         
Raw materials  $234,968   $240,223 
Finished fuel   73,330    83,199 
           
Total  $308,298   $323,422 

 

NOTE 5 – OTHER CURRENT ASSETS

 

Other current assets as of September 30, 2012 (unaudited) and December 31, 2011 (audited) are comprised of the following:

 

    2012      2011 
Prepaid insurance  $7,571   $17,553 
Prepaid other expenses   -    8,125 
           
Total  $7,571   $25,678 

  

F-5
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

 

The Company’s property, plant and equipment at September 30, 2012 (unaudited) and December 31, 2011 (audited) consist of the following:

 

   2012   2011 
         
Leasehold improvements  $345,381   $345,381 
Factory equipment   2,291,015    2,331,603 
Furniture and fixtures   21,709    21,709 
Laboratory Equipment   54,075    49,875 
Offsite Storage Tanks   18,614    - 
Office equipment   20,545    20,545 
Vehicles   -    45,213 
Computer equipment and software   102,846    102,846 
Web design   51,505    51,505 
Total   2,905,690    2,968,677 
Less accumulated depreciation   996,855    801,243 
           
Net  $1,908,835   $2,167,434 

 

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.

 

Depreciation expense was $89,192 and $95,827 for the three months ended September, 2012 and 2011, respectively, of which $74,851 and $66,642 were included as part of cost of sales, respectively.

 

Depreciation expense was $243,593 and $191,653 for the nine months ended September 30, 2012 and 2011, respectively, of which $212,273 and $133,282 were included in cost of sales, respectively.

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE

 

A summary of convertible notes payable as of September 30, 2012 and December 31, 2011 are as follows:

 

   2012   2011 
         
Senior convertible note, 11% per annum, due December 31, 2011, currently in default  $250,000   $250,000 
Senior convertible note, 11% per annum, due December 31, 2011; currently in default   100,000    100,000 
Senior convertible note, 11% per annum, due March 8, 2012, currently in default   200,000    124,861 
Senior Convertible note, 11% per annum, due December 31, 2012,   100,000    - 
Total   650,000    474,861 
Less current portion   650,000    474,861 
           
Long term portion  $-   $- 

 

During the nine months ended September 30, 2012 the Company issued of $100,000 in unsecured Convertible Promissory Notes whose maturity was extended from September 30, 2012 to December 31, 2012. The Promissory Notes bear interest at a rate of 11% per annum and are convertible into 33,333 shares of the Company’s common stock, at a conversion rate of $3.00 per share. Interest can also be converted into common stock at the conversion rate of $3.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued warrants to purchase 60,000 shares of the Company’s common stock at $5.00 per share through December 31, 2014. In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company allocated all at the $100,000 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 was amortized over the note’s initial maturity period and charged to interest expense in the amount of $100,000. The debt discount was fully amortized at September 30, 2012. 

 

F-6
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and applied the following assumptions: contractual terms of 2 to 3 years, an average risk free interest rate of 0.35%, a dividend yield of 0%, and volatility of 129.65%. The debt discount attributed to the value of the warrants issued is amortized over the notes’ maturity period as interest expense.

 

The Company recognized amortization of the debt discount of $175,139 in current period operations as interest expense for the nine months ended September 30, 2012.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

Related party advances

 

During the year ended December 31, 2011 the Company’s prior year’s officers advanced an aggregate of $67,427 for working capital purposes to the Company. The advances are short term, non-interesting bearing and are due upon demand.

 

During the nine months ending September 30, 2012, the Company received additional advances of $32,229 totaling $99,656 in advances at September 30, 2012.

 

Notes payable, related party

 

A summary of notes payable, related party as of September 30, 2012 and December 31, 2011 are as follows:

 

   2012   2011 
         
Note payable, issued May 15, 2011 with interest at 9% per annum, due on demand, unsecured  $50,000   $50,000 
Note payable, issued August 5, 2011 with interest at 6% per annum, due on demand, unsecured   100,000    100,000 
Note payable, issued August 11, 2011 with interest at 6% per annum, due on demand, unsecured   68,000    68,000 
Note payable, issued August 19, 2011 with interest at 6% per annum, due on demand, unsecured   68,000    68,000 
Note payable, issued November 21, 2011 with interest at 6% per annum, due on demand, unsecured   -    20,000 
Note payable, issued May 4, 2012 with interest at Nil%, due on demand, unsecured   34,000      
Total   320,000    306,000 
Less current portion   320,000    306,000 
Long term portion  $   $ 

 

In connection with the issuance of the August, 2011 promissory notes, the Company issued detachable warrants granting the holders the right to acquire an aggregate of 180,000 shares of the Company’s common stock at $3.00 per share. The warrants expire three years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $139,145 to additional paid in capital and a charge to interest in 2011’s operations. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 3 years, an average risk free interest rate of 0.34% to 0.49%, a dividend yield of 0%, and volatility of 126.31% to 127.23%.

 

On May 4, 2012, the Company cancelled the warrants to purchase of its common stock in an aggregate of 180,000 shares at $3.00 per share with a term of 3 years issued in connection with the related party promissory notes in August 2011 and replaced with new warrants to purchase 350,000 shares at $1.00 per share with a term of 5 years. The Company valued the warrants based on Black-Scholes pricing model and under the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.35%, a dividend yield of 0%, and volatility of 129.65%. The Company also issued to Mr. Lane 30,000 warrants to purchase common shares at $1.00 each exercisable for a term of 5 years. The Company recorded an incremental charge of $557,270 to its operations on the modification date, May 4, 2012 resulted from the modified terms and the increased shares.

 

F-7
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012, AND 2011

 

NOTE 8 – RELATED PARTY TRANSACTIONS (CONT’D)

 

During the nine months ended September 30, 2012, a related party paid $34,000 of the Company’s operating expenses directly to certain vendors in exchange for a note payable due on demand at non-interest bearing.

  

The Company also issued options and warrants to purchase a total of 350,000 shares of its common stock at $5.00 per share with a term of 5 years to three directors and their affiliated companies.

 

During the nine months period ended September 30, 2012 the company reserved $108,519 of an amount due from a shareholder. This represent amounts advanced to the shareholder for the payment of shares that were to be returned to the Company and put back into treasury. The advance was treated as a contra equity account and reduced stockholders’ deficit. The shareholder never returned the shares as a result of a dispute with the company; this resulted in the company recording an expense to general and administrative expenses for the entire amount of $108,519 for the above period.

 

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.

 

The Company leased office space for its executive and administrative offices at a rent of $4,500 per month until August 31, 2012. The Company agreed to continue to lease approximately one half of this office space for its executive and administrative personnel at a rent of $2,700 per month commencing September 1, 2012 for a period of twelve months.

 

NOTE 9 – CAPITAL STOCK

 

Preferred stock

 

On June 22, 2007, the Board of Directors designated 11,000,000 shares as Series A preferred stock (“Series A Preferred Stock”), with a par value of $0.0001 per share. This is the total number of authorized preferred Series A shares outstanding. The preferred stock is not entitled to any preference upon liquidation, dividend rights and has no conversion rights into the Company’s common stock. The Series A Preferred Stock is entitled to one vote equivalent to one share of common stock on the record date for the vote or consent of shareholders, and with respect to such vote, each holder of Series A Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of the Company’s common stock.

 

On June 22, 2007, the Company issued at par value an aggregate of 11,000,000 shares of preferred stock to a founder for activities prior to the formation of the Company and relating to its incorporation.

 

As of September 30, 2012 and December 31, 2011, there were 11,000,000 Series A preferred stock issued and outstanding.

 

F-8
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 9 – CAPITAL STOCK (continued)

 

Common stock

 

In March 2010, the Board approved and the stockholders ratified an increase in the number of authorized common shares to 65,000,000. To reflect this change, a certificate of amendment to the Company’s certificate of incorporation was filed with the Secretary of state of the state of Delaware on March 22, 2010.

 

On May 23, 2007, the Company issued at par value an aggregate of 9,700,000 shares of common stock to founders for activities prior to the formation of the Company and relating to its incorporation.

 

On June 27, 2007, the Company issued an aggregate of 300,000 shares of common stock in exchange for future services valued at $156,000. The fair value of the common stock was determined based upon the quoted market price on the date of issuance of the shares.

 

On October 23, 2007, the Company issued, at par value, an aggregate of 4,285,714 shares of its common stock in connection with the acquisition of 11 Good’s wholly owned subsidiary.

 

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. Between April and May 2011, the Company received additional gross proceeds of $225,000 from the sale of 45,000 shares of Common Stock at $5.00 per share and two year Warrants to purchase 22,500 shares, exercisable at $7.50 per share from date of issuance through June 30, 2013. Between July 2011 and December 2011, the Company received $270,000 from the sale of 90,000 shares of common stock at $3.00 per share and Warrants to purchase 90,000 shares, exercisable at $5.00 per share from two years from the date of issuance. The 90,000 shares of common stock have not been issued as of December 31, 2011 and were accounted for as common stock subscription payable, which shares were issued on March 20, 2012.

 

On April 9, 2012, Mr. Berndt, in connection with his resignation, agreed to transfer his 11,000,000 shares of the Company’s Series A Preferred Stock to John D. Lane. Mr. Berndt also agreed to return to the Company’s treasury 2,000,000 shares of Common Stock owned by him which were reclaimed and are being held as treasury stock in exchange for Warrants to purchase 2,000,000 shares of Common Stock, exercisable over a term of five years at $5.00 per share. The Warrants provide for a cashless exercise of same in the event the Company’s Common Stock is exercised at a time when the Company’s Common Stock is trading on NASDAQ, Exchange or Over-the-Counter Market at a price of at least $15.00 per share.

 

During July 2012 the Company issued units consisting of 37,000 shares of common stock with one warrant attached for $111,000. The warrants are exercisable at $5.00 per share over a period of 5 years.

 

During August 2012 the Company issued 10,000 shares of common stock to a consultant for services rendered. Based upon the value of the services this resulted in a charge to operations of $30,000.

  

As of September 30, 2012 and December 31, 2011, there were 20,993,562 and 20,856,562 common shares issued and 18,038,240 and 19,901,240 shares outstanding, respectively.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Employment and consulting contracts

 

As of September 30, 2012 and December 31, 2011, all commitments for business consulting services expired and are on a month to month basis.

 

F-9
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued)

 

Litigation

 

In September 2011, William L. Miller “Plaintiff” commenced an action in the Court of Common Pleas, Stark County, Ohio, against Frederick C. Berndt and 11 Good Energy, Inc. “Defendants” Plaintiff alleges that Mr. Berndt incurred charges for expenses relating to the business of the Corporation utilizing Plaintiff’s credit card account with American Express, which card Plaintiff allegedly permitted Mr. Berndt to utilize so long as Defendants would repay Plaintiff prior to the time he became liable for interest and penalties. The cause of action for breach of contract and unjust enrichment seeks the return of approximately $81,000 allegedly loaned by Plaintiff to the Defendants. From monies the Company owes Frederick C. Berndt, the Company recorded the $81,000 liability due to the filed judgment Mr. Berndt has agreed to reduce the balance due to him in the amount of $81,000 from the funds he advanced to the Company. In 2012, the Company paid approximately $11,000 to Mr. Miller and Mr. Berndt advised the Company that he paid approximately $13,500 to Mr. Miller. Based on the foregoing, at September 30, 2012, Mr. Miller was owed approximately $56,000 plus interest. While the Company does not accept any legal liability to Mr. Miller in this matter, it has fully accrued any possible liability pending the outcome of this matter, by conditionally offsetting (reducing) amounts owed by the Company to Mr. Berndt.

 

In February 2012, a stockholder “Plaintiff” commenced a lawsuit against the Company and other Defendants in the Circuit Court in Orange County, Florida. The lawsuit pertains to the stockholders’ investment of $400,000 in the Company’s securities.Prior to the filing of the lawsuit, Frederick C. Berndt, the former Chief Executive Officer of the Company, initially verbally agreed with the stockholder to return his $400,000 in periodic payments against the return and cancellation of the related securities. The Company made payment of $108,519 before ceasing of making any additional payments. The Plaintiff has failed to return to the Company the securities which relate to the monies received by Plaintiff. Plaintiff is alleging fraud in the inducement as it pertains to his investment in the Company as well as fraudulent and negligent misrepresentations, breach of contract and conversion. Plaintiff is seeking damages which include, but are not limited to $400,000 (less payments received by Plaintiff), attorney, court costs and interest. The Company anticipates that upon receipt of funding and/or its common stock begins trading on a public market, this shareholder would be able to sell their common stock.

 

On March 7, 2012, Jason A. Weiss “Plaintiff” commenced an action in the Court of Common Pleas, Stark County, Ohio against Defendants, 11 Good Energy and Frederick C. Berndt “Defendants.” Mr. Weiss alleges that he was employed by the Company for a term of one year at a salary of $15,000 per month that he was entitled to receive relocation expenses and reimbursement of certain expenses and he was entitled to receive 130,000 shares of Common Stock of the Company upon his commencing of employment with Defendant, 11 Good Energy, in January 2011. Plaintiff alleges that Defendants made various representations to him pertaining to his employment and otherwise which were false and misleading. Plaintiff is suing the Defendants for breach of contract, unjust enrichment, promissory estoppel, fraudulent inducement, seeking to pierce the corporate veil, wrongful termination in violation of public policy and Defendants’ liability under the whistle blower provisions of Ohio law. The amount of money being sought by Plaintiff will be the amount allegedly damaged and proven at trial. The Company believes this suit to be from a disgruntled former consultant. We had no written agreement with Mr. Weiss and worked with him on certain marketing efforts on the condition of performance. He performed none of his promised actions and we terminated our relationship with the Plaintiff. The Company plans to contest these allegations and is contemplating a counter suit for damages to the Company.

 

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings other than described above that it believes they may have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

We are unable to determine the outcome of the above lawsuits and or the related costs, if any, at this time.

 

NOTE 11 – 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 September 30, 2012:

 

   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  $260   $260   $   $ 
                     
Total  $260   $260   $   $ 

 

F-10
 

 

11 GOOD ENERGY, INC. AND SUBSIDIARY

(a development stage company)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND 2011

 

NOTE 11 – FAIR VALUE (continued)

  

The fair value of the assets, securities available for sale, at September 30, 2012 was grouped as Level 1 valuation as the market price was readily available.

 

NOTE 12 – EMPLOYMENT AGREEMENT

 

On May 15, 2012, the Company entered into an employment agreement dated as of May 9, 2012 to engage Mario Larach as Chief Executive Officer and a director of the Company, it being understood that he would assume these positions the morning after the Company filed its Form 10-Q for the quarter ended March 31, 2012. Mr. Larach will be paid $10,000 per month, which will increase to $16,250 per month at such time as the Company raises additional financing of at least $2,000,000 (the “financing”). Mr. Larach also would have been entitled to receive a $20,000 signing bonus payable upon the Company completing such financing. Mr. Larach received warrants to purchase 200,000 shares of the Company’s Common Stock exercisable over a term of five years at an exercise price of $5 per share, with 50,000 vested immediately. These Warrants contain a cashless exercise provision in the event the Company’s Common Stock is trading in the Over-the-Counter Market at a price above $15 per share for at least ten consecutive trading days. Mr. Larach was issued fully vested Warrants to purchase 50,000 shares of Common Stock also exercisable at $5 per share for a period of five years from the date that Mr. Larach joined the Board of Directors. These Warrants do not have a cashless exercise provision. Six months after commencement of his employment contract, the Board of Directors will meet with Mr. Larach to review his performance and his compensation. While the term of his employment agreement is for a term of two years, there are provisions in the contract which could lead to an earlier termination.

 

On July 16, 2012, Mario Larach resigned as an officer and director of the Company and terminated his employment with the Company and while he is reserving all rights he may have under his employment agreement. The Company has taken the position that he has not performed under the terms of the agreement and portions thereof are cancelled upon his resignation.

 

Gary R. Smith, who serves as Chief Operating Officer, became the Company’s interim Chief Executive Officer upon Mr. Larach’s resignation.

 

NOTE 13 – SUBSEQUENT EVENTS

 

On October 5, 2012, the Company granted to John D. Lane in exchange for not demanding payment on his outstanding loans and in consideration of services rendered, warrants to purchase 1,000,000 shares of Common Stock, exercisable at $1.00 per share from the vesting date through September 30, 2015, it being understood that 250,000 warrants shall be vested immediately and an additional 250,000 warrants shall vest on each of January 1, 2013, April 1, 2013 and July 1, 2013 so long as Mr. Lane continues to serve as a director of the Company. The vesting date of the 1,000,000 warrants granted to Mr. Lane shall be accelerated and immediately vested when the Company raises at least $1,000,000 in additional financing during the period October 5, 2012 through June 30, 2013.

 

F-11
 

 

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 for the nine months ended September 30, 2012 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, 2011 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, 2011. 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.

 

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.

 

4
 

 

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 September 30, 2012, our cumulative revenues totaled $879,627 and our deficit accumulated during our development stage was $25,521,390. 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.

 

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.

 

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.

 

5
 

 

During the nine months ended September 30, 2012, the Company issued warrants to purchase its common stock of a total 350,000 shares to its directors and consultants at $1.00 to $5.00 per share which commence vesting in April, 2012 with a term of 5 years. There were no other unvested options outstanding as of the date of adoption of FASB ASC Topic 718.

 

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.

 

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. We also have an agreement with a third party to purchase the glycerin produced as a by-product of the production of G-2 diesel as a disinfectant to be used to treat cows and other animals.

 

Three months ended September 30, 2012 Compared to the three months ended September 30, 2011

 

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

 

    Three Months Ended September 30,  
    2012   %   2011   %  
Revenue   $ 55,314     100 % $ 71,853     100  
Cost of goods sold     55,870     >100 %   129,523     >100 %
Gross loss     (556 )       (57,670 )    
                           
Operating expenses:                          
Selling, general and administrative     312,891     >100 %   377,921     >100 %
Research and development     -     <100 %   19,708     <100 %
Depreciation and amortization     21,180     <100 %   27,047     <100 %
                           
Total operating expenses:     334,071           424,676        
                           
Loss from operations     (334,627)         (482,346 )      
                           
Other income/expense:                          
Interest expense, net     (23,438 )   <100 %   (345,758 )   <100 %
Other income (expense), net     -     <100 %   -     >100 %
                           
Net loss   $ (358,065)   >100 % $ (828,104 )   >100 %

 

Revenues decreased by $16,539 for the three months ended September 30, 2012 of $55,314 compared to revenues in the three months ended September 30, 2011 of $71,853.

 

During the three month period ended September 30, 2012, depreciation and amortization of $21,180 included in operating expenses decreased by $5,867 from $27,047 in the comparable three month period in 2011.

 

Selling, general, and administrative expenses for the three months ended September 30, 2012 were $312,891 compared with $377,921 in the comparable period in 2011, a decrease of $65,030. Such decreased costs include, among others, payroll and related expenses, insurance costs and occupancy costs. The decrease in selling, general and administrative expenses in 2012 over the comparable period of the prior year is primarily related to a decrease in consulting, legal, and accounting fees, and as well other overhead expenses such as travel, marketing and promotional expenses.

 

The net loss attributable to common shareholders was $358,065 in the three months ended September 30, 2012 as compared to $828,104 for the comparable period in 2011, a decrease in net loss of $470,039.

 

6
 

 

Sales and Marketing

 

The minimal revenues recognized in the quarter ended and nine months ended September 30, 2012 are due primarily to retracting our business due to cash restraints. Most of our testing programs completed in mid-2011 did not generate the demand originally anticipated. Our largest customer, the Kenan Advantage group completed their testing and agreed to convert terminals located in Ohio and Pennsylvania to sell G2 Diesel. The build out requires additional funding to complete. Therefore we have been unable to operate our plant without the capital to purchase raw materials leading to an inventory allocation requirement with the Kenan advantage group. We currently deliver to one of their terminals using the finished fuel we have on hand to keep that terminal using G2 Diesel. In July 2012, we received a cash infusion of $111,000 from the sale of common stock and we ordered storage tanks to be installed(pending additional financing) at various Kenan’s terminals. When storage tanks are installed at these locations by about December 31, 2012, we expect to sell to Kenan about 20,000 gallons per month of G-2 diesel.

 

The Company has had independently run studies conducted that provide proof of the benefits G2 usage provides to diesel engines in three forms.

 

Better Mileage – Longer Engine Life – Cleaner Emissions

 

The one thing that 11 Good Energy has lacked is the ability to establish and maintain relationships with potential clients and to guaranty delivery of products. Management has identified lack of sales personnel available to build out and maintain these relationships. Upon receipt of additional financing, of which there can be no assurances given that such financing would be obtained by us on satisfactory terms, if at all, by employing two proven sales executives that have worked in networking and relationship driven businesses, management believes we can quickly expand into our target markets, which include the following:

 

Trucking Lines – Transit Authorities – Tugs and Ferries – Short Haul Train Lines

School Bus Fleets – Fleet Operators

 

If needed outside sales consultants will be compensated on a per gallon sales commission basis. Our sales and marketing approach is to utilize our relationship with Kenan and successful independent studies as tools to increase sales.

 

Cost of goods sold was $55,870 for the three months ended September 30, 2012 and $129,523 for the three months ending September 30, 2011. Cost of goods sold was $318,109 for the nine months ended September 30, 2012 and $398,031 for the nine months ending September 30, 2011. 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. Costs of goods sold primarily consist of the procurement and transportation of soybean oil, ethanol and other raw materials used in the manufacture of G2 Diesel; including payroll costs associated with labor, depreciation of manufacturing equipment, manufacturing facilities expense, insurance costs and other operating costs directly related to production.

 

As of September 30, 2012, we have no long-term contracts or backlog of orders from customers to purchase our G2 Diesel fuel or our crude glycerin by-product described herein. In general, the testing programs and sales efforts conducted with potential customers have shown a longer order cycle than first anticipated 11 Good Energy has allocated its marketing efforts toward fleet users. These are customers that have centralized fueling and their vehicles return to the terminal every day after usage. This allows the vehicles to receive consistent product.

 

11 Good Energy’s key strategic partner and largest customer is the Kenan Advantage Group (The KAG.) The KAG distributes over 20 billion gallons of liquid fuels and specialty chemicals annually making them the largest transportation company of bulk transport in the United States. After extensive testing, the KAG has authorized 11 Good Energy to build storage tanks and containment pads at terminals in Ohio and Pennsylvania as a phase 1 of development. In addition to being a user of G2 Diesel, the KAG also assists 11 Good in providing logistic solutions through the utilization of their fleet.

 

7
 

 

Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011

 

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

 

    Nine Months Ended September 30,  
    2012   %   2011   %  
Revenue   $ 171,862     100 % $ 169,366     100  
Cost of goods sold     318,109     >100 %   398,031     >100 %
                           
Gross loss     (146,247 )   -     (228,665 )   -  
                           
Operating expenses:                          
Selling, general and administrative     2,055,531     >100 %   3,962,031     >100 %
Research and development     -     <100 %   143,241     >100 %
Depreciation and amortization     107,386     <100 %   85,418     <100 %
                           
Total operating expenses:     2,162,917           4,190,870        
                           
Loss from operations     (2,309,164)         (4,419,535 )      
                           
Other income/expense:                          
Interest expense, net     (250,709 )   >100 %   (354,484 )   <100 %
Other income (expense), net     25,748     <100 %   (213,083  )   >100 %
                           
Net loss   $ (2,534,125)   >100 % $ (4,987,102 )   >100 %

 

For the nine months ended September 30, 2012, the Company had revenues of $171,862 compared with $169,366 in the comparable period in 2011, an increase of $2,496 due primarily to the sale of our glycerin by-product. See “Sales and Marketing” above for additional information.

 

Cost of goods sold was $318,109 for the nine months ended September 30, 2012 and $398,031 for the nine months ending September 30, 2011. 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. Costs of goods sold primarily consist of the procurement and transportation of soybean oil, ethanol and other raw materials used in the manufacture of G2 Diesel; including payroll costs associated with labor, depreciation of manufacturing equipment, manufacturing facilities expense, insurance costs and other operating costs directly related to production.

 

General, selling and administrative expenses were $2,055,531 compared with $3,962,031, a decrease of $1,906,500 in the comparable period in 2011. Approximately $600,000 of this decrease was as a result of lower costs of options and warrants issued to employees and non-employees and the costs of warrants issued in conjunction with notes issued. The remainder of the decrease was due to lower costs of salaries, legal fees, and other operating expenses.

 

No research and development costs were incurred in the nine months ended September 30, 2012 compared with $143,421 incurred in 2011.

 

Depreciation and amortization included in operating expenses was $107,386 compared with $85,418 in the comparable period in 2011, an increase of $21,968.

 

Interest expenses were $250,709 in the nine months ended September 30, 2012 compared with $354,484 of interest expenses in the comparable period in 2011, a decrease of $103,775 primarily due to the amortization of debt discount attributable to the notes of $175,139.

 

Net loss for the nine month period ending September 30, 2012 was $2,534,125 compared with a loss of $4,987,102 in the comparable period in 2011, a decrease $2,452,977 due primarily to the changes set forth above. 

 

Liquidity and Capital Resources

 

The company had cash and cash equivalents of $5,998 at September 30, 2012 compared with cash of $12,895 at December 31, 201, a decrease of $6,897.

 

8
 

 

Net cash used in operating activities for the nine months ended September 30, 2012 was $265,881 compared with $1,393,626 in the comparable period in 2011. Cash used in operations was a result of a net loss for the period of $2,534,125 partially offset by amortization of debt discount of $175,139, reserved for due from shareholder of $108,519, depreciation and amortization of $303,498, fair value of stock-based compensation related to the warrants issued in connection with related party debt and stock options granted for services of $1,253,387, expenses paid by related party on behalf of the Company in exchange for a promissory note of $34,000, gain on sale of property and equipment of $25,748, decrease of account receivable of $19,363, decrease in inventory of $15,124, decrease of other current assets of $18,107 and an increase in account payables and accrued liabilities of $336,855.

 

Net cash provided by investing activities for the nine months ended September 30, 2012 was $40,755 as a result of the proceeds of sale of certain property and equipment compared to net cash provided by investing activities of $212,461 primarily due to proceeds received from sale of security available for sale in the comparable period in 2011.

 

Net cash provided by financing activities for the nine months ended September 30, 2012 was $267,996 compared with $1,165,580 in the comparable period in 2011. The decrease during the nine months ended September 30, 2012 in net cash provided by financing activities primarily resulted from proceeds from issuance of convertible notes of only $100,000, which offset by repayment of related party advances of $6,500 and payments of related party note payable of $20,000.

 

The Company’s 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 consolidated financial statements, the Company incurred net losses attributable to common shareholders of $2,534,125 and used cash of $265,881 for operating activities for the nine months ended September 30, 2012, incurred negative working capital (current liabilities exceeded current assets) of $2,372,996 and deficit accumulated during development stage of $25,521,390 as of September 30, 2012. These factors among others may indicate that the Company may be unable to continue as a going concern for a reasonable period of time.

 

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.We are currently in the process of attempting to raise capital through a private placement sale of common stock. No assurances can be given that we will be able to successfully raise the financing necessary to continue as a going concern.

 

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 and debt securities.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

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.

 

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 not effective as of the end of the period covered by this report due to the Company’s limited resources and limited number of employees. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and outsourced accounting professionals. As we grow, we expect to increase our number of employees, which, we believe, will enable us to implement adequate segregation of duties within the internal control framework.

 

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.

 

9
 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of the filing date of this Form 10-Q/A, we are a party to several legal proceedings. See Note 10 for a detailed explanation of litigation matters.

 

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. Nevertheless, the Company encourages stockholders of the Company to read the risk factors contained under Item 1A filed with the Securities Exchange Commission on April 16, 2012 and amended on April 27, 2012 for the fiscal year ended December 31, 2011.

 

Item 2. Changes in Securities

 

  (a) Recent sales of unregistered Securities.

 

 From January 1, 2012 through September 30, 2012, 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
 
                    
January 2012   Notes and Warrants
  $100,000
principal amount;
60,000 shares
  $100,000; no commissions paid  Rule 506   Exercisable as of January 18, 2012 at $5.00 per share through December 2014 
                    
February 2012   Options/Warrants
  300,000 shares  Services rendered; no commissions paid  Rule 506 and/or Section 4(2)   (1)
                    
April 2012   Warrants(2)
  380,000 shares  Services rendered; no commissions paid  Section 4(2)   (2)
                    
April 2012   Warrants
  2,000,000 shares  Services rendered; no commissions paid  Section 3a(9)   (3) (4) 
                    
May 2012   Warrants(5)
  50,000 shares  Services rendered; no commissions paid  Section 4(2)   (3)
                    
July, 2012   Common Shares and warrants(3)  37,000 shares and warrants  $111,000 received; no commissions paid  Section 4(2)   (3)
                    
August 2012   Common Shares  10,000 shares  Services rendered: no commissions   Section 4(2)    Not applicable 

 

(1)   Includes warrants to purchase 100,000 shares of Common Stock exercisable at $5.00 per share over a period of five years. Also includes options to purchase 200,000 shares of the Company’s Common Stock exercisable over a period of three years at $5.00 per share which commence vesting in April, 2012.
(2)   Exercisable at $1.00 per share over a period of 5 years, 330,00 warrants were issued in replacement with the previous 180,000 warrants issued in connection with the related party notes payable in prior year, and 50,000 warrants under the same terms were issued for services.
(3)   Exercisable at $5.00 per share over a period of 5 years.  
(4)   Warrants issued in exchange for the 2,000,000 shares of the Company’s common stock returned by Mr. Berndt in connection with his resignation on April 9, 2012.
(5)   An employee received warrants to purchase 200,000 shares and then subsequently terminated his agreement resulting in a net retention of 50,000 warrants.
(6)   Exercisable at $5.00 per share over a period of three years.

 

10
 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

See “Note 13 in the “Notes to Consolidated Financial Statements.”

 

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.

 

Except as otherwise noted, all exhibits were previously filed with the Securities and Exchange Commission under its Form S-1 Registration Statement, file No. 333-166149.

 

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.
     
10.10   Employment Contract – Mario Larach dated as of May 9, 2012 (Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on May 17, 2012.
     
10.11   Sales Representative Agreement with Max V LLC dated May 15, 2012 (Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on May 17, 2012.
     
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 (**)

 

* Previously field

** Filed herewith

 

11
 

 

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: November 28, 2012 By: /s/ Gary R. Smith
  Gary Smith, President (interim principal executive officer)
   
Date: November 28, 2012 By: /s/ E. Jamie Schloss
  E. Jamie Schloss,
  Interim Chief Financial Officer(interim principal financial officer)

 

12