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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
|
Energy
& Engine Technology Corporation |
(Name of
Small Business Issuer in its Charter)
|
Nevada |
|
1311 |
|
88-0471842 |
|
(State
or Jurisdiction of incorporation or organization) |
|
(Primary
Standard Industrial Classification Code Number) |
|
(I.R.S.
Employer Identification No.) |
|
5308
West Plano Parkway |
|
|
|
(972)
732-6360 |
(Address
and telephone number of principal executive offices)
(Address
of principal place of business or Intended Principal Place of
Business)
|
Willard
G. McAndrew, III |
|
CEO
and President |
|
Energy
& Engine Technology Corporation |
|
5308
West Plano Parkway |
|
|
|
(972)
732-6360 |
(Name,
address, and telephone number of agent for service)
|
Copy
of Communications to: |
|
Jolie
G. Kahn, Esq. |
|
General
Counsel |
|
Energy
& Engine Technology Corporation |
|
5308
West Plano Parkway |
|
|
|
(972)
732-6360 |
|
Approximate
date of proposed sale to the public: |
From
time to time after the effective date of this Registration
Statement. |
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
___________________________
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
________________________________
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
_____________________________________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE - will be done on date prior to filing
|
Title
of each class of securities to be registered (1) |
Amount
to be Registered |
Proposed
maximum offering price per unit (2) |
Proposed
maximum aggregate offering price (2) |
Amount
of registration fee (2) |
|
Common
Stock, par value $.001 per share |
123,242,702 |
$0.071 |
$8,750,232 |
$1,030 |
|
(1) |
In
the event of a stock split, stock dividend, or similar transactions
involving our common stock, the number of shares registered shall
automatically be increased or decreased in the same proportion to cover
the additional shares of common stock issuable pursuant to Rule 416 under
the Securities Act of 1933, as amended. |
|
(2) |
The
proposed maximum offering price per share and proposed maximum aggregate
offering price is based upon the mean between the closing bid and asked
price for the common stock as quoted by the NASDAQ Over the Counter
Electronic Bulletin Board on June 2, 2005 and the registration fee has
been calculated on such basis pursuant to Rule
457(c). |
The
Company hereby amends this registration statement on such date or dates as may
be necessary to delay its effective date until the Company shall file a further
amendment which specifically states that this registration statement shall then
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until the registration statement shall become effective on the date as the
Commission, acting pursuant to said Section 8(a), may determine.
PRELIMINARY
PROSPECTUS
ENERGY
& ENGINE TECHNOLOGY CORPORATION
A NEVADA
CORPORATION
123,242,702
shares of common stock
This
prospectus relates to the resale by certain selling stockholders of up to
123,242,702shares of our common stock (which includes a reserve of 30,000,000
shares pursuant to a covenant to register 175% of shares likely to be issued
upon conversion of certain convertible notes further described herein), issued
to the selling stock-holders in a series of private placement transactions under
Section 4(2) of the Securities Act of 1933 on April 27, 2005, May 10, 2005 and
May 12, 2005 and to be sold on the fifth business day after the date of
effectiveness of this Registration Statement. This Prospectus also relates to
the resale by certain of those selling stockholders of stock underlying warrants
issued to them (upon exercise of the warrants) with respect to certain of the
private placement transactions.
The
selling stockholders may offer to sell the shares of common stock being offered
in this prospectus at fixed prices, at prevailing market prices at the time of
sale, at varying prices or at negotiated prices. We will not receive any
proceeds from the resale of shares of our common stock by the selling
stockholder.
Our
common stock is quoted on the NASDAQ Over the Counter Bulletin Board under the
symbol “EENT.” On May 19, 2005, the closing bid quotation for one share of our
common stock was $.08.
Our
business is subject to many risks, and an investment in our common stock will
also involve a high degree of risk. You should invest in our common stock only
if you can afford to lose your entire investment. You should carefully consider
the various Risk Factors described beginning on page 4 before investing in our
common stock.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
information in this prospectus is not complete and may be changed. The selling
stockholders may not sell or offer these securities until this registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
TABLE
OF CONTENTS
| |
Page |
|
PROSPECTUS
SUMMARY |
1 |
|
RISK
FACTORS |
2 |
|
WHERE
YOU CAN FIND MORE INFORMATION |
7 |
|
USE
OF PROCEEDS |
7 |
|
DETERMINATION
OF OFFERING PRICE |
7 |
|
SELLING
STOCKHOLDERS |
7 |
|
PLAN
OF DISTRIBUTION |
10 |
|
LEGAL
PROCEEDINGS |
12 |
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS |
12 |
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
14 |
|
DESCRIPTION
OF SECURITIES |
14 |
|
INTEREST
OF NAMED EXPERTS AND COUNSEL |
15 |
|
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES |
16 |
|
DESCRIPTION
OF BUSINESS |
17 |
|
CURRENT
BUSINESS |
18 |
|
AXP
1000 AND RELATED RESEARCH AND DEVELOPMENT |
18 |
|
DISCONTINUED
OPERATIONS |
25 |
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS |
26 |
|
FORWARD
LOOKING STATEMENT |
28 |
|
RESULTS
OF OPERATIONS |
28 |
|
LIQUIDITY
AND CAPITAL RESOURCES AND FISCAL CONDITION |
30 |
|
DESCRIPTION
OF PROPERTY |
32 |
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS |
32 |
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
32 |
|
EXECUTIVE
COMPENSATION |
34 |
|
SUMMARY
COMPENSATION TABLE |
35 |
|
OPTION
GRANTS IN LAST FISCAL YEAR |
36 |
|
OPTION
EXERCISES AND VALUES FOR FISCAL 2004 |
37 |
|
FINANCIAL
STATEMENTS |
38 |
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS |
74 |
|
OTHER
EXPENSES OF ISSUANCE & DISTRIBUTION |
75 |
|
RECENT
SALES OF UNREGISTERED SECURITIES |
75 |
|
EXHIBITS |
77 |
|
UNDERTAKINGS |
79 |
|
SIGNATURES |
80 |
PROSPECTUS
SUMMARY
Our
Business
We are
engaged in three operating businesses: (1) development and marketing of our AXP
1000 auxiliary power generator for long haul trucks; (2) development and
marketing of marine and standalone generators; and (3) development and marketing
of marine air conditioners. During the fiscal year ended December 31, 2004, we
had net revenue of $207,165. For the three months ended March 31, 2005, we had
net revenue of $162,145. Our principal executive offices are located at 5308
West Plano Parkway, Plano Texas 75093. Our telephone number is (972)
732-6360.
We have
four wholly owned subsidiaries: Gas Gathering Enterprises, LLC (inactive),, Wind
Dancer Aviation Services, Inc. (inactive), BMZ Generators Technology, Inc. and
Anchor Manufacturing, Inc. In 2004, the businesses of Gas Gathering Enterprises,
LLC and Wind Dancer Aviation Services, Inc. were deemed to be discontinued
operations and the assets were sold in the first quarter of 2005. We were
incorporated in Nevada on November 19, 1999, under the name Bidder
Communications, Inc. and changed our name to Energy & Engine Technology
Corporation on December 5, 2001. As used in this Prospectus, the terms “we”,
“us”, “our” and the “Company”, mean Energy & Engine Technology Corporation
and its subsidiaries, unless otherwise indicated.
Number
of Shares Being Offered
This
prospectus covers the resale by the selling stockholders named in this
prospectus of up to 123,242,702 shares of our common stock that was issued to
the selling stockholders in a series of private placement transactions under
Section 4(2) of the Securities Act of 1933 on April 27, 2005, May 10 and 12,
2005, and on the fifth business day following the date of effectiveness of this
Registration Statement. This Prospectus also relates to the resale by certain of
such selling stockholders of stock underlying warrants issued to them (upon
exercise of such warrants) in the private placement transactions. The selling
stock-holders may sell the shares of common stock in the public market or
through privately negotiated transactions or otherwise. The selling shareholder
may sell these shares of common stock through ordinary brokerage transactions,
directly to market makers or through any other means described in the section
entitled “Plan of Distribution”.
Number
of Shares Outstanding
There
were 127,001,244 shares of our common stock issued and outstanding as at May 20,
2005.
Use of
Proceeds
We will
not receive any of the proceeds from the sale of the shares of common stock
being offered for sale by the selling stockholders. We will, however, incur all
costs associated with this registration statement and prospectus.
Summary
of Financial Data
The
summary financial data as of and for the years ended December 31, 2004 and
December 31, 2003 presented below is derived from and should be read in
conjunction with our audited consolidated financial statements for the year
ended December 31, 2004, including the notes to those financial statements,
which are included elsewhere in this prospectus along with the section entitled
“Management's Discussion and Analysis of Liquidity and Results of Operations”
beginning on page 26 of this prospectus. The summary financial data for the
three months ended March 31, 2005 and March 31, 2004 presented below is derived
from, and should be read in conjunction with, our unaudited condensed
consolidated financial statements for the quarters ended March 31, 2005 and
March 31, 2004, which are included elsewhere in this
prospectus.
| |
|
For
the Three Months Ended |
|
| |
|
(unaudited) |
|
(unaudited) |
|
| |
|
|
|
|
|
|
|
|
Net
Sales |
|
$ |
162,145 |
|
$ |
24,513 |
|
|
Net
Loss for the Period |
|
$ |
(705,745 |
) |
$ |
(2,034,960 |
) |
|
Loss
Per Share - basic and diluted |
|
$ |
(.01 |
) |
$ |
(.02 |
) |
| |
|
|
|
| |
|
(unaudited) |
|
| |
|
|
|
|
|
Working
Capital (Deficiency) |
|
$ |
(909,152 |
) |
|
Total
Assets |
|
$ |
1,862,603 |
|
|
Total
Share Capital |
|
$ |
13,821,497 |
|
|
Accumulated
Deficiency |
|
$ |
(13,536,417 |
) |
|
Total
Stockholders' Equity |
|
$ |
207,080 |
|
| |
|
For
the Year Ended
|
|
For
the Year Ended
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
Sales |
|
$ |
207,165 |
|
$ |
4,341 |
|
|
Net
Loss for the Period |
|
$ |
(5,849,366 |
) |
$ |
(5,041,657 |
) |
|
Loss
Per Share - basic and diluted |
|
$ |
(0.05 |
) |
$ |
(0.12 |
) |
| |
|
|
|
| |
|
|
|
|
|
Working
Capital |
|
$ |
247,533 |
|
|
Total
Assets |
|
$ |
2,277,839 |
|
|
Total
Share Capital |
|
$ |
13,766,998 |
|
|
Accumulated
Deficit |
|
$ |
(12,830,672 |
) |
|
Total
Stockholders' Equity |
|
$ |
936,326 |
|
RISK
FACTORS
An
investment in our common stock involves a number of very significant risks. You
should carefully consider the following risks and uncertainties in addition to
other information in this prospectus in evaluating us and our business before
purchasing shares of our common stock. Our business, operating results and
financial condition could be seriously harmed due to any of the following risks.
The risks described below are not the only ones facing us. Additional risks not
presently known to us may also impair our business operations. You could lose
all or part of your investment due to any of these risks.
Transaction
Risks
SALES OF
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC MARKET BY THE
SELLING STOCKHOLDERS MAY RESULT IN A SIGNIFICANT DOWNWARD PRESSURE ON THE PRICE
OF OUR COMMON STOCK AND COULD AFFECT THE ABILITY OF OUR STOCKHOLDERS TO REALIZE
THE CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of
a substantial number of shares of our common stock in the public market could
cause a reduction in the market price of our common stock. We had 127,001,244
shares of common stock issued and outstanding as of May 20, 2005. When this
registration statement is declared effective, the selling stockholders may be
reselling up to 123,242,702 shares of our common stock. As a result, a
substantial number of our shares of common stock may be issued and may be
available for immediate resale which could have an adverse effect on the price
of our common stock as the increased supply may outstrip demand for our stock.
To the extent selling stockholders sell large amounts of their shares of common
stock registered under this registration statement, the price of our common
stock may decrease due to the additional shares of common stock in the
market.
Risks
Related To Our Business
WE HAVE A
HISTORY OF OPERATING LOSSES AND FLUCTUATING OPERATING RESULTS.
From
inception through March 31, 2005, we have incurred aggregate losses of
$(13,536,417). Our loss from operations for the fiscal year ended December 31,
2004 was $(5,849,366) and for the quarter ended March 31, 2005 was $(705,745).
There is no assurance that we will operate profitably or will generate positive
cash flow in the future. In addition, our operating results in the future may be
subject to significant fluctuations due to many factors not within our control,
such as the unpredictability of when customers will order products, the size of
customers' orders, the demand for our products, and the level of competition and
general economic conditions.
Even if
our revenues increase, we expect an increase in development costs and operating
costs. Consequently, we expect to incur operating losses and negative cash flow
until our products gain market acceptance sufficient to generate a commercially
viable and sustainable level of sales, and/or additional products are developed
and commercially released and sales of such products made so that we are
operating in a profitable manner. We cannot assure you of when or if our
operations will become profitable or if we will be able to continue as a going
concern.
WE MAY
EXPERIENCE SIGNIFICANT AND RAPID GROWTH IF WE ARE ABLE TO CAPITALIZE ON THE
EXPANSION OF THE AXP 1000. IF WE ARE UNABLE TO HIRE AND TRAIN STAFF TO HANDLE
SALES AND MARKETING OF OUR PRODUCTS AND MANAGE OUR OPERATIONS, SUCH GROWTH COULD
MATERIALLY AND ADVERSELY AFFECT US.
We intend
to proceed with initiatives intended to capitalize on the expansion of the
federal and state anti-idling legislation for long haul trucks and federal
legislation mandating increased driver rest periods per hours driven. This could
potentially lead to significant and rapid growth in the scope and complexity of
our AXP 1000 and other generator business. Any inability on our part to manage
such growth effectively will have a material adverse effect on our product
development, business, financial condition and results of operations. Our
ability to manage and sustain growth effectively will depend, in part, on the
ability of our management to implement appropriate management, operational and
financial systems and controls, and the ability of our management to
successfully hire, train, motivate and manage employees. Effective growth
management will also depend on our ability to solidify our supply chain and to
secure and maintain quality control with respect to installation facilities for
our products.
RAPID
TECHNOLOGICAL CHANGES IN OUR INDUSTRY COULD RENDER OUR PRODUCTS NON-COMPETITIVE
OR OBSOLETE AND CONSEQUENTLY AFFECT OUR ABILITY TO GENERATE
REVENUES.
The
markets in which we operate are characterized by rapid technological change,
frequent new product and service introductions, evolving industry standards and
changes in customer demands. The introduction of products embodying new
technologies and the emergence of new industry standards can, in a relatively
short period of time, render existing products obsolete and unmarketable,
including ours. We believe that our success will depend upon our ability to
continuously develop new products and to enhance our current products and
introduce them promptly into the market. If we are not able to develop and
introduce new products, our business, financial condition and results of
operations could be adversely affected.
WE DO NOT
CARRY COMPREHENSIVE PRODUCT LIABILITY INSURANCE PROVIDING COVERAGE IN ALL
INSTANCES, AND THERE CAN BE NO ASSURANCE THAT OUR CURRENT INSURANCE COVERAGE
WOULD BE ADEQUATE IN TERM AND SCOPE TO PROTECT US AGAINST MATERIAL FINANCIAL
EFFECTS IN THE EVENT OF A SUCCESSFUL CLAIM.
We could
be subject to claims in connection with the products that we sell. There can be
no assurance that we would have sufficient resources to satisfy any liability
resulting from any such claim, or that we would be able to have our customers
indemnify or insure us against any such liability. There can be no assurance
that our insurance coverage would be adequate in term and scope to protect us
against material financial effects in the event of a successful claim. We
currently do not carry commercial general liability insurance providing
comprehensive product liability coverage in all instances. We may in the future
obtain such insurance, provided it can be obtained at reasonable prices;
however, there can be no assurance that such coverage, if obtained, would be
adequate in term and scope to protect us.
WE ARE A
START-UP COMPANY WITH LIMITED EXPERIENCE AND ARE SUBJECT TO ALL OF THE RISKS
INHERENT IN A START-UP COMPANY, INCLUDING DEPENDENCE ON KEY
PERSONNEL.
We are
dependent upon obtaining future financing to fund operations for the next twelve
months, which may not be available, due to our recent acquisition and resulting
expanded business opportunities. We have not earned significant revenue since
inception and have incurred losses since beginning operations. Further, our
business activities may not result in any operational revenues or profits in the
future. Therefore, you should be aware that your entire investment is at risk.
Our business model is unproven and may not be adaptable to a changing market,
which may reduce its ability to generate revenues, if any. We are dependent upon
key personnel, and loss of these individuals could severely curtail the
company's ability to implement its business plan. Due to our limited resources,
we may not be able to attract and retain qualified personnel. If we do not
experience sufficient revenue growth, we may need to obtain additional funding
which, if not obtained, could hamper our operational abilities.
WE FACE
INTENSE COMPETITION. IF WE DO NOT COMPETE EFFECTIVELY, OUR BUSINESS MAY
SUFFER.
We face
intense competition from numerous competitors. Each of our product lines face
different competitors with different financial resources including competitors
with greater amounts of financing than us. We may not be able to compete
effectively with all of these competitors. Our products compete primarily on the
basis of product quality, weight and size, installation ease, performance,
innovation, price and applications and marketing expertise. To remain
competitive, we must periodically enhance our existing products and respond to
new technologies. In addition, new competitors may emerge, and product lines may
be threatened by new technologies or market trends that reduce the value of
these product lines.
OUR
TECHNOLOGY IS IMPORTANT TO OUR SUCCESS AND OUR FAILURE TO PROTECT THIS
TECHNOLOGY COULD PUT US AT A COMPETITIVE DISADVANTAGE.
Because a
majority of our products rely on proprietary technology, we believe that the
development and protection of the intellectual property rights for the
proprietary technology is important to the future success of our business. In
addition to relying on patent, trademark, and copyright rights, we rely on
unpatented proprietary know-how and trade secrets, and employ various methods to
protect our know-how and trade secrets, including the use of nondisclosure and
similar contractual agreements. Despite our efforts to protect proprietary
rights, unauthorized parties or competitors may copy or otherwise obtain and use
these products or technology. The steps we have taken may not prevent
unauthorized use of this technology and there can be no assurance that others
will not independently develop the know-how and trade secrets or develop better
technology than us or that current and former employees, contractors and other
parties will not misappropriate proprietary information and copy or otherwise
obtain and use our information and proprietary technology without authorization
or otherwise infringe on our intellectual property rights.
WE ARE
AND MAY IN THE FUTURE INVOLVED IN VARIOUS LEGAL PROCEEDINGS WHICH ARISE DURING
THE COURSE OF OUR BUSINESS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
FINANCIAL POSITION AND RESULTS OF OPERATIONS.
We are
involved in and will in the future become involved in various legal proceedings
that periodically arise during the course of business. While we have reason to
believe that the outcome of the one pending matter (see Note 8 under Legal
Proceedings of the 2004 Audited Financials and Note 7 of the March 31, 2005
Financials(unaudited)) will not have a material adverse effect on our financial
position, litigation is essentially unpredictable and excessive verdicts could
occur. With regard to any future litigation, we cannot predict whether the
outcome of such litigation will have a material adverse effect on our financial
position. Although we believe we have valid defenses in the current matter, we
cannot predict whether we will have valid defenses in future matters, and, in
the future we could incur judgments or enter into settlements of claims that
could have a material adverse effect on our financial position or results of
operations.
WE MAY
BECOME SUBJECT TO BURDENSOME REGULATIONS.
We may
become subject to burdensome governmental regulations and legal uncertainties
affecting the long haul trucking and general aviation industries, which could
adversely affect our business and increase our cost and expenses. With regard to
the long haul trucking industry, we are regulated by federal and state
regulation which limit idling of long haul trucks. However, we believe that the
federal government and the states may eventually enact “zero idling”
legislation, and or other legislation to prevent any emissions from diesel
engines on trucks during periods when the trucks are stopped. Since the AXP 1000
utilizes a diesel engine which still emits small amounts of noxious emissions,
the device would be ineffective in a “zero idling” legislative environment.
Other environmental laws could similarly limit the effectiveness of our current
device. Thus, we need to comply with a strict regulatory scheme which is
expensive and time consuming in order to develop and market new
products.
As a
result, legal uncertainties and new regulations could:
|
« |
increase
our costs of doing business, and |
| |
|
|
« |
require
us to revise our products or services, |
any of
which could increase our expenses, reduce our revenues and thereby materially
adversely affect our business, financial condition and results of operations.
Laws and regulations directly applicable to us have limited capital and may
require additional future capital to continue operations; inability to obtain
the necessary financing may force us to curtail or suspend our
operations.
THE
IMPLEMENTATION OF STOCK-BASED BENEFIT PLANS MAY DILUTE YOUR OWNERSHIP
INTEREST.
We may
enact one or more stock-based benefit plans for our employees as we expand in
order to attract talented employees by offering “market” benefits. Such plans
may cause the issuance of more stock, which will dilute the percentage of
ownership interest of current stockholders.
OUR
COMMON STOCK IS DEEMED TO BE “PENNY STOCK,” WHICH MAY MAKE IT MORE DIFFICULT FOR
OUR STOCKHOLDERS TO SELL THEIR SHARES DUE TO SUITABILITY
REQUIREMENTS.
Trading
in our common stock is subject to the “penny stock” rules. The Securities
Exchange Commission has adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per share.
These rules require that any broker-dealer who recommends our securities to
persons other than prior customers and accredited investors, must, before the
sale, make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to execute the transaction. In
addition, unless an exception is available, the broker-dealer must deliver a
disclosure schedule explaining the penny stock market and the risks associated
with trading in the penny stock market prior to any transaction. Further,
broker-dealers must disclose commissions payable to both the broker-dealer and
the registered representative and current quotations for the securities they
offer. The additional burdens imposed upon broker-dealers by such requirements
may discourage them from transactions in our common stock, which could severely
limit the market price and liquidity of our common stock.
DEPENDENCE
ON A LIMITED NUMBER OF QUALIFIED SUPPLIERS OF COMPONENTS AND MANUFACTURING
EQUIPMEN T COULD LEAD TO DELAYS, LOST REVENUE OR INCREASED COSTS.
Because
we depend on a limited number of suppliers for certain components and
manufacturing equipment, an increase in the cost of such components or
equipment, an extended shortage of required components or equipment, failure of
a key supplier's business process, or the failure of key suppliers to remain in
business, adjust to market conditions, or to meet our quality, yield or
production requirements could significantly harm our operating results. A number
of the components used by us are available from only a single or limited number
of qualified outside suppliers, and may be used across multiple product lines.
In addition, some of the components (or component types) used in our products
are used in other devices. If there is a significant simultaneous upswing in
demand for such a component (or component type) from several high volume
industries, resulting in a supply reduction, or a component is otherwise in
short supply, or if a supplier fails to qualify or has a quality issue with a
component, we may experience delays or increased costs in obtaining that
component. In addition, if a component becomes unavailable, we could suffer
significant loss of revenue.
To reduce
the risk of component shortages, we attempt to provide significant lead times
when buying these components. As a result, we may be subject to cancellation
charges if we cancel orders, which may occur when we make technology
transitions.
In order
to further reduce the risk of supply shortages, we have purchased BMZ Generators
and Anchor Manufacturing in order to control the supply of generators and air
conditioning components for the AXP 1000 units; however, those subsidiaries also
depend on suppliers, and require significant cash to operate, so a downturn in
either of those businesses could also have a material adverse impact on the
Company.
In some
cases, not only are we dependent on a limited number of suppliers, but we also
have entered into or may enter into in the future contractual commitments that
require us to buy a substantial number of components from certain suppliers. Our
future operating results may depend substantially on our suppliers' ability to
timely qualify their components in our programs, and their ability to supply us
with these components in sufficient volume to meet our production requirements.
A significant disruption in any of these suppliers' ability to manufacture and
supply us with the components could harm our operating results.
FORWARD
LOOKING STATEMENTS
This
prospectus contains forward-looking statements which relate to future events or
our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as “may”, “will”, “should”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”,
“potential” or “continue” or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled “Risk Factors” on pages 3 to 7, that may cause our or our industries'
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.
While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results. The
safe harbor for forward-looking statements provided in the Private Securities
Litigation Reform Act of 1995 does not apply to the offering made in this
prospectus.
WHERE YOU
CAN FIND MORE INFORMATION
The
Company files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any of these reports, statements or other information at the Securities and
Exchange Commission's public reference room located at 450 Fifth Street, N.W.,
Washington D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference room. The
Company's Securities and Exchange Commission filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the Securities and Exchange Commission at
www.sec.gov.
USE OF
PROCEEDS
The
shares of common stock offered hereby are being registered for the account of
the selling stockholders named in this prospectus. As a result, all proceeds
from the sales of the common stock will go to the selling stock-holders and we
will not receive any proceeds from the sale of the common stock by the selling
stockholders. We will, however, incur all costs associated with this
registration statement and prospectus.
DETERMINATION
OF OFFERING PRICE
The
offering price will be determined from time to time by the selling stockholders.
See “Plan of Distribution.”
SELLING
STOCKHOLDERS
The
selling stockholders may offer and sell, from time to time, any or all of their
common stock being registered hereunder. Because the selling stockholders may
offer all or only some portion of the 123,242,702 shares of common stock to be
registered, no estimate can be given as to the amount or percentage of these
shares of common stock that will be held by the selling stockholders upon
termination of the offering.
None of
the selling shareholders had any position, office or material relationship with
us or any of our affiliates in the last three years. The selling stockholders
are not broker-dealers (acting in such capacity) or affiliates of a
broker-dealer to our knowledge.
The
following table sets forth certain information regarding the beneficial
ownership of shares of common stock by the selling stockholders as of May 20,
2005 and the number of shares of common stock covered by this prospectus. The
number of shares in the table represents an estimate of the number of shares of
common stock to be offered by the selling stockholder.
| |
|
|
Number
of Shares Owned By Selling Stockholder After Offering and Percent of Total
(1) |
| |
|
|
|
|
|
Selling
Stockholder |
Common
Stock Owned by Selling Stockholder (2) |
Total
Shares Registered for Selling Stockholder |
#
of Shares |
%
of Class |
|
Longview
Fund, LP, Michael Rudolph, Controlling Person |
26,520,737 |
26,520,737 |
0 |
0 |
| |
|
|
|
|
|
Longview
Equity Fund, LP, Michael Rudolph, Controlling Person |
27,846,774 |
27,846,774 |
0 |
0 |
| |
|
|
|
|
|
Longview
International Equity Fund, LP, Michael Rudolph, Controlling
Person |
11,934,332 |
11,934,332 |
0 |
0 |
| |
|
|
|
|
|
Ashford
Capital Transition Fund I, LP, Frank Cavanaugh, Controlling
Person |
4,420,123 |
4,420,123 |
0 |
0 |
| |
|
|
|
|
|
Lagunitas
Partners LP, Jon D. Gruber, Controlling Person |
11,713,226 |
11,713,226 |
0 |
0 |
| |
|
|
|
|
|
Gruber
& McBain International, Jon D. Gruber, Controlling
Person |
2,431,068 |
2,431,026 |
0 |
0 |
| |
|
|
|
|
|
Jon
D. Gruber and Linda W. Gruber |
3,536,098 |
3,536,098 |
0 |
0 |
| |
|
|
|
|
|
Rob
Tholomeier |
1,210,061 |
1,210,061 |
0 |
0 |
| |
|
|
|
|
|
David
Dorhmann |
1,210,061 |
1,210,061 |
0 |
0 |
| |
|
|
|
|
|
David
Olson |
1,210,062 |
1,210,062 |
0 |
0 |
| |
|
|
|
|
|
Brian
Swift |
1,210,062 |
1,210,062 |
0 |
0 |
|
1. |
Assumes
all of the shares of common stock offered are issued and are sold.
Percentage of class is based on 220,403,702 common shares issued and
outstanding on May 20, 2005 as if the full amount of convertible notes
described herein are converted at $.05 per share, with all warrants being
exercised. |
| |
|
|
2. |
The
number of shares of common stock listed as beneficially owned by the
selling stockholder represents the number of common stock owned by such
stockholder and any shares that may be acquired pursuant to any warrants
owned by such stockholder. |
We may
require the selling stockholders to suspend the sales of the securities offered
by this prospectus upon the occurrence of any event that makes any statement in
this prospectus or the related registration statement untrue in any material
respect or that requires the changing of statements in these documents in order
to make statements in those documents not misleading.
The
Selling Shareholders have invested $1,334,667, in the aggregate in the Company.
Funding occurred on April 27, 2005, May 10, 2005 and May 12, 2005. An additional
$665,333 is due to be invested within 5 business days of the date of
effectiveness of this Registration Statement. The amounts invested and to be
invested (assuming additional $665,333 is invested) and warrants issued and to
be issued to each are as follows:
|
Selling
Shareholder |
Amount
Invested |
Warrants |
Semi
Annual Coupon (assuming 8% rate) |
|
Longview |
$600,000 |
14,520,737 |
$24,000 |
|
Longview
Equity |
$630,000 |
15,246,774 |
$25,200 |
|
Longview
International Equity |
$270,000 |
6,534,332 |
$10,800 |
|
Ashford
Capital |
$100,000 |
2,420,123 |
$4,000 |
|
Lagunitas
Partners |
$265,000 |
6,413,326 |
$10,600 |
|
Gruber
& McBain International |
$55,000 |
1,331,068 |
$2,200 |
|
Jon
D. Gruber and Linda W. Gruber |
$80,000 |
1,936,098 |
$3,200 |
|
Rob
Tholomeier |
0 |
1,210,061 |
0 |
|
David
Dohrmann |
0 |
1,210,061 |
0 |
|
David
Olson |
0 |
1,210,062 |
0 |
|
Brian
Swift |
0 |
1,210,062 |
0 |
The funds
were invested pursuant to Secured Convertible Notes, dated as of April 27, 2005,
May 10, 2005, May 12, 2005 and the fifth day following the date of effectiveness
of this Registration Statement (the “Notes”).
The terms
of the Notes are as follows:
The
coupon payment is due on October 1, 2005, and semi annually thereafter while the
Notes are outstanding, and the Notes are due on the two year anniversary of the
issuance date.
The Notes
are convertible into EENT Common Stock at any time at the holder's discretion in
part or in whole by dividing the principal amount converted by a price
(“Conversion Price”) equal to the lesser of (i) $0.12, or (ii) 70% of the
average of the five lowest closing bid prices of the Common Stock as reported by
Bloomberg L.P. for the Over the Counter Bulletin Board for the twenty trading
days preceding a conversion date. Until the later of 270 days after the issue
date of this Note, or until the closing bid price of the Common Stock as
reported by Bloomberg L.P. for the Principal Market is less than $.06, the
minimum Conversion Price shall be $0.05. At all times beneficial ownership of
EENT Common Stock for any investor and its affiliates shall not exceed 4.99% on
an as converted basis (unless such investor opts to waive such condition).
Conversion Price is adjusted equitably for stock splits and the
like.
Selling
Shareholders were issued an aggregate of 42,242,704 five year Class A Warrants
at an exercise price of $0.12 per share. The Class A Warrants are callable by
the Company at $0.12 per share if for any 10 day trading period the common stock
closes at least $0.24 per share for each of the trading days.
The
Selling Shareholders were issued an aggregate of 11,000,000 five year Class B
Warrants at an exercise price of $0.20 per share. One half of the Class B
Warrants are callable by the Company following the two consecutive calendar
months during which the Company has sold and delivered 100 AXP 1000 units, and
all of the Class B Warrants may be called during the calendar month following
the two consecutive months during which the Company has sold and delivered 150
AXP 1000 units.
Within 30
business days of April 27, 2005, EENT is required to file a registration
statement on Form SB-2 for the shares into which the Convertible Notes are
convertible and underlying the Warrants. The Company shall use its best efforts
to have the registration statement declared effective within 120 days after
April 27, 2005.
Events of
Default under the Convertible Notes include: bankruptcy; failure to timely file
the Registration Statement; failure to maintain trading of the Common Stock on
the over the counter bulletin board; and failure to make any payment within 30
days of the due date therefor. Remedies include foreclosure on the assets of the
Company and its subsidiaries, on which purchasers of the Notes have a first
lien, and payment of a 2% per month penalty for late filing of the registration
statement, or if it is not effective within 120 days after April 27,
2005.
Selling
Shareholders also covenant not to use any of the Shares registered hereunder to
cover any short position in the Company’s Common Stock.
PLAN OF
DISTRIBUTION
This
prospectus relates to the offer and sale from time to time by the selling
stockholders of up to 123,242,702 shares of common stock. We have registered
such shares of common stock for sale to provide the holders thereof with freely
tradeable securities, but registration of such shares does not necessarily mean
we will issue any of such shares or that the selling stockholders will offer or
sell such shares. Any of the selling stockholders may, from time to time, sell
all or a portion of the shares of common stock on any market upon which the
common stock may be quoted (currently the NASDAQ Over the Counter Bulletin
Board), in privately negotiated transactions or otherwise. Sales may be at fixed
prices prevailing at the time of sale, at prices related to the market prices or
at negotiated prices. The offering price of the shares from time to time will be
determined by the selling stockholders and, at the time of such determination,
may be higher or lower than the market price of the shares on the NASDAQ Over
the Counter Bulletin Board.
The
shares of common stock being offered by this prospectus may be sold by the
selling stockholders or by their donees, transferees, successors or assigns by
one or more of the following methods, without limitation:
|
« |
on
the NASDAQ Over the Counter Bulletin Board or any other exchange or over
the counter market on which the stock is listed at the time of
sale; |
| |
|
|
« |
block
trades in which the broker or dealer so engaged will attempt to sell the
shares of common stock as agent but may position and resell a portion of
the block as principal to facilitate the transaction; |
| |
|
|
« |
purchases
by broker or dealer as principal and resale by the broker or dealer for
its own account pursuant to this prospectus; |
| |
|
|
« |
ordinary
brokerage transactions and transactions in which the broker solicits
purchasers; |
| |
|
|
« |
privately
negotiated transactions; |
| |
|
|
« |
market
sales (both long and short to the extent permitted under the federal
securities laws); |
| |
|
|
« |
at
the market to or through market makers or into an existing market for the
shares; |
| |
|
|
« |
through
transactions in options, swaps or other derivatives (whether exchange
listed or otherwise); |
| |
|
|
« |
in
underwritten offerings; and |
| |
|
|
« |
a
combination of any aforementioned methods of
sale. |
The
selling stockholders may accept and, together with any agents of the selling
stockholders, reject in whole or in part any proposed purchase of shares of
common stock offered by this prospectus. The Company will not receive any
proceeds from the offering of shares by the selling
stockholders.
In the
event of the transfer by any of the selling stockholders of their shares to any
pledgee, donee or other transferee, we will amend this prospectus and the
registration statement of which this prospectus forms a part by the filing of a
post-effective amendment in order to have the pledgee, donee or other transferee
in place of the selling stockholders who have transferred his or her
shares.
In
effecting sales, brokers and dealers engaged by the selling stock-holder may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the selling stockholder or, if any of the
broker-dealers act as an agent for the purchaser of such shares, from the
purchaser in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the selling stockholder to sell a specified number of the shares of common stock
at a stipulated price per share. Such an agreement may also require the
broker-dealer to purchase as principal any unsold shares of common stock at the
price required to fulfill the broker-dealer commitment to the selling
stockholder if such broker-dealer is unable to sell the shares on behalf of the
selling stockholder. Broker-dealers who acquire shares of common stock as
principal may thereafter resell the shares of common stock from time to time in
transactions which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above. Such sales
by a broker dealer could be at prices and on terms then prevailing at the time
of sale, at prices related to the then-current market price or in negotiated
transactions. In connection with such resales, the broker-dealer may pay to or
receive from the purchasers of the shares commissions as described
above.
The
selling stockholders and any broker-dealers or agents that participate with the
selling stockholders in the sale of the shares of common stock may be deemed to
be “underwriters” within the meaning of the Securities Act in connection with
these sales. In that event, any commissions received by the broker-dealers or
agents and any profit on the resale of the shares of common stock purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
From time
to time, the selling stockholders may pledge their shares of common stock
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by a selling stockholder, the broker may offer and sell the
pledged shares of common stock from time to time. Upon a sale of the shares of
common stock, the selling stockholder intends to comply with the prospectus
delivery requirements under the Securities Act by delivering a prospectus to
each purchaser in the transaction. We intend to file any amendments or other
necessary documents in compliance with the Securities Act which may be required
in the event the selling stockholder defaults under any customer agreement with
brokers.
To the
extent required under the Securities Act, a prospectus supplement accompanying
this prospectus, or, if appropriate, a post effective amendment to this
registration statement will be filed, disclosing the name of any underwriters or
broker-dealers, the number of shares of common stock involved, the price at
which the common stock is to be sold, the commissions paid or discounts or
concessions allowed to such underwriters or broker-dealers, where applicable,
that such broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus and other
facts material to the transaction.
We and
the selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations under it, including, without
limitation, Rule 10b-5 and, insofar as the selling stockholders are distribution
participants and we, under certain circumstances, may be a distribution
participant, under Regulation M. All of the foregoing may affect the
marketability of the common stock.
All
expenses of the registration statement including, but not limited to, legal,
accounting, printing and mailing fees are and will be borne by us. Any
commissions, discounts or other fees payable to underwriters or broker- dealers
in connection with any sale of the shares of common stock will be borne by the
selling stockholder, the purchasers participating in such transaction, or
both.
Any
shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act, as amended, may be sold under
Rule 144 rather than pursuant to this prospectus.
We have
not registered or qualified the shares of common stock offered by this
prospectus under the laws of any country, other than the United States. In
certain states, the selling stockholders may not offer or sell their shares of
common stock unless (1) we have registered or qualified such shares for sale in
such states or (2) we have complied with an available exemption from
registration or qualification. Also, in certain states, to comply with such
state securities laws, the selling stockholders can offer and sell their shares
of common stock only through registered or licensed brokers or
dealers.
LEGAL
PROCEEDINGS
On
October 28, 2003, the Company was served with a complaint by 600 Racing, Inc.
The complaint alleges that EENT is liable on a $150,000 judgment issued against
Millennium Fuels USA, LLC (“MFUSA”), an unrelated entity, of which Will McAndrew
and Roger Wurtele, the Company's CEO and CFO, respectively, were the Managers.
The complaint alleges that the Company engaged in a joint enterprise with MFUSA
and integrated resources with MFUSA and is thus liable on an “alter ego” theory.
In
October 2004, the case was removed to the U.S. Bankruptcy Court for the Northern
District of Texas, as part of the pending bankruptcy of MFUSA. The debtor has
proposed a Plan of Reorganization supported by the U.S. Trustee, for settlement
by EENT of the litigation for $15,000.
Other
than as stated above we are not a party to any legal proceedings.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Identification
of Directors and Executive Officers.
The
following table sets forth information concerning the directors and executive
officers of Energy & Engine Technology Corporation:
|
NAME |
AGE |
TITLE |
Dates
of Service |
| |
|
|
|
|
Willard
G. McAndrew III |
50 |
Chairman,
President, Chief Executive Officer, and Director |
December
2001-Present |
| |
|
|
|
|
Roger
Wurtele |
58 |
Vice
President, Chief Financial Officer, and Director |
December
2001-Present |
| |
|
|
|
|
Jolie
Kahn |
40 |
General
Counsel and Secretary |
March
2002-Present |
| |
|
|
|
|
Robert
Farris |
78 |
Independent
Director |
June
2002-Present |
| |
|
|
|
|
Stanley
A. Hirschman |
58 |
Independent
Director |
May
2005 - Present |
Background
of Officers and Directors
Willard
G. McAndrew, III. Since December 2001, Mr. McAndrew has served as Chairman,
President, Chief Executive Officer and a Director of Energy & Engine
Technology Corporation. From 1998 through 2002 Mr. McAndrew was the President
and Manager of Millennium Fuels USA, LLC., an affiliate of Millennium Fuels
Corporation. Mr. McAndrew was also the President and the Chairman of the Board
of Directors of Millennium Fuels Corporation from 1998 to 2002. Millennium was a
developer and producer of both fuels and alternative fuels, domiciled in Plano,
Texas. From 1996 until 1998, he served as president and a director of McAndrew
Management II, Inc., a developer and operator of oil and gas production projects
located in Richardson, Texas. Mr. McAndrew devotes his time as required to the
business of Energy & Engine Technology Corporation.
Roger
Wurtele. Since December 2001, Mr. Wurtele has served vice president and chief
financial officer and as a director of Energy & Engine Technology
Corporation. From 1998 through December 2001, he served as the Manager and
Principal Financial Officer of Millennium Fuels, USA, LLC. Millennium Fuels,
USA, LLC was a developer of products in both the fuels and alternative fuels
industries. From 1995 until 1998, Mr. Wurtele was the President and a director
of Controllership Services, Inc., a provider of financial consulting services
located in Shreveport, Louisiana. Mr. Wurtele holds a Bachelors Degree in
Business Administration from the University of Nebraska and is admitted as a
Certified Public Accountant in the states of Colorado and Louisiana. He devotes
his time as required to the business of Energy & Engine Technology
Corporation.
Jolie
Kahn. Ms. Kahn received her Bachelor of Arts degree in Government from Cornell
University in Ithaca, New York and graduated magna cum laude from the Benjamin
Cardozo School of Law in New York, New York in 1989, where she was a member of
its Law Review and an Alexander Fellow. Since that time, she has represented
both private and public companies in varied aspects of general corporate,
securities, corporate finance and mergers and acquisitions law and transactions.
In addition, Ms. Kahn has counseled clients in areas related to their general
day-to-day business affairs, such as employment and taxation issues. Ms. Kahn's
career began at Weil, Gotshal & Manges, LLP in New York City, and most
recently, she had acted as an in-house counsel to a “high tech” company in Boca
Raton, Florida. Ms. Kahn has been with the Company since March 2002, and was
Counsel to Seisint, Inc. in Boca Raton, FL, from March 2001 to March 2002. From
January 2000 through October 2002, she was Of Counsel to Braverman, Kaskey &
Caprara in Philadelphia, PA, and from October 1998 through January 2000, she was
Of Counsel to Meyer, Suozzi, English & Klein, of Mineola, NY.
Robert
Farris. Mr. Farris serves as one of our directors. After three years in the U.S.
Army in Korea, Mr. Farris became the Safety Director for Valley Transit Company,
a full-service bus company, in 1955. In 1963, he became President of Valley
Transit Company, a position he holds to the present day. Mr. Farris has also
served as Director for Texas State Bank, Harlingen, Texas, Texas Regional
Bancshares, McAllen, Texas, National Bus Traffic Association, Texas Motor
Transportation Association, Texas Tourist Council and Arxa International Energy
Corporation. Mr. Farris' civic activities include Board of Trustees Marine
Military Academy, President of Harlingen Chamber of Commerce, Harlingen
Industrial Foundation, Inc., Lower Rio Grande Valley Chamber of Commerce,
Algodon Club, Crusade Chairman for the American Cancer Society, Vice President
Rio Grande Council of Boy Scouts of America, Board Member for the First United
Methodist Church of Harlingen and Member of Phi Gamma Delta. Mr. Farris has been
recognized for his accomplish-ments by Who's Who in America and Who's Who in
Finance and Industry.
Stanley
A. Hirschman. Mr. Hirschman is President of CPointe Associates, Inc., a Plano,
Texas - based executive management consulting firm that specializes in solutions
for companies with emerging technology based products, and is well versed in the
challenges of regulated corporate governance. He is Chairman of Bravo Foods
International, former Chairman of Mustang Software, Director of 5G Wireless
Communications and Bronco Energy Fund. While at Mustang Software, Mr. Hirschman
took a hands-on role in the planning and execution of the strategic initiative
to increase shareholder value, resulting in the successful acquisition of the
company by Quintus Corporation. His client list has included SBC Wireless,
Nortel, Netcom, MindSpring, EarthLink, Inc., Retail Highway and Datametrics.
Additionally, he is a founder of Aiirmesh Communications, a provider of wireless
high-speed community broadband. Mr. Hirschman is a member of the National
Association of Corporate Directors. He is also active in community affairs and
serves on the Advisory Council of the Salvation Army Adult Rehabilitation
Center.
All
directors hold office until the next annual meeting of the stock-holders and
until their successors have been elected and qualified. The officers are elected
annually by the board of directors.
There are
no family relationships between any of our directors and officers. There are no
arrangements or understandings between any director or executive officer and any
other person pursuant to which any person has been elected or nominated as a
director or executive officer.
We do not
currently have an audit committee.
As of
March 31, 2005, the other “significant employees” were: Michael Patrick, at
Anchor Manufacturing, Inc. and Fernando A. Pereira at BMZ Generators,
Inc..
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table shows the amount of our common stock beneficially owned (unless
otherwise indicated) as of May 1, 2005 by (i) our directors and nominees for
director, (ii) our named executive officers, (iii) our directors and executive
officers as a group and (iv) each person known by us to beneficially own more
than 5% of our common stock. The percentages set forth below are based on
127,001,244 shares of the Company's common stock outstanding as of May 20,
2005.
| |
Number
of |
|
| |
Shares |
Percent
of |
| |
Beneficially |
Shares |
|
NAME(1) |
Owned
(1) |
Outstanding |
| |
|
|
|
Directors
and Executive Officers: |
|
|
| |
|
|
|
Willard
G. McAndrew III
5308
W. Plano Parkway
|
11,257,997
(A)
(D) |
8.86%
(B) |
| |
|
|
|
Roger
N. Wurtele
5308
W. Plano Parkway
|
11,207,997
(A) (D) |
8.83%
(B) |
| |
|
|
|
Jolie
G. Kahn
5308
W. Plano Parkway
|
7,218,518
(A) (D) |
5.68%
(B) |
| |
|
|
|
All
officers and directors as a group |
29,684,512
(D) |
23.37% |
| |
|
|
|
Kevin
W. Smyth |
21,759,654
(D) |
18.05% |
*(A) =
The individual had 4,000,000 warrants which are currently exercisable as of
December 20, 2004
*(B) =
Percentages do not reflect ownership if all warrants owned on December 20, 2004
were exercised
*(D) =
Direct Beneficial Ownership
|
(1) |
Under
the rules of the Securities and Exchange Commission, a person is deemed to
be a “beneficial owner” of a security if that person has or shares “voting
power”, which includes the power to vote or to direct the voting of such
security, or “investment power,” which includes the power to dispose of or
to direct the disposition of such security. A person also is deemed to be
a beneficial owner of any securities which that person has the right to
acquire within sixty (60) days. Under these rules, more than one person
may be deemed to be a beneficial owner of the same securities and a person
may be deemed to be a beneficial owner of securities as to which he or she
has no economic or pecuniary interest. Except as set forth in the
footnotes below, the persons named below have sole voting and investment
power with respect to all shares of common stock shown as being
beneficially owned by them. |
DESCRIPTION
OF SECURITIES
The
following summary is a general description of our Corporation's Certificate of
Incorporation and Bylaws. This summary does not purport to be complete and is
subject to, and is qualified in its entirety by, all of the provisions of the
Certificate of Incorporation and Bylaws, including the definitions included in
these documents.
Common
Stock
Our
authorized capital stock consists of 280,000,000 shares of common stock, $0.001
par value per share. As of May 20, 2005, 127,001,244 shares were currently
issued and outstanding. As a holder of common stock you will be entitled to one
(1) vote per share on each matter to be voted on by our shareholders. Dividends
may be paid to you as and when declared by the board of directors.
Holders
of shares of our common stock do not have cumulative voting rights. This means
that more than fifty percent (50%) of the holders of common stock, voting for
the election of directors, can elect all of the directors or be elected
themselves if they so choose. Holders of the remaining shares would not be able
to elect any of our directors. Holders of shares of our common stock do not have
any pre-emptive rights with respect to shares of stock we may sell in the
future.
Under
Nevada law, an “acquiring person” who acquires a “controlling interest” in an
“issuing corporation” may not exercise voting rights on any “control shares”
unless such voting rights are conferred by a majority vote of the disinterested
stockholders of the issuing corporation at a special meeting of such
stockholders held upon the request and at the expense of the acquiring person.
In the event that the control shares are accorded full voting rights and the
acquiring person acquires control shares with a majority or more of all the
voting power, any stockholder, other than the acquiring person, who does not
vote in favor of authorized voting rights for the control shares is entitled to
demand payment for the fair value of such person's shares, and the corporation
must comply with the demand. For purposes of these provisions, “acquiring
person” means any person who, individually or with others, acquires or offers to
acquire, directly or indirectly a “controlling interest” in a corporation.
“Controlling interest” means the ownership of outstanding voting shares of said
corporation sufficient to enable said person, individually or with others,
directly or indirectly, to exercise (i) one fifth or more but less than one
third (ii) one third or more but less than a majority, or (iii) a majority or
more of the voting power of the issuing corporation in the election of
directors, and voting rights must be conferred by a majority of disinterested
stockholders as each threshold is reached. “Control shares” means those
outstanding voting shares of a corporation that an acquiring person acquires or
offers to acquire in an acquisition or within 90 days immediately preceding the
date when the acquiring person became an acquiring person. This statute applies
to Nevada corporations having 200 or more stockholders, at least 100 of whom are
Nevada residents and does business in Nevada directly. Since the Company does
not have 100 Nevada resident stockholders and does not do business in Nevada,
the statute does not currently apply to the Company.
INTEREST
OF NAMED EXPERTS AND COUNSEL
The
validity of the common stock offered hereby will be passed on for us by Jolie
Kahn, our General Counsel. Ms. Kahn owns approximately 7,218,518 shares of our
common stock.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
Each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a proceeding), by reason of the
fact that he or she, or a person for whom he or she is the legal representative,
is or was an officer or director of the Corporation or is or was serving at the
request of the Corporation as an officer or director of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans whether the basis of such proceeding is
alleged action in an official capacity as an officer or director, or in any
other capacity while serving as an officer or director, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the Nevada
General Corporation law, as the same exists, or may hereafter be amended, (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability, and loss, including attorneys fees, judgments, fines, excise
taxes or penalties and amounts to be paid in settlement reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be an officer or director and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided herein with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided
however, that, if the Nevada General Corporation Law requires the payment of
such expenses incurred by an officer or director in his or her capacity as an
officer or director (and not in any other capacity in which service was or is
rendered by such person while an officer or director, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, payment shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such officer or director, to
repay all amounts so advanced if it shall ultimately be determined that such
officer or director is not entitled to be indemnified under the Section or
otherwise.
If a
claim hereunder is not paid in full by the Corporation within ninety days after
a written claim has been received by the Corporation, the claimant may, at any
time hereafter, bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful, in whole or in part, the claimant shall be
entitled to be paid the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the Nevada General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination of such action that indemnification
of the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Nevada General Corporation Law,
nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
The right
to indemnification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this Section shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation,
By-Law, agreement, vote of stockholders or disinterested directors or
otherwise.
The
Corporation may maintain insurance, at its expense, to protect itself and any
officer, director, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Nevada
General Corporation Law.
The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification to any employee or agent of the
Corporation to the fullest extent of the provisions of this Section with respect
to the indemnification and advancement of expenses of officers and directors of
the Corporation or individuals serving at the request of the Corporation as an
officer, director, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of this
issue.
DESCRIPTION
OF BUSINESS
On
September 7, 2001, the Company acquired 100% of the membership interests in
Southern States Gas Gathering, LLC (“SSGG”) for $153,828 in cash and common
stock, which was recorded as an acquisition of assets. The assets acquired
consisted primarily of an inactive 65 mile gas gathering system located in the
Caddo Pine Island Field, Louisiana. The Gas Gathering operation was considered a
discontinued operation as of December 31. 2004 and was subsequently sold in
2005.
On
December 5, 2002, Wind Dancer Aviation Services, Inc. (“Wind Dancer”), a wholly
owned subsidiary of Registrant, purchased certain hard assets and inventory and
fuel associated with the former Fixed Base Operator (“FBO”), at Stevens Field,
Archuleta County, Colorado from the Board of County Commissioners of Archuleta
County, Colorado. The total consideration paid was $103,375. The purchase price
funds were provided by Registrant in the form of an equity infusion into Wind
Dancer. The nature of the business in which the assets were used was an FBO, and
Wind Dancer continues to use the assets in an FBO. The FBO was considered a
discontinued operation in 2004 and was subsequently sold in 2005.
CURRENT
BUSINESS
The
Parent
Registrant
is pursuing a strategy to establish a technological presence in providing
products to the long haul trucking industry in America. With the national quest
for a balanced energy policy that addresses consumption issues, it is seeking to
do its part to contribute to reductions in our dependence on foreign energy
sources which management believes is a national security issue. As of December
31, 2004 Registrant had one division which focuses on innovative ways to
conserve energy and/or make engine technology more efficient, less harmful to
the environment and effective including: its AXP 1000 auxiliary power generator
for long haul trucks and related standby power generation business. Its two
other divisions were considered discontinued operations in 2004. In early 2005,
Registrant sold its Fixed Base Operator for general aviation aircraft in Pagosa
Springs, Colorado and has sold its Gas Gathering System, located in the Caddo
Pine Island Field, in Caddo Parrish, Louisiana. As discussed below, Registrant
has determined to redirect its focus on power supply for the transportation
industries, rather than on the energy gathering or aviation facets of its
businesses.
AXP 1000
AND RELATED RESEARCH AND DEVELOPMENT
Overview
Prior
Activity
The AXP
1000 is a device designed for new installation and retrofit to semi truck
tractors which provides air conditioning and heating for long haul trucks and
power generation without running the truck engine to provide “creature comforts”
for the truck cab (i.e.: heating, cooling and operation of devices requiring
electrical power), while keeping the truck battery charged. Registrant has filed
a patent on its device which has been amended pursuant to a continuation in
part. On December 2, 2002, Registrant successfully installed its new Auxiliary
Power Generator - “AXP 1000” on a truck, and the unit functioned properly,
including providing power to the truck's cab HVAC unit. On January 2 and 3,
2003, an AXP 1000 unit was installed on a loaned truck, and road testing
completed.
Registrant
spent most of 2003 testing and making improvements to its AXP 1000. In December
2003, Registrant commenced commercial sales of the AXP 1000 and has recently
transitioned from a research and development stage to a marketing and sales and
production stage.
Long
Haul Trucking Industry and Current Activity
The
trucking industry is a $255.5 billion industry in the U.S. with 1,900,000
tractor trailers (Source: TruckInfo.net as of
March 13, 2005). The average truck driver in the United States makes 30.3 cents
per mile and an average of $32,000 per year, leading to the assumption that the
drivers travel an average of over 90,000 miles per year. The trucking industry
accounts for 12.8% of all the fuel purchased in the U.S., with the average 2005
per gallon price of diesel estimated at over $2.00 per gallon (up from $1.26 in
2002).
The
Argonne National Laboratory Report entitled “Analysis of Technology Options to
Reduce the Fuel Consumption of Idling Trucks” by F. Stodolsky, L. Guines and A.
Vyus, dated June 1, 2000 (“Argonne Report”) contains various calculations of
savings by utilization of technology options to idling, including auxiliary
power generators, which show the potential for massive reductions in fuel
consumption. In conclusion, the Argonne Report states: “[any] of the listed
alternatives has significant potential to reduce all impacts compared to idling
overnight.... Auxiliary power units [may] reduce energy and petroleum use and
CO2
emissions by more than 80% for the entire year” (using assumption of 458,000
trucks with 85 days of heating at 10 hours per day and 218 days with average
cooling at 4.5 hours per day).
Furthermore,
according to an article on the Transportation Technology and R&D Center
website (www.transportation.anl.gov), called “Truckers: Don't Let Your Profits
Go Up In Smoke,” “assuming 1,830 hours of idling a year, a single truck emits
about 22 tons of carbon dioxide;...390 pounds of carbon monoxide; and 1,024
pounds of nitrous oxides.” The article, in a parenthetical, states there are
approximately 480,000 Class 7 and 8 trucks.
Effective
as of midnight, January 4, 2004 new federal regulations were implemented which
significantly curtail long haul truck driver time, thus increasing the length of
rest intervals, and the need for idling alternatives such as EENT's AXP 1000
device. In summary, the regulations permit truck drivers to drive for 11 hours,
only after having spent 10 consecutive hours off duty and limit the number of
hours a driver may be on duty in any consecutive 7 day period to 60. The Federal
Motor Carrier Safety Administration (“FMCSA”) stated in a December 30, 2003
press release that federal and state regulators plan to spend the first 60 days
after implementation in “an aggressive education campaign and enforcing
egregious violations” in the first regulations in this area enacted in over 60
years. In fact, the FMCSA website (www.fmcsa.dot.gov) states that 47 of 50
states plan to immediately cite violations of regulations.
These new
regulations are touted to greatly improve safety for the 2.6 million long haul
trucks in the U.S., according to the above cited press release, and are
projected to save 75 lives and prevent over 1300 driver fatigue related injuries
and 6900 property casualty crashes each year, with over $628 million in cost
savings to the American economy. However, the American economy's gain is the
trucking industry's loss. According to a January 2, 2004 article on the
Sun-Sentinel's website, the cost to trucking companies could rise so
significantly that manufacturer shipping costs could rise 2 percent to 19
percent in the near future.
According
to the January 3, 2005 issue of Transport
Topics, in
“Freight Haulers Expand Fleet” by Daniel P. Bearth, there were an estimated
3,147,088 Class 8 trucks in operation in the U.S. in the third quarter of 2004,
compared to 3,066,551 in the third quarter of 2003, which is a 2.6% increase in
usage. Given these estimates, utilizing an estimated average cost of $7,000 per
unit, the auxiliary power unit industry has the potential to be a $22 billion
industry (although this potential industry size should not be taken as a
projection as to actual industry growth or actual average per unit cost). The
same issue indicates that investment in trucking has markedly increased in
recent years, with $1.8 billion being invested (from the sale of stock) since
2002, with only $39.4 million invested in 2000 and 2001 (from the sale of stock)
(Source: “Investors Open to Trucking” by Daniel P. Bearth, Transport
Topics, January
3, 2005). Given that trucking overall is a $676 billion industry, according to
the American Trucking Association, there seems to be significant opportunity for
companies involved in the trucking sector.
As far as
the cost of fuel is concerned, truckers paid approximately $62 billion for
diesel fuel in 2004, representing a $10 billion increase from 2003 (source:
Truckline, January
18, 2005), an even more compelling reason for fleets and independent owner
operators to buy an AXP product in 2005.
Additionally,
many states limit the amount of idling time to 3 - 5 minutes per hour. Fines can
range from as little as $100 to as much as $50,000. Active enforcement has
begun. On the idling regulation front, violations of New Jersey’s three minute
idling regulation can lead to very large fines, with the maximum permitted under
law of $50,000 for third and subsequent offenses (See N.J.A.C. 7:27-14 and 7:27A
- 3.10, although current limits for civil administrative penalty purposes are
capped at $3,000 for third and subsequent offenses). From August 9, 2004 -
January 4, 2005, New Jersey’s compliance sweep led to 122 vehicle violations.
Several jurisdictions, including Utah and Denver, Colorado now have jail time as
a possible penalty for repeat violations of idling regulations.
Detailed
Information on the AXP 1000 Product
The AXP
1000 is a device designed for new installation and retrofit to semi truck
tractors which provides `air conditioning and heating for long haul trucks and
power generation without running the truck engine to provide “creature comforts”
for the truck cab (i.e.: heating, cooling and operation of devices requiring
electrical power), while keeping the truck battery charged. The Company recently
had filed four provisional patent applications on the device, which was
converted to a traditional patent pending in 2003, and has recently filed a
continuation in part to include further unique features.
Recent
federal and state laws and regulations collectively limit both the number of
hours per day that long haul truckers may drive and the number of non-driving
hours they may allow their trucks to idle. Trucks burn a considerable amount of
diesel fuel when idling and release harmful emissions into the atmosphere.
According to the U.S. Department of Energy's Transportation Technology R&D
Center's website, with a 1000 RPM engine and truck accessories with a 10 brake
horsepower, the total yearly savings for fuel costs, preventative maintenance
and overhauls would be approximately $5,280, even with diesel at a modest $1.35
per gallon and with diesel now averaging more than $2.00 per gallon, more than
$8,000 per year. The AXP 1000 reduces fuel consumption and release of noxious
emissions, as well as lowering the truck maintenance burden. Reduced engine
running time lengthens the intervals between scheduled maintenance on the
truck's engine.
These
claims are borne out by industry research. According to the Argonne Report,
“long-haul trucks idling overnight consume more than 838 million gallons of fuel
annually” The report continues on to indicate that various technology solutions,
which reduce idling time, can also be effective methods of saving fuel, reducing
maintenance costs and lowering emissions. One such solution is the AXP
1000.
The AXP
1000 also has the potential to be a significant money saver. The device now
retails for $6,500 (with the new split unit air conditioner), so it may pay for
itself in less than one year, based upon the cost savings estimates above. Given
that the average truck is rotated every three years or 1,000,000 miles by large
companies, and the device pays for itself in less than one year on average, the
device is destined to be a priority for all long haul truck fleets interested in
cost savings.
While
there are several other direct competitors in this market, Registrant believes
that its device occupies a unique niche as it is one of the lightest devices on
the market, has a low maintenance burden and is one of the least expensive
auxiliary products (“APUs”) available. According to the Argonne Report, other
technology options to reduce idling (such as direct-fired heaters, which raise
safety concerns, in addition to high retrofitting costs and unknown reliability,
thermal storage systems, which is a relatively new technology without any active
manufacturer, and truck stop electrification (there are almost no truck stops
currently offering plug-ins in the U.S.)) are not currently viable.
Trade
Show Participation and Media Exposure
Registrant
has had much feedback from its launch of the product at the March 2003 Mid
America Truck Show in Louisville, Kentucky. At that truck show, several major
American retail and/or trucking fleet giants expressed interest about including
the product in testing programs. In addition, the Registrant approached several
small fleets about initial orders, to be supplemented with larger orders over a
one to two year period.
Further
trade show exposure continued with participation in the Great American Truck
Show, in Dallas, which occurred in late September 2003. The Show had an
estimated attendance of 30,000 people from the trucking industry. With its
location at the America Trucking On the Road Magazine booth, EENT experienced
high volume potential customer exposure for the AXP 1000 and made contact with
several new potential distributors and installation facilities. The grand prize
for the On the Road drawing was a free AXP 1000 unit, and several hundred people
were present for the drawing. EENT has also advertised the AXP 1000 in On the
Road, which according to its staff, has a circulation in excess of 80,000. EENT
again teamed up with On the Road at the Mid America Truck Show in March 2004 in
Louisville, KY, which is touted to be the largest truck show in North America,
with projected attendance of over 80,000 people.
EENT was
also featured in Fleet Owner Magazine's September 2003 special industry report
on anti-idling called “Turn Idle Time into Cash”. This bi-annual report should
reach much of Fleet Owner's estimated 103,000 circulation.
Further
trade show participation ensued at the American Trucking Association show in
October 2003, which focuses on management level exposure to the trucking
industry. The ATA show provided exposure for future contact with decision makers
at the larger players in the long haul trucking industry.
In March
2004, EENT again had a booth at the Louisville Mid America Trucking Show with
emphasis on taking orders for units, setting up new installation facilities and
expanding its dealer network.
Again in
October 2004, EENT attended the ATA Management Conference in Las Vegas, Nevada
at which its prototype technology, the AXP InfiniGen, was announced. In February
2005, EENT attended the ATA Technical Maintenance Conference in Orlando,
Florida. At both shows fleet and dealer exposure to the product were the main
goals. EENT also attended the 2005 Mid American Truck show in Louisville,
Kentucky, its third straight year of participation.
Early
Installations
On
December 2, 2002, the Company successfully installed its new Auxiliary Power
Generator - “AXP 1000” on a truck, and the unit functioned properly, including
providing power to the truck's cab HVAC unit. The Company has successfully
completed its second test of its Auxiliary Power Generator - “AXP 1000”, on
January 3, 2003. The unit was mounted on a truck and connected to the batteries
and HVAC unit, and a dedicated start mechanism was installed. The unit generated
electricity in excess of that needed to charge the truck batteries and run the
HVAC system and other electronics inside the truck cab. The unit was installed
in the unique mounting location sought, tied into the stack and installation
brackets were designed and utilized which allow for truck vibration
dampening.
Product
Supply and Current Installations
The 2003
installation schedule had been slower than anticipated due to holiday hiatus of
various AXP 1000 parts suppliers and difficulty in scheduling driver
availability over the holidays to have trucks in Oklahoma City and Dallas for
installations. However, as the holiday season abated, EENT looked forward to
increased production and installation in the first quarter of 2004. During the
balance of 2004, EENT encountered several challenges and delays. As further set
forth in its Management’s Discussion and Analysis, the unreliability of its air
conditioner caused production to be put on hiatus in June and the balance of
2004 was spent moving into its new production facility and developing it new
HVAC system “Over the Road Comfort System”.
EENT is
encouraged by its proven uniqueness as compared to other products in the market.
One major way in which it shows its uniqueness is the versatility in its ability
to be installed in nonstandard locations. In one of the installations in
Oklahoma City, the unit was installed between the frame rails directly below a
previously installed “headache rack” (safety barrier between the back of the
truck cab and trailer). To accommodate the rack which sits above the rails in
the usual AXP 1000 mounting position, EENT's unit was mounted further down
between the rails, as made possible due to its compact size. Additionally, the
between the rail mounting position maintains balanced weight distribution and
preserves side rail space needed for installation of additional items such as
larger fuel tanks and toolboxes.
Sources
of Supply and Assembly Information
The
source of supplies used to assemble the AXP 1000 are off the shelf products
which are readily available. Major items include Lombardini USA for the motor,
BMZ Generators & Welders, Inc. (“BMZ”) for the generators and Anchor
Manufacturing for the HVAC unit. There is no need for government approval of
principal products and services, and the BMZ generator meets standards for US
military applications. Research and development expense incurred during the year
ended December 31, 2004 was approximately $169,271 (product development) as
discussed below, the Company acquired the assets of BMZ on July 1,
2004.
In
November 2003, the Company engaged Decimal Engineering of Pompano Beach, Florida
to manufacture the enclosures for its AXP 1000 device. Decimal Engineering, Inc.
is a full service precision sheet metal fabricator and machine shop specializing
in the electronics, telecommunications, medical, computer, automotive and marine
related industries, which has been operating since 1968 in South Florida.
Currently, Decimal is fully automated and employs more than 80 people, working 2
shifts, and its sales have grown on an average of 15% per year for the last
several years. Because of its extensive facility, Decimal has the current
ability to keep up with enclosure manufacturing demand as the Company's AXP 1000
order flow increases.
Acquisitions
On May
19, 2004, the Company entered into a definitive purchase agreement with BMZ and
Fernando A. Pereira, the owner of BMZ, pursuant to which the Company was to
purchase all of BMZ's assets and related intellectual property, owned by Pereira
for $2,000,000, $500,000 in cash at closing and $500,000 in Company Common Stock
upon presentation of written documentation for the intellectual property with
the last $1,000,000 being paid out over five years based on certain earn out
criteria from the ongoing business of the subsidiary which purchased the assets.
EENT hired Pereira to run the business arising from the purchased assets as of
July 1, 2004. The transaction closed effective as of July 1, 2004, with BMZ
Generators Technology, Inc., a wholly owned subsidiary of the Company, as the
purchaser. Although the parties negotiated the stock value at $500,000, it was
recorded for accounting purposes at $700,280 based on the closing price of
2,801,120 shares of the Company's Common Stock, as of May 19, 2004, the date of
the definitive agreement. \
BMZ is a
Pompano Beach, FL manufacturing concern which has over 30 years of experience
providing customers with equipment and service in the areas of power generators
and custom designed/built power equipment for various industrial, military, and
trucking applications. BMZ assembles, packages and ships units.
In the
acquisition of BMZ, the Company acquired the assembly facility for the AXP 1000
product (not including the underlying real estate), other assets of BMZ, and
related intellectual property. The Company leases the 10,000 square foot Pompano
Beach facility owned by BMZ's owner, Fernando A. Pereira, who is now an employee
of Registrant.
On
February 8, 2005, EENT entered into a binding letter of intent with Anchor
Tampa, Inc. to purchase assets of its marine air conditioning business for
$950,000. The letter of intent called for a $37,500 non-refundable deposit paid
by EENT as of March 31, 2005, with closing set to occur on or before April 30,
2005. The closing occurred on May 3, 2005, effective as of April 29, 2005. The
$912,500 balance of the purchase price was paid as follows: $200,000 in Common
Stock (2,702,703 shares), $550,000 in cash, $25,000 in price reduction for
assumption of warranty claims and $137,500 in a purchase money note due on the
earlier of (i) 5 business days after the receipt of proceeds from the second
tranche of cash to be received from Longview Equity Fund after effectiveness of
a registration statement to be filed in conjunction with the Company’s April 27,
2005 financing (see note 9 to the attached unaudited financial statements for
the three months ended March 31, 2005, convertible note financing), and (ii)
July 3, 2006.
EENT has
designed its split unit air conditioner for its AXP 1000 and AXP InfiniGen
products, with the first 20 units produced by Anchor and delivered in January
2005. This latest acquisition brings inhouse to BMZ Generators Technology,
EENT’s wholly owned subsidiary, control of a key component of its truck power
generation units, and past design challenge. EENT will also gain access to
Anchor’s ongoing marine air conditioning business, which will dovetail with
BMZ’s marine generator business.
Anchor’s
marine air conditioners, which range from 7000 btu to 24000 btu, are designed to
meet the requirements of both pleasure and other marine craft, and its superior
air conditioners are the product of its state of the art assembly, testing and
quality control procedures. Anchor has an extensive sales network with
approximately 16 manufacturer’s representatives covering 29 states and 5
countries, with 90 retail locations and distributors. There is good synergy with
EENT’s existing BMZ marine division as the Anchor acquisition will provide an
additional distribution channel for BMZ’s marine generator products. Anchor’s
philosophy is to provide quality product at a fair price, with superior customer
service to ensure repeat business, in addition to an expanded customer base due
to its excellent reputation. Anchor Manufacturing is a division of Anchor Tampa,
Inc., which has been in the construction, marine and refrigeration/air
conditioning business for 24 years, and currently employs 150 persons in the
Tampa area.
Market
and Marketing Plan
The
potential market for the AXP 1000 is 2,200,000 existing Class 8 trucks and
200,000 new trucks manufactured annually.
EENT
envisions a five step marketing plan for the AXP 1000 Program.
|
1. |
Independent
Owner/Operators (1 - 5 trucks per customer) |
|
|
a. |
Focused
Trade Shows |
|
|
|
i. |
Mid
America Truck Show in Louisville, KY |
|
|
|
ii. |
Great
American Truck Show in Dallas, TX |
|
|
b. |
Trucker
Referral Program |
|
|
|
|
i. |
Cash
referral fee for trucks who recommend customers which buy an AXP
1000 |
|
|
c. |
Target
Publications |
|
|
|
i. |
Fleet
Owner Magazine |
|
|
|
ii. |
On
the Road Magazine |
|
2. |
Small
Fleets (6 - 250 trucks) |
|
|
a. |
Focused
Trade Shows |
|
|
|
i. |
Mid
America Truck Show in Louisville, KY |
|
|
|
ii. |
Great
American Truck Show in Dallas, TX |
|
|
b. |
Target
Publications |
|
|
|
i. |
Fleet
Owner Magazine |
|
|
|
ii. |
On
the Road Magazine |
|
|
c. |
Buying
Clubs |
|
|
|
i. |
Mercer
Transportation |
|
|
|
ii. |
Jones
Motor Transport |
|
|
d. |
Implementation
of Multi - tier Volume Discounts |
|
3. |
Large
Fleets (Over 250 trucks) |
|
|
a. |
Focused
Trade Shows |
|
|
|
i. |
Mid
America Truck Show in Louisville, KY |
|
|
|
ii. |
Great
American Truck Show in Dallas, TX |
|
|
|
iii. |
ATA
Truck Show in San Antonio, TX |
|
|
b. |
Target
Publications |
|
|
|
i. |
Fleet
Owner Magazine |
|
|
|
ii. |
On
the Road Magazine |
|
|
c. |
Buying
Club |
|
|
|
i. |
Landstar |
|
|
d. |
Implementation
of Multi - tier Volume Discounts |
|
|
e. |
Implementation
of Test Programs |
|
4. |
Truck
Stops (i.e.: Travel Centers of America, Flying
J) |
|
|
a. |
AXP
1000 is the only unit which could practically be marketed through truck
stops due to short installation time |
|
|
b. |
Minimal
Inventory Investment (Offer of Net Period
Terms) |
|
|
c. |
Fixed
return (installation revenue) but ability to market other services for
trucks stopping for AXP 1000 installation |
|
|
d. |
Implementation
of Multi - tier Volume Discounts |
|
5. |
Independent
Installation Facilities |
|
|
a. |
Focused
Trade Shows |
|
|
|
i. |
Mid
America Truck Show in Louisville, KY |
|
|
|
ii. |
ATA
Truck Shows |
|
|
b. |
Target
Publications |
|
|
|
i. |
Fleet
Owner Magazine |
|
|
|
ii. |
On
the Road Magazine |
|
|
c. |
Incentives
for facilities to generate leads or EENT to provide geographic appropriate
leads |
|
|
d. |
Implementation
of Multi - tier Volume Discounts |
|
|
e. |
Fixed
return (installation revenue) but ability to market other services for
truck at dealer for AXP 1000 installation |
The AXP
1000 marketing effort is spearheaded by both a team of manufacturer’s
representatives, which currently cover 36 states for fleet and dealer sales and
through J&J Idling Solutions, a Dallas based installer, current employed by
the Company. Other sales, such as direct to owner operators, are handled at
multiple levels within the Company.
Competition
The AXP
1000 faces significant competition from other auxiliary power units and
stationary idle eliminating technologies.
Major
auxiliary power units include Rig Master, Pony Pack, Pro Heat, Truck Gen and
Idle Eliminator. Generally, these units are more expensive and heavier in weight
than the AXP 1000. Also, some are belt driven versus direct drive and/or water
cooled instead of air cooled, which generates the likelihood of increased
maintenance instances over the AXP 1000. Also, the AXP 1000 exhibits versatility
of installation location as it can be mounted between the rails instead of on
the side rails, permitting use of the side railing for installation of other
accessories (i.e.: tool boxes).
Fixed
location alternatives to an APU include truck electrification and Idle Aire
Truck electrification consists of shorepower Truck Stop Electrification systems
that provide grid electricity to stationary, long-haul trucks for the operation
of onboard HVAC units, block heaters, and in-cab convenience appliances. Idle
Aire consists of an umbilical duct, connected through the truck cab's passenger
side window, which delivers heat, air conditioning and power to the cab. These
alternatives carry obvious disadvantages in that a large capital outlay is
required by the truck stop, thereby limiting the locations where the
technologies are available. The AXP1000 can be utilized anywhere a truck is
stopped.
DISCONTINUED
OPERATIONS
Wind
Dancer Aviation Services, Inc.
Overview
Until
February 2005, Registrant owned the fixed base operator (“FBO”; equivalent of a
service station for aircraft), at Stevens Field, Pagosa Springs, Colorado, and
it planed to provide aircraft engine enhancements and installation activities
there. The FBO provided fuel, oxygen, aircraft parking, flight training and
catering, ground transportation, supplies, pilots' lounge, and rental cars, in
addition to becoming a major center for aircraft repair, maintenance and
upgrades. The intent was to build the business by offering unique products and
services while developing a service organization to provide major overhaul and
enhancements.
The FBO
business did not break even in late 2004 and in the opinion of Company
management no longer constituted a solid base upon which to build. EENT's plan
was to systematically add business services while airport improvements are in
process with the goal of becoming a successful provider of new products at a
“new” airport, in a very favorable destination. But this did not come to
fruition due to the slow progress since commencement of construction of the
runway. Due to this fact and that EENT had spent $500,000 in development since
inception without showing any consistent increase in revenue, it decided to seek
a buyer for its FBO during 2004, and in February 2005, sold it to Avjet
Corporation for $262,500 in cash. The FBO was deemed a discontinued operation as
of December 2004.
Turbocharger
Power Systems and Aircraft Enhancements
Due to
the sale of the assets of Wind Dancer, management determined that there was no
practical way to stay in the STC business and it has resold its Mr. RPM STCs and
related inventory to the original owner and has agreed with Avjet to sell its
Kelly Aerospace inventory and STCs with the first $30,000 in proceeds being paid
to Kelly and the balance to EENT, if, as and when sold. Pursuant to a letter
agreement effective as of February 21, 2005, EENT has sold the Supplemental Type
Certificates and related inventory purchased in September 2003 to Mr. RPM, LLC
and RPM Management, LLC for a return of 600,000 shares of EENT stock previously
issued to Mr. RPM, LLC and RPM Management, LLC. The value of the 600,000 shares
was $78,000 (thus the repurchase price) as of February 11, 2005. These assets
were recorded as held for sale at December 31, 2004 and as a result an
impairment loss of approximately $43,000 was recorded during the year ended. The
600,000 shares were recorded as treasury stock as of March 31,
2005.
Gas
Gathering Enterprises, LLC
In 2002,
Registrant had significant challenges in operation of its Gas Gathering System.
Its original gas purchaser, Prism, was shut down approximately six weeks during
the first three quarters of 2002. Registrant then attempted to sell its gas to
Koch/Gulf South through an intermediary, Metro Energy, which is located in the
Caddo Pine Island Field, but Metro lacked sufficient equipment to process the
gas. Unfortunately, Registrant was not able to sell directly to Koch due to the
amount of capital required to be able to install and run the necessary
equipment.
Therefore,
Registrant determined on February 18, 2003 that its best course of action is to
attempt to sell the Gas Gathering System. During the first quarter of 2003,
Registrant approached in excess of six different parties to locate a purchaser.
It only identified one interested party (American West Resources, Inc. of Fort
Worth, TX (“American West”)) with which it had a letter of intent to sell the
System (100% of the membership interest in Gas Gathering Enterprises, LLC,
Registrant's wholly owned subsidiary, which owns the system) for a purchase
price of $500,000.
In
December 2004, EENT entered into an agreement to sell the system to a third
party for $150,000. Gas Gathering was deemed a discontinued operation in
December 2004. The purchase closed on March 14, 2005.
Other
There
have been no bankruptcy, receiverships, or similar proceedings by or against
Registrant.
As of
March 31, 2005, Registrant and its subsidiaries had eight full time employees
other than their officers and directors. For 2004, each of Registrant's CEO, CFO
and General Counsel received a salary of $210,000, $195,000 and $180,000,
respectively. No one is represented by a collective bargaining
agreement.
The
Company is a “reporting company” under Section 12(g) of the Securities Exchange
Act of 1934 and accordingly is required to file all reports required thereby
including but not limited to Annual Reports, on Form 10-KS/B and Quarterly
Reports, on Form 10-QS/B. The public may read and copy any materials the Company
files with the commission at the Commission's Public Reference Room at 450 Fifth
Street, NW, Washington, D.C. 20549, and the public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a website that contains reports, proxy and information
statements, and other information regarding issuers that, like the Company, file
electronically with the SEC at www.sec.gov. In addition, the public may gain
access to all of the Company's SEC filings on its website at www.eent.net.
Except as
described above, the Company is not subject to any governmental regulation. The
amount of resources expended on Research and Development in 2003 and 2004 was
approximately $127,000 and $169,000 respectively (and does not include product
development) and none of these activities is borne directly by
customers.
MANAGEMENT'S
DISCUSSION AND ANALYSIS
Background
and Overview
The
Company operates businesses which provide products to various aspects of the
transportation industry (long haul trucking) which supply innovative products to
promote efficiency of operation of motor vehicles, reduce fuel consumption and
assist in reducing pollutive emissions from operation of motor vehicles.
EENT’s
gas gathering operation and fixed base operator businesses were considered
discontinued operations in 2004 and subsequently sold in the first quarter of
2005 for $150,000 and $262,500 respectively.
Long Haul
Trucking Industry and the AXP 1000 (according to statistics gleaned from
Truckinfo.net in late March 2004):
|
« |
The
overall U.S. trucking industry employs over 9 million individuals, with an
estimated 15.5 million trucks overall, of these.1.9 million are tractor
trailers. |
|
« |
There
are an estimated 3.3 million truck drivers, with 10% being independent
truckers mostly owner operators). |
|
« |
There
are also over 360,000 trucking companies with 96% operating 28 or fewer
trucks. |
|
« |
Total
revenue estimates are $255 billion per
year. |
|
« |
However,
profit margins are very small ($.048 per dollar of revenue), and the
average trucker earns under $40,000 per year, with 12.8% of all fuel
purchased belonging to truckers. |
|
« |
The
U.S. Department of Labor estimates that the demand for employment of truck
drivers may triple by 2020 from current
levels. |
Given
these small profit margins and the January 2004 federal mandates requiring 10
hours of rest for every 11 hours driven (combined with the state and local anti
idling laws), there is a need for solutions which can achieve the combined goals
of: utilizing all means possible to take measures to increase profit margin and
compliance with the increased and more enforced federal and state legislation
affecting long haul trucks. Solutions to be used must combine these two goals.
Hence, the increasing popularity of auxiliary power units (“APUs”) other
alternatives, such as truck stop electrification, exist, but require large
capital expenditures and are thus less likely to become prevalent.
The
Company's experience is that although APUs have been around for several years,
the recent increase in diesel prices, combined with stricter enforcement, has
placed a spotlight on this cottage industry (with industry estimates that it
could become a $2.5 billion dollar per year industry), which heretofore had been
filled with small niche players with minimal followings. Such newfound industry
is evident from the formation of a trade association for APU manufacturers (Idle
Eliminators Manufacturing Association) and various conferences (such as the May
2004 Anti Idling Conference in Albany, New York and the December 2004 conference
in Austin, Texas). Additionally, EENT has participated in several trucking
industry trade shows over the past 13 months, with increased interest in the AXP
1000 at each show.
Given the
size of the market, EENT believes that there is ample room for itself and its
competitors. With estimates significantly upwards of 500,000 or more long haul
trucks on the road today, even if EENT were to only capture a 1% market share,
with an average sales price of $5,000 per unit, this represents gross revenues
of $25,000,000.
The AXP
1000 has also been successful in distinguishing itself from its competitors in
several areas, including:
|
« |
Only
unit to sit between the rails. |
|
« |
Low
maintenance burden. |
The
biggest overall challenge is coordinating production/supply chain and sales.
EENT has purchased BMZ Generators, its contract assembly facility, which in its
current space can assemble 30 - 50 generators per month. BMZ's owner, Fernando
A. Pereira (a related party), has purchased a large facility in Pompano Beach,
Florida, which has been built out and the Certificate of Occupancy issued as of
the first week of August 2004. EENT moved into its space and was able to receive
power and communications during the fourth quarter of 2004. EENT is leasing
space from Pereira and expects initial assembly volume to be close to 100 units
per month at some point during the fourth quarter of 2005. By purchasing BMZ,
EENT will also have direct access to its generator manufacturer, thus
controlling supply.
The BMZ
purchase gives EENT the opportunity to expand into other stand alone and
portable generator markets in the future, such as the marine, aviation and
military industries, thus giving it flexibility in expansion of revenue base
should the APU market become saturated. Also, the facility will become, under
the aegis of Fernando A. Pereira, ISO 9001 certified, allowing it to be an
industry accepted testing facility for its products.
On the
supply chain issue, in March 2004, Registrant's CEO and CFO traveled with BMZ
owner, Fernando A. Pereira, to meet with the manufacturer of the custom made
generator used in the AXP 1000. The meetings proved successful in allowing
Registrant to conduct sufficient due diligence to be comfortable that the
manufacturer will be able to meet Registrant's increasing product need. Also,
EENT looked to replace its unreliable third party air conditioners which had a
30% - 40% failure rate and in mid-2004 put out bids to three companies to supply
a replacement specified to EENT’s design. Anchor Manufacturing’s design
won.
Registrant
is exploring opportunities in the private sector to take advantage of quieter
technologies; however, sound reduction is proving to be a more difficult task
than originally anticipated. It is significant to note that, although noise
reduction is an ongoing process, the sound level from the AXP 1000 is still
significantly lower than from a truck's main engine or the generator used for
cooling by reefers (refrigerated truck trailers).
Additional
2005 Goals:
Management
has, in addition to product specific goals, undertaken to use its reasonable
best efforts to accomplish the following in 2005:
|
« |
Preparation
for listing on a U.S. regulated exchange and effectuating that listing,
depending on ability to meet listing criteria, in late 2005 or early
2006. |
|
« |
Implementation
of further internal controls and policies and procedures to continue to
self manage the growth of Registrant's business and personnel as the
business expands. |
|
« |
Shift
from reliance of use of outside consultants for support services (such as
investor relations) to self-reliance for such services through the use of
internal resources and personnel. |
|
« |
Further
development of new products such as the AXP InfiniGen, still in prototype
stage. |
|
« |
Identification
of new markets for products and long range business planning for all
business units. |
FORWARD
LOOKING STATEMENT
The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements. Certain information included in this document (as
well as information included in oral statements or other written statements made
or to be made by Energy & Engine Technology Corporation) contains statements
that are forward-looking, such as statements relating to the future anticipated
direction of the high technology and energy industries, plans for future
expansion, various business development activities, planned capital
expenditures, future funding sources, anticipated sales growth and potential
contracts. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of Energy & Engine
Technology Corporation. These risks and uncertainties include, but are not
limited to, those relating to development and expansion activities, dependence
on existing management, financial activities, domestic and global economic
conditions, changes in federal or state tax laws, and market competition
factors.
RESULTS
OF OPERATIONS
For the
three months ended March 31, 2005, the Company had net sales of $162,145, and
for the three months ended March 31, 2004, the Company had net sales of $24,513
The marked increase in sales was essentially due to the operations of the BMZ
Generators Technology subsidiary which commenced operations in July 2004. The
delays in production of the AXP 1000 product continued as EENT moved into the
new facility being leased from Fernando A. Pereira in Pompano Beach, Florida.
Production continued to be sluggish until the new facility was complete and EENT
was able to move assembly operations there, which occurred late in the fourth
quarter of 2004, with most BMZ sales deriving from non AXP business. AXP
production commenced in early 2005 with consistent production to commence in the
second quarter of 2005. Revenue of $22,397 from operations of its Wind Dancer
Aviation Services, Inc. subsidiary has been excluded from net sales and recorded
as discontinued operations for the quarter ended March 31, 2005.
The
Company had a net loss from continuing operations of $1,970,413 for the quarter
ended March 31, 2004 and of $854,712 for the quarter ended March 31, 2005. The
Company had a net loss of $64,547 from discontinued operations for the quarter
ended March 31, 2004 and income of $148,967 for the quarter ended March 31,
2005. The marked decrease in net loss is based primarily on a reduction in
stock-based compensation during the first quarter of 2005. The income for the
three months ended March 31, 2005 from discontinued operations includes a gain
of approximately $176,000 from the sale of discontinued assets.
Selling,
general and administrative expenses at March 31, 2004 and March 31, 2005 were
$267,002 and $675,078 respectively. The increase in selling, general and
administrative expenses is based primarily upon increases in overhead costs due
to increases in staff and equipment as the Company commences production of its
products.
For the
year ended December 31, 2004, the Company had net sales of $207,165, and for the
year ended December 31, 2003, the Company had net sales of $4,341. The marked
increase was due to sales from EENT’s BMZ Generators Technology subsidiary,
which commenced operations in July 2004. The delays in production of the AXP
1000 product continued as EENT moved into the new facility being leased from
Fernando A. Pereira in Pompano Beach, Florida. Production continued to be
sluggish until the new facility was complete and EENT was able to move assembly
operations there, which occurred late in the fourth quarter of 2004, with most
BMZ sales deriving from non AXP business. AXP business commenced in early 2005.
Revenue of $326,548 from operations of its Wind Dancer Aviation Services, Inc.
subsidiary and $244 from its Gas Gathering subsidiary have been excluded from
net sales and recorded as discontinued operations for the year ended December
31, 2004.
The
Company had a loss from continuing operations of $4,776,469 for the year ended
December 31, 2003 and of $5,577,630 for the year ended December 31, 2004
resulting in a net loss per share of $0.12 and $0.05respectively. The Company
had a net loss of $265,188 for discontinued operations for the year ended
December 31, 2003 and of $271,736 for the year ended December 31, 2004 resulting
in a net loss per share of $0.01 and $0.00 respectively. The marked increase in
net loss is based primarily on financing costs but also on increased overhead
costs as the Company prepares for production and increases staff and equipment
in order to become production ready.
Selling,
general and administrative expenses for the year ended December 31, 2003 and
December 31, 2004 were $1,080,824 and $1,969,982 respectively. The increase in
selling, general and administrative expenses is based primarily upon increases
in overhead costs due to increases in staff and equipment as the Company
commences production of its products.
For the
year ended, December 31, 2003, Registrant had net sales from continued
operations of $4,341. As of December 31, 2004, Registrant had net sales from
continued operations of $207,165. The sole source of sales from continued
operations during the year ended December 31, 2004 was from BMZ related sales,
which commenced July 1, 2004 and should continue to strengthen in 2005. Sales
and installations of AXP 1000 units were minimal. As AXP 1000 sales increase,
the revenue generated from that business segment are expected to increase
dramatically.
Operating
expenses for the year ended December 31, 2004 were $3,852,548, as opposed to
$4,436,542 for the year ended December 31, 2003. The reason for the decrease in
expenses was that the Company increased operations but hired less outside
consultants on a stock compensation basis. Of the $3,852,548, $1,969,982 (up
about $1,080,824 from 2003) was due to selling, general and administrative
expenses, with $169,271 in product development, and $573,750 in officer
salaries.
The AXP
1000/BMZ business lost significant amounts of money in 2004 as it was still in a
research and development stage and thus required cash outlays without
corresponding returns. As the Company continues through its transition from
product and business development to business operation and production, cash flow
should increase significantly.
A review
of cash flows from operating activities shows net cash used in 2004 of
$2,604,105 opposed to $843,845 in 2003. A review of cash flows used in
discontinued operations shows net cash used in 2004 of $189,145 opposed to
$301,758 in 2003. The net cash used in 2004 in operating activities resulted
from operating expenses, less amounts mainly for stock based compensation,
accounts payable and accrued expenses, and accrued expenses, officers. A review
of cash flows from investing activities shows cash used of $713,941 in 2004 as
opposed to $1,670 in 2003. The main categories in 2004 consisted mainly of
investment by Registrant of funds in BMZ for purchase of property and equipment,
intangible assets and acquisition. A review of cash flows from financing
activities shows cash provided of $3,546,505 in 2004, as opposed to $1,126,480
in 2003. In 2004 financing activities consisted of $8,095 of payments from notes
payable, $1,700,000 in proceeds from convertible Notes, $27,000 from warrant
exercise and 1,827,600 in proceeds from the issuance of common stock. Items 5
and 12 detail this financing activity.
LIQUIDITY
AND CAPITAL RESOURCES
As of
March 31, 2005, Registrant's primary sources of liquidity included cash and cash
equivalents in the amount of $12,898, which was the balance of proceeds raised
in several private Section 4(2) stock sales and sales of product.
Registrant
believes that its existing cash balance and future operating cash flows may not
be sufficient for near term operating needs unless it is able to quickly and
consistently expand its operations, and it is exploring various opportunities to
raise additional capital. On April 27, 2005, the Company entered into
Convertible Note Financing with Longview Fund, L.P., Longview Equity Fund, L.P.
and Longview International Equity Fund, L.P. pursuant to which the investors are
to invest a total of $1,500,000 in the Company: $1,000,000 at closing (April 27.
2005, received gross of commissions) and $500,000 within 5 days after
effectiveness of the registration statement to be filed by the Company in
connection therewith. The security is a convertible note (as of date of
closing) bearing interest at the higher of 8% or Prime plus 4%. The notes
have a two year term and are convertible at a 30% discount to the average
of the five lowest closing bid prices for the 20 trading days preceding the
conversion date, with a $0.05 per share minimum conversion price. The Company
will also issue to the investors 18,201,229 warrants exercisable at $0.12 per
share with a five year term plus 5,000,000 warrants exercisable at $0.20 per
share with a five year term. The notes are secured by a first lien on the assets
of the Company and its subsidiaries. On May 10, 2005 and May 12, 2005, the
Company raised an additional $500,000 from third parties on identical terms. Of
the $500,000 investment, the Company received net proceeds of $335,000, and will
issue 6,067,076 warrants exercisable at $0.12 per share with a five year term
plus 1,666,667 warrants exercisable at $0.20 per share with a five year
term.
The
extent to which such sources will be sufficient to meet Registrant's anticipated
cash requirements is subject to a number of uncertainties, the most important of
which is Registrant's ability to generate sufficient cash flow to support its
business operations.
Our
independent auditors have noted in their report on our 2004 financial statements
that there are existing uncertain conditions including the net loss the Company
incurred in the amount of $5,849,366 during the year ended December 31, 2004 and
the working capital deficiency of $247,533 that existed at the balance sheet
date. These conditions raise substantial doubt as to our ability to continue as
a going concern. During the first quarter of 2005, the Company incurred a net
loss of $705,745. As of March 31, 2005, the Company had a working capital
deficit of $909,152.
With
regard to known trends and events reasonably expected to have a material impact
on net sales and revenues, Registrant strongly believes that the heightened
interest in idling alternatives should provide a stronger demand for the AXP
1000 device. Uncertainties historically included whether there could be
sufficient noise reduction in the AXP 1000 to overcome objections from some long
haul truckers (the AXP 1000 is air cooled rather than water cooled, so it has a
somewhat elevated noise level when compared with liquid cooled devices). EENT
management believes that the noise level has been sufficiently reduced so that
this is no longer a material detriment to the unit, although the actual results
of noise reduction efforts will not be known until the product is in the market
for several quarters. Also, Registrant does not believe it will be faced with
the same delays it experienced in 2004, which were largely caused by the BMZ
acquisition and moving into its new Pompano Beach, Florida
facility.
The other
major uncertainty is the extent to whether new technology will appear that will
make the small generator/engine genset used by EENT obsolete. Given the
potential development of other power generator technologies, there may be a
limited window of 5 - 10 years for EENT's technology as currently configured.
Therefore, EENT, in addition to gearing up for current production, is looking
into commencing a research and development project for its next generation
products, which is envisioned to be a part of the AXP 1000 business unit, with
project specific funding, to be determined in the future as the details of such
research and development products come to fruition. Registrant is also in the
process of developing its next generation engine driven genset, to replace the
currently used engine, the AXP InfiniGen. This is an intermediate step to be
taken before putting an alternative fuel generation source into commercial
production.
Another
guard against obsolescence is looking for new markets for BMZ generators.
Therefore, Registrant will commence exploration of marketing and sales for the
generator products in other likely industries, most notably marine, aviation and
military.
Of
course, EENT's business is subject to customary and usual business risks, not
necessarily subject to its control, including, but not limited, to:
|
« |
Ordinary
operating risks (product, labor and capital cost
increases). |
|
« |
General
economic conditions. |
|
« |
Changes
in laws and regulations. |
|
« |
Stock
and product market volatility. |
Critical
Accounting Policies
Revenue
Recognition
AXP
1000 Power Generators
Revenue
is recognized at the time that the generator is delivered to the customer or
dealer.
Inventory
Inventory
consists of parts, materials and engines and is valued at the lower of cost or
market, cost being determined using the first-in/first-out basis.
Research
and Development
Research
and development costs are expensed as incurred. Research and development costs
for the years ended December 31, 2004 and 2003 were $169,271 and $126,785,
respectively and are included in selling, general and administrative expenses.
Stock-Based
Compensation
In
October 1995, SFAS No. 123, “Accounting for Stock-Based Compensation” was
issued. SFAS 123 prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock based
compensation plans in accordance with the provisions of APB 25.
The
Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure.” This
statement amended SFAS No. 123, “Accounting for Stock-Based Compensation.” As
permitted under SFAS No. 123, the Company continues to apply the Accounting
Principles Board Opinion No.25, “Accounting for Stock Issued to Employees.” As
required under SFAS No. 148, the fair value-based method had been applied to all
awards.
Changes
in Financial Condition
The
Company has not experienced a change in financial condition and continues to
operate at a deficit as stated above.
DESCRIPTION
OF PROPERTY
Registrant's
executive offices are located at 5308 West Plano Parkway, Plano, Texas, which it
leases on a monthly basis, at competitive market rates. Registrant believes that
its facilities are adequate for its current needs and that suitable additional
or substitute space will be obtained as and when needed. There are leased
offices and warehouse space for BMZ Generators Technology, Inc. in Pompano
Beach, FL. The warehouse space is leased from Fernando Pereira, a related party.
There are also leased offices and warehouse space for Anchor Manufacturing, Inc.
in Tampa, FL.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company leases its manufacturing facility from Fernando A. Pereira, an officer
of its subsidiary, BMZ Generators Technology, Inc.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Registrant's
Common Stock is traded on the OTCBB under the symbol EENT and has been traded on
the OTCBB since the Registrant's initial public offering (under Rule 504) in
2000. According to records of the Registrant's stock transfer agent, Registrant
had 836 stockholders of record as of December 31, 2004. The following table sets
forth the low and high bid price of the Company's Common Stock, based on the
last bid price, in each of the Company's last eight quarters:
|
Quarter
Ended |
Low
Bid Price |
High
Bid Price |
|
|
0.09 |
0.17 |
|
|
0.13 |
0.31 |
|
|
0.29 |
0.41 |
|
|
0.20 |
0.44 |
|
|
0.12 |
0.88 |
|
|
0.06 |
0.21 |
|
|
0.09 |
0.20 |
|
|
0.05 |
0.15 |
The
reported high and low bid prices of our common stock are above for each quarter
during the last two complete fiscal years. The high and low bid price for the
periods in 2003 and 2004 shown above are quotations from the OTCBB. The
quotations reflect inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions. The prices do not necessarily reflect actual
transactions.
No
assurance can be given that any established market for the Company's common
stock will develop or be maintained. For any market that develops for the common
stock, the sale of “restricted securities” pursuant to Rule 144 promulgated
under the Securities Act of 1933 by members of management and others or any
other person to whom any such securities may be issued in the future may have a
substantial adverse impact on any such public market.
Information
about the date when current holders' holding period of “restricted securities”
commenced can be found below under the heading “Recent Sales of Unregistered
Securities” of this Item. A minimum holding period of one year is required for
resales under Rule 144, along with other pertinent provisions, including
publicly available information concerning our Company (this requirement will be
satisfied by the filing of this Annual Report and the continued timely filing by
us of all future reports required to be filed by us with the Securities and
Exchange Commission; limitations on the volume of “restricted securities” which
can be sold in any 90 day period; the requirement of unsolicited broker's
transactions; and the filing of a notice of Sale on Form 144).
As of the
date of filing this Annual Report, there has been trading in the common stock;
the current bid/ask prices are roughly in the range of $0.07 -
$0.08.
Registrant
has adopted the policy to reinvest earnings to fund future growth. Accordingly,
Registrant has not paid dividends and does not anticipate declaring dividends on
its Common Stock in the foreseeable future.
Recent
Common Stock Transactions
During
the three months ended March 31, 2005, the Company issued an aggregate of
390,000 shares of common stock valued at $24,000 to four investors in connection
with a private placement.
During
the three months ended March 31, 2005, the Company issued an aggregate of 25,000
shares of common stock valued at $3,000 to an employee for services
provided.
On March
16, 2005, the Company issued 172,500 shares of common stock to an investor
pursuant to an anti-dilution agreement.
On March
23, 2005, the Company issued 275,000 shares of common stock valued at $27,500 to
a consultant for services provided.
During
the year ended December 31, 2004, the Company issued an aggregate 184,000 shares
of common stock valued at $38,190 to consultants for services to be
provided.
During
the year ended December 31, 2004, the Company issued an aggregate 4,010,690
shares of common stock valued at $1,709,416 to officers and employees of the
Company for services performed.
During
the year ended December 31, 2004, in connection with private placements, the
Company sold an aggregate 17,140,000 shares of common stock to investors valued
at $1,827,000, net of $85,000 of offering costs.
During
the year ended December 31, 2004, in connection with conversion of debt, the
Company issued an aggregate 10,445,229 shares of common stock to investors
valued at 1,312,042.
During
the year ended December 31, 2004, in connection with acquisition, the Company
issued an aggregate 2,801,120 shares of common stock valued at
$700,280.
During
the year ended December 31, 2004, a shareholder exercised 1,000,000 warrants to
purchase 1,000,000 shares of the Company’s common stock for proceeds of
$144,000. The proceeds were used to reduce the shareholder’s outstanding balance
by $112,000.
During
the year ended December 31, 2004, two shareholders exercised warrants to
purchase 300,000 shares of the Company’s common stock for proceeds of
$27,000.
Management
believes that each of the foregoing persons or entities was either an
“accredited investor,” or “sophisticated investor” as defined in Rule 506 of
Regulation D promulgated under the Securities Act of 1933. Each had access to
all material information about the Company prior to the offer, sale or issuance
of these “restricted securities.” We believe these shares were exempt from the
registration requirements of the Securities Act, pursuant to Section 4(2)
thereof.
The
valuation of these shares was based on trading volume and prices.
EXECUTIVE
COMPENSATION
As of
December 31, 2004, the CEO had received annual compensation of $210,000 and
1,100,000 (1,000,000 shares of restricted stock and 100,000 shares of “S-8”
stock) shares of stock for his services, the CFO had received annual
compensation of $195,000 and 1,100,000 (1,000,000 shares of restricted stock and
100,000 shares of “S-8” stock) shares of stock for his services and the General
Counsel had received annual compensation of $180,000 and 1,100,000 (1,000,000
restricted shares and 100,000 shares of “S-8” stock) shares of stock for her
services.
SUMMARY
COMPENSATION TABLE
|
ANNUAL
COMPENSATION |
LONG
TERM COMPENSATION |
|
Name
and Principal Position |
Year |
Salary |
Year |
Salary |
Bonus |
Other
annual compensation |
Restricted
Stock Awards |
S8
Stock Awards |
Securities
underlying Options/SARs |
LTIP
Payouts |
All
other compensation |
|
CEO
Willard
G. McAndrew |
2003 |
$180,000 |
2004 |
$210,000 |
|
|
1,000,000
sh. |
100,000
sh. |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
CFO
Roger
Wurtele |
2003 |
$180,000
|
2004 |
$195,000 |
|
|
1,000,000
sh |
100,000
sh |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
General
Counsel Jolie Kahn |
2003 |
$180,000
|
2004 |
$180,000 |
|
|
1,000,000
sh. |
100,000
sh. |
|
|
|
On
November 21, 2003 registrant's Board of Directors adopted registrant's 2003-2004
Consulting Services Plan (the “Consulting Plan”) in order to advance the
interests of the registrant by rewarding, encouraging and enabling the
acquisition of larger personal proprietary interests in the registrant by
employees, directors and former directors of, and contractors and consultants
to, the registrant, and its Subsidiaries who have: 1) served without salaries or
other compensation during time periods for which stock is awarded ; and 2)
assisted the registrant with support services for its business development. The
Consulting Plan provides for an aggregate of 1,000,000 shares of the
registrant's $.001 par value common stock, currently valued at $.095 per share
(but subject to change on market fluctuation) that may be awarded from time to
time at the sole discretion of the Board of Directors. The Plan was filed as an
Exhibit to Registrant's Form 8-K, filed with the U.S. Securities and Exchange
Commission on November 24, 2003. Approximately 990,000 shares have been issued
under this Plan as of the date of filing this Annual Report.
On
December 22, 2003, Registrant's Board of Directors voted unanimously to
implement salary increases as follows:
CEO:
Salary to increase to $210,000 per year on the first day of the first month in
which the Corporation ships 30 AXP 1000 units; salary to increase to $240,000
per year on the first day of the first month in which the Corporation ships 1000
AXP 1000 units; and salary to increase to $260,000 per year on the earlier of
(i) January 1, 2005 and (iii) the first day of the first month in which the
Corporation ships 250,000 AXP 1000 units.
CFO:
Salary to increase to $195,000 per year on the first day of the first month in
which the Corporation ships 30 AXP 1000 units; salary to increase to $210,000
per year on the first day of the first month in which the Corporation ships 1000
AXP 1000 units; and salary to increase to $230,000 per year on the earlier of
(i) January 1, 2005 and (iii) the first day of the first month in which the
Corporation ships 250,000 AXP 1000 units.
General
Counsel: Salary to increase to $200,000 per year on the earlier of (i) January
1, 2005 and (ii) the first day of the first month in which the Corporation ships
250 AXP 1000 units.
In
addition, the CEO is authorized, in his discretion to issue up to an additional
25% of cash compensation per officer in each calendar year for incentive bonuses
and discretionary raises.
As of
April 8, 2005, the Company entered into five year employment contracts with each
of the CEO, CFO, and General Counsel with salaries of $260,000, $230,000 and
$200,000, (with each entitled to receive 25,000 warrants per month, with
conversion prices at market price on the date of issuance. Each is entitled to
certain benefits, such as severance pay, upon a not for cause termination. Each
of these executives has agreed to not receive payment of salary increases until
business conditions permit, with the increases accruing until cash flow permits
payment thereof.
OPTION
GRANTS IN LAST FISCAL YEAR
The
following table sets forth information with respect to option grants to the
named executive officers during fiscal 2004 and the potential realizable value
of such option grants:
|
Name |
Number
Of Options Granted |
%
of Total Options Granted To Employees in Fiscal Year (1) |
Exercise
Price ($/Share) |
Exp
Date |
Potential
Realizable Value at Assumed Annual Rates of Appreciation for Option
Term(1) 5% |
10% |
| |
|
|
|
|
|
|
|
Willard
G. McAndrew |
-- |
-- |
-- |
-- |
-- |
-- |
| |
|
|
|
|
|
|
|
Roger
Wurtele |
-- |
-- |
-- |
-- |
-- |
-- |
| |
|
|
|
|
|
|
|
Jolie
Kahn |
-- |
-- |
-- |
-- |
-- |
-- |
|
(1) |
Potential
realizable value assumes that the stock price increases from the date of
grant until the end of the option term (10 years) at the annual rate
specified (5% and 10%). The 5% and 10% assumed annual rates of
appreciation are mandated by Securities and Exchange Commission rules and
do not represent the Company's estimate or projection of the future price
of common stock. The Company does not believe that this method accurately
illustrates the potential value of a stock
option. |
OPTION
EXERCISES AND VALUES FOR FISCAL 2004
The
following table sets forth certain information with respect to option exercises
during fiscal 2004 by each of the named executive officers and the status of
their options at December 31, 2004:
|
|
|
|
|
|
Value
of Unexercised In-the Money Options 12/31/04(1) |
|
Name |
Number
of Share Acquired Upon Exercise of Option |
Value
Realized Upon Exercise |
Number
of Unexercised Securities Underlying Options
12/31/034Exercisable |
Un
exercisable |
Exercisable |
Un
exercisable |
| |
|
|
|
|
|
|
|
Willard
G. McAndrew |
-- |
-- |
-- |
-- |
-- |
-- |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Roger
Wurtele |
-- |
-- |
-- |
-- |
-- |
-- |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Jolie
Kahn |
-- |
-- |
-- |
-- |
-- |
-- |
Director's
Compensation. The Company does not pay any compensation to its directors, other
than the compensation described above paid to its officers, two of whom are also
directors.
CONTENTS
Page
CONSOLIDATED
FINANCIAL STATEMENTS
| |
Balance
Sheet |
40 |
| |
Statements
of Operations |
41 |
| |
Statements
of Stockholders' Deficiency |
42 |
| |
Statements
of Cash Flows |
44 |
| |
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS |
46 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Energy
& Engine Technology Corporation
We have
audited the accompanying consolidated balance sheet of Energy & Engine
Technology Corporation and Subsidiaries as of December 31, 2004, and the related
consolidated statements of operations, stockholders’ (deficiency) equity, and
cash flows for each of the years ended December 31, 2004 and 2003. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Energy & Engine
Technology Corporation and Subsidiaries as of December 31, 2004, and the results
of their operations and their cash flows for the years ended December 31, 2004
and 2003, in conformity with U.S. generally accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continued as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company incurred a net loss of $5,849,366
and has working capital deficit of $247,533. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans regarding those matters also are described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
Marcum & Kliegman LLP
New York,
New York
March 8,
2005 (except for Note 16(D) as to which the date is March 10, 2005, Note 16(E)
and Note (F) as to which the dates are March 16, 2005, Note 16(G) as to which
the date is April 13, 2005, Note 16(H) as to which the date is March 31, 2005,
and Note 16(L) as to which the date is April 8, 2005).
CONSOLIDATED
BALANCE SHEET
ASSETS
|
CURRENT
ASSETS |
|
|
|
| |
|
|
|
Cash
and cash equivalents |
|
$ |
46,338 |
|
|
|
|
|
4,366 |
|
|
|
|
|
557,689 |
|
Prepaid
expenses and other current assets |
|
|
173,900 |
|
Assets
of discontinued operations |
|
|
311,687 |
|
|
|
|
|
1,093,980 |
|
| |
|
|
|
|
|
PROPERTY
AND EQUIPMENT,
Net |
|
|
261,054 |
|
| |
|
|
|
|
|
OTHER
ASSETS |
|
|
|
|
| |
|
|
|
|
|
|
|
|
776,287 |
|
|
|
|
|
146,518 |
|
|
|
|
|
922,805 |
|
| |
|
|
|
|
|
|
|
$ |
2,277,839 |
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
CURRENT
LIABILITIES |
|
|
|
| |
|
|
|
Accounts
payable and accrued expenses |
|
$ |
384,559 |
|
Accrued
expenses officers |
|
|
358,917 |
|
Convertible
Note payable net of discount of $282,475 |
|
|
166,525 |
|
Notes
payable, stockholders, net of deferred debt discount of
$39,403 |
|
|
329,501 |
|
Liabilities
of discontinued operations |
|
|
102,011 |
|
| |
|
|
|
|
|
|
|
|
1,341,513 |
|
| |
|
|
|
|
|
STOCKHOLDERS'
EQUITY |
|
|
|
|
| |
|
|
|
|
Common
stock, $.001 par value, 180,000,000 shares authorized,
120,528,374
shares
issued and outstanding |
|
|
120,529 |
|
Additional
paid-in capital |
|
|
13,646,469 |
|
|
|
|
|
(12,830,672 |
) |
| |
|
|
|
|
TOTAL
STOCKHOLDERS' EQUITY |
|
|
936,326 |
|
| |
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
2,277,839 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
2004 |
|
2003 |
|
| |
|
|
|
|
|
|
NET
SALES |
|
$ |
207,165 |
|
$ |
4,341 |
|
| |
|
|
|
|
|
|
|
|
COST
OF SALES |
|
|
242,942 |
|
|
7,417 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
(35,777 |
) |
|
(3,076 |
) |
| |
|
|
|
|
|
|
|
|
OPERATING
EXPENSES |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Selling
general and administrative expenses |
|
|
1,969,982 |
|
|
1,080,824 |
|
|
|
|
|
1,882,566 |
|
|
3,355,718 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
3,852,548 |
|
|
4,436,542 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
(3,888,325 |
) |
|
(4,439,618 |
) |
| |
|
|
|
|
|
|
|
|
OTHER
EXPENSE |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
1,689,305 |
|
|
206,851 |
|
Terminated
offering costs |
|
|
-- |
|
|
130,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
1,689,305 |
|
|
336,851 |
|
| |
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS |
|
|
(5,577,630 |
) |
|
(4,776,469 |
) |
| |
|
|
|
|
|
|
|
LOSS
FROM DISCONTINUED OPERATIONS
|
|
|
(271,736 |
) |
|
(265,188 |
) |
| |
|
|
|
|
|
|
|
|
NET
LOSS |
|
$ |
(5,849,366 |
) |
$ |
(5,041,657 |
) |
| |
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER COMMON SHARE: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
loss per common share from continuing operations |
|
$ |
(0.05 |
) |
$ |
(0.12 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss per common share from discontinued operations |
|
$ |
(0.00 |
) |
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
Net
loss per common share |
|
$ |
(0.06 |
) |
$ |
(0.13 |
) |
| |
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING |
|
|
104,731,738 |
|
|
40,340,934 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
|
Common |
| |
Shares |
Amount |
Additional
Paid-in Capital |
Subscriptions
Receivable |
Accumulated
Deficit |
Deferred
Compensation |
Total |
|
|
23,000,349 |
$23,001 |
$1,404,405 |
$-- |
$(1,939,649) |
$-- |
$(512,243) |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock to consultants |
3,959,000 |
3,959 |
539,762 |
-- |
-- |
-- |
543,721 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock to officers and employees |
22,648,685 |
22,649 |
2,896,099 |
-- |
-- |
-- |
2,918,748 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with note payable |
868,058 |
868 |
61,495 |
-- |
-- |
-- |
62,363 |
| |
|
|
|
|
|
|
|
|
Issuance
of warrants |
-- |
-- |
162,744 |
-- |
-- |
-- |
162,744 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with private placements |
21,872,213 |
21,872 |
580,157 |
(15,000) |
-- |
-- |
587,029 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with conversion of notes
payable |
3,716,667 |
3,717 |
240,950 |
-- |
-- |
-- |
244,667 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with convertible Note relating to terminated
offering |
722,222 |
722 |
136,500 |
-- |
-- |
-- |
137,222 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with exercise of warrant |
570,000 |
570 |
-- |
-- |
-- |
-- |
570 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with assets purchase
agreements |
1,200,000 |
1,200 |
172,800 |
-- |
-- |
-- |
174,000 |
| |
|
|
|
|
|
|
|
|
Deferred
compensation |
-- |
-- |
-- |
-- |
-- |
(106,750) |
(106,750) |
|
Net
loss |
-- |
-- |
-- |
-- |
(5,041,657) |
-- |
(5,041,657) |
|
|
78,557,194 |
$78,558 |
$6,194,912 |
$(15,000) |
$(6,981,306) |
$(106,750) |
$(829,586) |
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
|
Common |
| |
Shares |
Amount |
Additional
Paid-in Capital |
Subscriptions
Receivable |
Accumulated
Deficit |
Deferred
Compensation |
Total |
|
|
78,557,194 |
$78,558 |
$6,194,912 |
$(15,000) |
$(6,981,306) |
$(106,750) |
$(829,586) |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock to consultants |
184,000 |
184 |
38,006 |
|
|
|
38,190 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock to officers and employees |
4,010,690 |
4,011 |
1,705,405 |
|
|
|
1,709,416 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with private placements, net of $85,000 of
offering costs |
17,140,000 |
17,140 |
1,795,460 |
15,000 |
|
|
1,827,600 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with anti-dilution agreement |
6,090,141 |
6,090 |
(6,090) |
|
|
|
-- |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with conversion of debt |
10,445,229 |
10,445 |
1,301,597 |
|
|
|
1,312,042 |
| |
|
|
|
|
|
|
|
|
Beneficial
Conversion Feature on convertible Note |
|
|
920,833 |
|
|
|
920,833 |
| |
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with acquisition |
2,801,120 |
2,801 |
697,479 |
|
|
|
700,280 |
| |
|
|
|
|
|
|
|
|
Issuance
of warrants |
|
|
829,167 |
|
|
|
829,167 |
| |
|
|
|
|
|
|
|
|
Exercise
of warrants |
1,300,000 |
1,300 |
169,700 |
|
|
|
171,000 |
| |
|
|
|
|
|
|
|
|
Amortization
of deferred compensation |
|
|
|
|
|
106,750 |
106,750 |
| |
|
|
|
|
|
|
|
|
Net
loss |
|
|
|
|
(5,849,366) |
|
(5,849,366) |
| |
|
|
|
|
|
|
|
|
|
120,528,374 |
$120,529 |
$13,646,469 |
$-- |
$(12,830,672) |
$-- |
$936,326 |
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statement
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
2004 |
|
2003 |
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
Net
loss from continuing operations |
|
$ |
(5,577,630 |
) |
$ |
(4,776,469 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
143,535 |
|
|
1,202 |
|
|
|
|
|
1,882,566 |
|
|
3,355,718 |
|
Amortization
of debt discount |
|
|
1,496,507 |
|
|
143,572 |
|
Terminated
offering costs |
|
|
0 |
|
|
130,000 |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
|
197,365 |
|
|
|
|
|
(314,022 |
) |
|
(151,621 |
) |
Prepaid
expenses and other current assets |
|
|
(50,137 |
) |
|
(122,526 |
) |
Accounts
payables and accrued expenses |
|
|
42,995 |
|
|
197,365 |
|
|
|
|
|
(228,813 |
) |
|
181,549 |
|
|
|
|
|
2,973,525 |
|
|
3,932,624 |
|
NET
CASH USED IN OPERATING ACTIVITIES |
|
|
(2,604,105 |
) |
|
(843,845 |
) |
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
Net
loss from discontinued operations |
|
|
(271,736 |
) |
|
(265,188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
167,038 |
|
|
(73,222 |
) |
|
|
|
|
(84,447 |
) |
|
36,652 |
|
NET
CASH USED IN DISCONTINUED OPERATIONS |
|
|
(189,145 |
) |
|
(301,758 |
) |
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
|
(148,941 |
) |
|
(1,670 |
) |
Cash
paid for intangible assets |
|
|
(65,000 |
) |
|
0 |
|
Cash
paid for acquisition |
|
|
(500,000 |
) |
|
0 |
|
NET
CASH USED IN INVESTING ACTIVITIES |
|
|
(713,941 |
) |
|
(1,670 |
) |
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Payment
of proceeds from notes payable, stockholders, net |
|
|
(8,095 |
) |
|
514,749 |
|
Proceeds
from convertible Note |
|
|
1,700,000 |
|
|
0 |
|
Proceeds
from notes payable, net |
|
|
0 |
|
|
24,131 |
|
Repayment
of notes payable |
|
|
0 |
|
|
0 |
|
Proceeds
from the issuance of common stock, net of offering costs |
|
|
1,827,600 |
|
|
587,600 |
|
Proceeds
from exercise of warrants |
|
|
27,000 |
|
|
0 |
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
3,546,505 |
|
|
1,126,480 |
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
39,314 |
|
|
(20,793 |
) |
| |
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - Beginning |
|
|
7,024 |
|
$ |
27,817 |
|
|
CASH
AND CASH EQUIVALENTS - Ending |
|
$ |
46,338 |
|
$ |
7,024 |
|
| |
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash
paid for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
42,193 |
|
$ |
10,022 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Non-cash
investing and financing activities:
During
the year ended December 31, 2003, the Company issued warrants to purchase
1,220,000 shares of common stock in connection with certain notes payable,
stockholders. The fair market value of the warrants granted using the
Black-Scholes pricing model was $162,744 and was recorded as deferred debt
discount.
During
the year ended December 31, 2003, the Company issued 868,058 shares of the
Company's common stock in connection with notes payable, stockholders. The fair
market value of the common stock at issuance date was $62,362 and was recorded
as deferred debt discount.
During
the year ended December 31, 2003, certain stockholders converted their notes
payable and accrued interest into 3,716,667 shares of the Company's common stock
valued at $244,667.
In
connection with two asset purchase agreements, the Company issued an aggregate
of 1,200,000 shares of the Company's common stock and a $30,000 promissory note.
The fair market value of the common stock issued at the date of the agreements
was $174,000 and the assets acquired were inventory, property and equipment and
intangible assets.
During
the year ended December 31, 2004, several stockholders converted their notes
payable and accrued interest into 510,424 shares of the Company's common stock
valued at $61,874.
During
the year ended December 31, 2004, the Company issued warrants for consulting
services. The fair market value of the warrants granted using the Black-Scholes
pricing model was $50,000.
During
the year ended December 31, 2004, the Company issued 2,801,120 shares of Common
Stock valued at $700,280 relating to the asset acquisition of BMZ Generators
(See Note 14).
During
the year ended December 31, 2004, in connection with the convertible Notes the
Company issued warrants with a fair market value of $779,167, which gave rise to
a beneficial conversion feature of $920,833.
During
the year ended December 31, 2004, a stockholder exercised 1,000,000 warrants to
purchase the Company’s stock for $144,000. The proceeds were used to reduce the
shareholders outstanding loan balance.
During
the year ended December 31, 2004, several investors converted their convertible
Note into 9,934,805 of the Company’s common stock valued at
$1,251,000.
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
Description
of Business, Going Concern and Management's Plans
Organization
and Principal Business Activity
Energy
& Engine Technology Corporation (“EENT” or the “Company”) was incorporated
under the name Bidder Communications, Inc. in Nevada on November 16, 1999. It
changed its name from Bidder Communications, Inc. (“Bidder”) to Energy &
Engine Technology Corporation on December 5, 2001.
The
consolidated financial statements include the accounts of EENT and its wholly
owned subsidiaries, Gas Gathering Enterprises, LLC (“Gas Gathering”)
(previously, Southern States Gas Gathering, LLC), Wind Dancer Aviation Services,
Inc. (“Wind Dancer”) and BMZ Generators Technology, Inc. (“BMZ”) collectively
referred to as the “Company.” In December 2004, both Gas Gathering and Wind
Dancer were deemed to be discontinued operations (see Note 15).
EENT is
the developer and marketer of AXP 1000 auxiliary power generator for long haul
trucks. During the fourth quarter 2003 the Company began manufacturing
operations and had sales of the AXP 1000 power generators as well as third and
fourth quarter operation of its BMZ Generators business.
Going
Concern and Management Liquidity Plans
Our
independent registered public accounting firm has noted in their report on our
2004 financial statements that there are certain conditions including the net
loss the Company incurred in the amount of $5,849,366 during the year ended
December 31, 2004 and the working capital deficiency of $247,533 that existed at
the balance sheet date that raise substantial doubt as to our ability to
continue as a going concern. These consolidated financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Registrant
believes that its existing cash balance and future operating cash flows may not
be sufficient for near term operating needs unless it is able to quickly and
consistently expand its operations and is exploring various opportunities to
raise additional capital. The extent to which such sources will be sufficient to
meet Registrant's anticipated cash requirements is subject to a number of
uncertainties, the most important of which is Registrant's ability to generate
sufficient cash flow to support its business operations.
Consolidation
The
consolidated financial statements include the accounts of EENT and its wholly
owned subsidiaries. All significant inter-company transactions and balances have
been eliminated in consolidation.
Revenue
Recognition
BMZ/AXP
1000 Power Generators
Revenue
is recognized at the time that the generator is delivered to the dealer or
customer.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
Description
of Business, Going Concern and Management's Plans,
continued
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less and money market accounts to be cash
equivalents.
NOTE 2 -
Summary
of Significant Accounting Policies
Inventories
Inventory
consists of aviation fuel, parts, materials and engines and is valued at the
lower of cost or market, cost being determined using the first in/first-out
basis.
Property
and Equipment
Property
and Equipment are stated at cost. Maintenance and repairs are charged to expense
as incurred; costs of major additions and betterments are capitalized. When
property and equipment are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and resulting gain or
loss is reflected in the statement of operations.
Impairment
of Long-Lived Assets
The
Company evaluates its property and equipment and intangible assets subject to
amortization for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
Goodwill
Goodwill
is tested for impairment at least on an annual basis or more frequently if
events or changes in circumstances indicate that the asset might be impaired. We
determined that there was no impairment to goodwill as of December 31,
2004
Research
and Development
Research
and development costs are expensed as incurred. Research and development costs
for the years ended December 31, 2004 and 2003 were $169,271 and $126,785,
respectively and are included in selling, general and administrative
expenses.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -
Summary
of Significant Accounting Policies,
continued
Income
Taxes
The
Company accounts for income taxes using the liability method, which requires the
determination of deferred tax assets and liabilities based on the differences
between the financial and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which differences are expected to reverse.
Deferred tax assets are adjusted by a valuation allowance, if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Depreciation
and Amortization
Depreciation
of machinery and equipment, furniture, fixtures and gas gathering equipment is
computed on the straight-line method at rates adequate to allocate the cost of
applicable assets over their expected useful lives. The cost of leasehold
improvements is amortized over the lesser of the estimated useful life of the
assets or the length of the lease.
Advertising
Costs
Advertising
costs are expensed as incurred. For the years ended December 31, 2004 and 2003,
advertising costs were $69,165 and $61,128, respectively.
Net
Loss Per Share
Basic
earnings or loss per share (“EPS”) is computed by dividing income or loss
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is based on the weighted- average number
of shares of common stock and common stock equivalents outstanding at year-end.
Common stock equivalents have been excluded from the weighted-average shares for
2004 and 2003, as inclusion is anti-dilutive. Potentially dilutive securities
(warrants) of 18,398,974 and 1,355,000 are outstanding at December 31, 2004 and
2003, respectively.
Use of
Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -
Summary
of Significant Accounting Policies,
continued
Stock-Based
Compensation
In
October 1995, Statement of Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation” (“SFAS 123”) was issued. SFAS 123 prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock purchase
plans and stock appreciation rights. SFAS 123 requires compensation expense to
be recorded (i) using the new fair value method or (ii) using the existing
accounting rules prescribed by Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and related
interpretations with pro forma disclosure of what net income and earnings per
share would have been had the Company adopted the new fair value method. The
Company intends to continue to account for its stock based compensation plans in
accordance with the provisions of APB 25.
The
Company adopted SFAS No. 148 “Accounting for Stock-Based Compensation -
Transition and Disclosure.” (“SFAS 148”). This statement amended SFAS 123,
“Accounting for Stock-Based Compensation.” As permitted under SFAS 123, the
Company continues to apply APB 25. As required under SFAS 148, the following
table presents pro forma net loss attributable to common stockholders for basic
and diluted net loss per share as if the fair value-based method had been
applied to all awards.
| |
|
YEARS
ENDED |
|
| |
|
|
|
|
|
|
Net
loss attributable to common stockholders - as reported |
|
$ |
(5,849,366 |
) |
$ |
(5,041,657 |
) |
|
Stock-based
employee compensation cost determined under fair value method, net of tax
effects |
|
|
(2,794,350 |
) |
|
-- |
|
|
Net
loss attributable to common stockholders - pro forma |
|
|
(8,643,716 |
) |
|
(5,041,657 |
) |
|
Loss
per share |
|
|
|
|
|
|
|
|
Basic
and diluted loss per share: net loss attributable to common stockholders -
as reported |
|
|
(0.06 |
) |
|
(0.13 |
) |
|
Net
loss attributable to common stockholders - pro forma |
|
|
(0.08 |
) |
|
(0.13 |
) |
The
Black-Scholes option valuation model was used to estimate the fair value of the
warrants granted during the year ended December 31, 2004. There were no options
granted to employees during the year ended December 31, 2004. There were no
stock options or warrants granted to employees during the year ended December
31, 2003. The model includes subjective input assumptions that can materially
affect the fair value estimates. The model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and that are
fully transferable. For example, the expected volatility is estimated based on
the most recent historical period of time equal to the weighted average life of
the options granted. Options issued under the Company's option plans have
characteristics that differ from traded options. In the Company's opinion, this
valuation model does not necessarily provide a reliable single measure of the
fair value of its employee stock options. Principal assumptions used in applying
the Black-Scholes model along with the results from the model were as
follows:
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -
Summary
of Significant Accounting Policies,
continued
|
Assumptions: |
|
|
Risk-free
interest rate |
3.01
to 3.96% |
|
Dividend |
0.00% |
|
Expected
life in years |
2.0
to 5.0 |
|
Expected
volatility |
124
to 155% |
New
Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123
(revised 2004) (“SFAS 123R”), “Share-Based Payment” which revised SFAS 123,
“Accounting for Stock-Based Compensation”. This statement supersedes APB 25. The
revised statement addresses the accounting for share-based payment transactions
with employees and other third parties, eliminates the ability to account for
share-based compensation transactions using APB 25 and requires that the
compensation costs relating to such transactions be recognized in the
consolidated statement of operations. The revised statement is effective as of
the first interim period beginning after June 15, 2005. The Company is currently
evaluating the provisions of SFAS 123R and will adopt it on December 15, 2005 as
required.
In
November 2004, the FASB ratified the consensus reached by the Emerging Issues
Task Force (“EITF”), on Issue No. 03-13, “Applying the Conditions in Paragraph
42 of FASB Statement No. 144 in Determining Whether to Report Discontinued
Operations”. The Issue provides a model to assist in evaluating (a) which cash
flows should be considered in the determination of whether cash flows of the
disposal component have been or will be eliminated from the ongoing operations
of the entity and (b) the types of continuing involvement that constitute
significant continuing involvement in the operations of the disposal component.
Should significant continuing ongoing involvement exist, then the disposal
component shall be reported in the results of continuing operations on the
consolidated statements of operations and cash flows. The Company is currently
evaluating EITF No. 03-13 and will adopt it as required.
In
November 2004, the FASB issued SFAS No. 151 “Inventory Costs” (“SFAS 151”) which
amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material. This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of “so abnormal.” In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The Company is currently evaluating the
provisions of SFAS 151 and will adopt it on November 1, 2005, as
required.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -
Property
and Equipment
| |
Amount |
Estimated
Useful Lives |
|
Machinery
and Equipment |
$235,197 |
5
years |
|
Furniture
and Fixtures |
45,293 |
5
years |
|
Leasehold
Improvements |
6,558 |
Life
of lease |
| |
$287,048 |
|
|
Less:
Accumulated depreciation |
(25,994) |
|
|
Property
and Equipment, Net |
$261,054 |
|
Depreciation
expense for the years ended December 31, 2004 and 2003 was $24,542 and $1,202,
respectively.
NOTE 4 -
Intangible
Assets
| |
Amount |
Estimated
Useful Lives |
|
Intellectual
Property |
$65,000 |
4
years |
|
Intellectual
Property |
700,280 |
4
years |
|
Trade
Name |
60,000 |
4
years |
|
Trade
Secrets |
20,000 |
3
years |
|
Non-compete |
50,000 |
2
years |
| |
$895,280 |
|
Less:
accumulated amortization |
(118,993) |
|
|
Intangible
Assets, Net |
$776,287 |
|
| |
|
|
|
Goodwill |
146,518 |
N/A |
Future
amortization expense for the above intangible assets as of December 31, 2004 is
as follows:
|
For
the year ending December 31, |
|
Amount |
|
| |
|
|
|
|
2005 |
|
$ |
237,987 |
|
|
2006 |
|
|
225,487 |
|
|
2007 |
|
|
209,653 |
|
|
2008 |
|
|
103,160 |
|
|
Total |
|
$ |
776,287 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
Notes
Payable Stockholders
On
January 21, 2003, as part of a private placement an investor purchased one unit
for $25,000. This unit consists of a $25,000 note payable which accrues interest
at 10% and was due on January 7, 2004 as well as 25,000 shares of the Company's
restricted common stock plus 25,000 warrants to purchase the Company's common
stock at an exercise price of $0.10 per warrant exercisable through January 7,
2004 plus 25,000 warrants to purchase the Company's common stock at an exercise
price of $0.25 per warrant exercisable through January 7, 2005. The repayment
date has been informally extended until January 7, 2006 on the same
terms.
During
the second quarter of 2003 as part of a private placement offering investors
purchased 10 units for an aggregate of $100,000. Each unit consists of a $10,000
note payable, which accrues interest at 20% and is due in twelve months as well
as 2,000 shares or an aggregate of 20,000 shares of the Company's restricted
common stock. During the fourth quarter of 2003 the Company entered into
termination agreements with two of these stockholders whereby the Company issued
an aggregate of 216,667 shares of the Company's restricted common stock with an
average value of $.08 per share or $17,167. The issuance of stock was in
satisfaction of $15,000 of the principal balance and accrued interest of $2,167.
The balance outstanding under these notes payable at December 31, 2004 was
$80,904. As an incentive to certain investors an additional 6,000 shares were
issued in connection with this offering. These notes, with the exception of one,
have been informally extended to May 2006.
As of
December 31, 2004, the Company is in default of the terms on an outstanding note
payable with one of its stockholders. The note was due on June 10, 2004 with
principal balance due of $20,000 and accrued interest of $6,220.
On June
26, 2003, in connection with an asset purchase agreement, the Company issued a
note payable in the amount of $30,000 due in three equal installments of $10,000
beginning every thirtieth day after the date of agreement plus 300,000 shares of
the Company's restricted common stock valued at $39,000. This note was settled
in full on October 21, 2004 in exchange for 100,000 shares of its Common
Stock.
On July
15, 2003, the Company entered into a promissory note agreement, which was
subsequently amended on August 1, 2003 to increase the principal amount from
$20,000 to $40,000. The note was also amended to accrue interest at 5% per annum
and due on February 1, 2004. In connection with this note agreement and amended
note agreement the Company issued 200,000 shares of the Company's restricted
common stock. This note was converted on February 1, 2004 in exchange for
410,424 shares of the Company’s Common Stock valued at $41,042.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
Notes
Payable Stockholders,
continued
On August
18, 2003, the Company entered into a note payable agreement with a stockholder
for $250,000. The Company also previously entered into three note payable
agreements with the same stockholder in the amount of $125,000 (for an aggregate
of $375,000). In connection with this note, the Company issued the stockholder
500,000 warrants, which when added to 50,000 and 300,000 warrants issued during
the years ended December 31, 2003 and 2002, respectively, in connection with a
common stock offering and 150,000 warrants issued during the year ended December
31, 2003 in connection with the notes payable, which were thereby amended and
restated, are now set to expire on August 15, 2007. The new exercise prices for
the aggregate of 1,000,000 warrants are as follows: 200,000 at $0.01, 200,000 at
$0.05, 200,000 at $0.10, 200,000 at $0.15 and 200,000 at $0.25. In connection
with one of these notes payable with the stockholder the Company also issued
617,058 shares of the Company's restricted common stock. The warrants were all
exercised in 2004 and the proceeds were used to reduced the outstanding balance
by $112,000 and the remaining outstanding balance on the loan is $263,000 which
will be paid $10,000 per month until paid in full.
On
October 19, 2004, a shareholder converted its outstanding loan balance of
$20,000 into 100,000 shares of the Company’s common stock valued at
$20,000.
NOTE 6 -
Note
Payable and Convertible Note
On April
17, 2003, the Company entered a note payable agreement with a distributor for
$34,000. The note accrues interest at 7% and is payable in monthly installments
of $673, principal and interest, beginning May 1, 2003 through April 1, 2008.
The balance outstanding under this note payable at December 31, 2004 was
$24,131. This note was paid off in full in connection with the sale of Wind
Dancer Aviation Services, Inc., (See Note 15).
In July
2004, the Company completed a private placement to certain institutional
investors of $1,700,000 million in principal amount for a one year 7%
Convertible Notes (the “Notes”) and 4,358,974 Warrants due July 2007, at an
exercise price of $0.39 per share (the “Warrants”). The Registration Statement
was originally filed on August 25, 2004. The Registration Statement, as amended
from time to time, was declared effective by the Securities and Exchange
Commission on October 14, 2004. The holders of the Notes can convert their debt
into shares of the Company's common stock at 85% of market price per share with
a floor of $0.10 and a ceiling of $0.39, subject to certain anti-dilution
adjustments.
Accrued
interest under the Notes may be paid in cash or Common Stock. In the event of an
uncured default, as defined, or a non-permitted sale of securities, the holders
of the Notes may convert at 75% of Market Price.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -
Note
Payable and Convertible Note,
continued
The gross
proceeds of the $1,700,000 in July of 2004 were allocated 54% or $920,833 to the
Notes and 46% or $779,167 to the Warrants. As a result of such allocation and
conversion terms of the aforementioned debt, the Company recorded an aggregate
debt discount and beneficial conversion feature for the total amount of the debt
principal of $1,700,000. Interest expense for the year ended December 31, 2004
includes amortization expense of $1,417,525 of the deferred debt discount and
the beneficial conversion feature on the convertible notes and the warrants as
required by EITF 98-05 and 00-27. In connection with this private placement, the
Company incurred loan costs of $180,000, which is included in other current
assets. The loan cost is amortized over the life of the loan and amortization
expense of $75,000 for the year ended December 31, 2004 is included in interest
expense. During 2004, $1,251,000 of the $1,700,000 principal amount of the Notes
was converted into 9,934,804 shares of the Company’s common stock valued at
$1,251,000.
NOTE 7 -
Accrued
Expenses, Officers
Accrued
expenses officers represents unpaid payroll and bonuses to three (3) officers of
the Company. Theses amounts are non-interest bearing and have no definite
repayment terms. As of December 31, 2004 the outstanding balance in accrued
expenses officers was $358,917.
NOTE 8 -
Commitments
and Contingencies
Operating
Leases
The
Company rents office space for its corporate headquarters in Plano, Texas. This
rent is on a month-to-month basis without a formal lease agreement with a
monthly rent expense of $2,500.
The terms
of the lessor show a fixed monthly rate of $7,514 plus other cost and expenses,
which consist of property taxes and condominium fees. Future minimum annual
lease payments at December 31, 2004 are as follows:
|
For
the Years Ending December |
|
Amount |
|
|
2005 |
|
$ |
90,168 |
|
|
2006 |
|
|
90,168 |
|
|
2007 |
|
|
90,168 |
|
|
2008 |
|
|
90,168 |
|
|
2009 |
|
|
90,168 |
|
|
Thereafter |
|
|
450,840 |
|
|
Total |
|
$ |
901,680 |
|
Rent
expense for the years ended December 31, 2004 and 2003 amounted to $113,021 and
$28,000, respectively.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -
Commitments
and Contingencies
Legal
Proceedings
On
October 28, 2003, the Company was served with a complaint by 600 Racing, Inc.
The complaint alleges that EENT is liable on a $150,000 judgment issued against
Millennium Fuels USA, LLC (“MFUSA”), an unrelated entity, of which Will McAndrew
and Roger Wurtele, the Company's CEO and CFO, respectively, were the Managers.
The complaint alleges that the Company engaged in a joint enterprise with MFUSA
and integrated resources with MFUSA and is thus liable on an “alter ego” theory.