FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (the "Report") of NexGen Biofuels Ltd., an
Israeli corporation (formerly known as Healthcare Technologies Ltd.) (the
"Company," "NexGen," "we," "us" and "our"), contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. This Report
includes statements regarding our plans, goals, strategies, intent, beliefs or
current expectations. These statements are expressed in good faith and based
upon a reasonable basis when made, but there can be no assurance that these
expectations will be achieved or accomplished. These forward looking statements
can be identified by the use of terms and phrases such "believe," "plan,"
"intend," "anticipate," "target," "estimate," "expect," and the like, and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.). Items contemplating or making assumptions about, actual or potential
future sales, market size, collaborations, and trends or operating results also
constitute such forward-looking statements.
Although forward-looking statements in this report reflect the good faith
judgment of management, forward-looking statements are inherently subject to
known and unknown risks, business, economic and other risks and uncertainties
that may cause actual results to be materially different from those discussed in
these forward-looking statements. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
report. We assume no obligation to update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
report, other than as may be required by applicable law or regulation. Readers
are urged to carefully review and consider the various disclosures made by us in
our reports filed with the Securities and Exchange Commission ("SEC") which
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, results of operation and cash flows,
including the in the field of ethanol and bio-diesel fuel production under "Risk
Factors" in Item 1A of this Report. If one or more of these risks or
uncertainties materialize, or if the underlying assumptions prove incorrect, our
actual results may vary materially from those expected or projected.
PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
NexGen is a development stage company that is currently seeking to develop
and/or acquire ethanol and bio-diesel plants, and blending terminal facilities,
in the United States. Prior to the closing of the Purchase Agreement (defined
below) on December 31, 2007, the Company's business consisted of the
development, manufacture and marketing of clinical diagnostic test kits and the
provision of services and tools to diagnostic and biotech research professionals
in laboratory and point of care sites in Israel and worldwide.
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In accordance with that certain Purchase Agreement, dated as of January 16,
2007, as amended (the "Purchase Agreement"), by and among, the Company, NexGen
Biofuels, Inc., a Delaware corporation ("NexGen Bio"), MAC Bioventures Inc., a
Belize corporation ("MAC") and Gamida for Life B.V., a Netherlands corporation
("Gamida"), on December 31, 2007, the Company completed a Plan of Arrangement
(the "Plan") pursuant to which the Company transferred substantially all of its
existing business and assets in the field of biotechnology and medical devices
to Gamida and acquired NexGen Bio's principal assets in the field of ethanol and
bio-diesel fuel production.
On January 28, 2008, the Company changed its name from Healthcare
Technologies Ltd. to NexGen Biofuels Ltd.
The Plan was treated as a reverse merger of the Company for financial
accounting purposes. Accordingly, the historical financial statements of the
Company before the Plan will be replaced with the historical financial
statements of NexGen Bio before the Plan in all future filings that the Company
makes with the SEC, including this Report.
On the Closing Date, all of the Company's existing directors other than
Elan Penn, Varda Rotter, and Israel Amir, resigned and Messrs. J. Ram Ajjarapu,
Bruce W. Wilkinson, Esq., Jim McAlinden, Roderick P. Morrow and Kenneth Hoyt
were appointed to fill the vacancies. Also on the Closing Date, the then-current
officers of the Company, other than Eran Rotem, resigned and new executive
officers designated by NexGen Bio were subsequently appointed. The current
officers and directors are identified in Item 10 under "Directors, Executive
Officers and Corporate Governance."
For additional information concerning the Purchase Agreement, see the
"Purchase Agreement" below.
We file annual, quarterly, current and other reports and information with
the SEC. These filings can be viewed and downloaded from the Internet at the
SEC's website at www.sec.gov. In addition, these SEC filings are available at no
cost as soon as reasonably practicable after the filing thereof on our website
at www@nexgenbiofuels.net . These reports are also available to be read and
copied at the SEC's public reference room located at Judiciary Plaza, 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the
operation of the public reference room by calling the SEC at 1-800-SEC-0330.
DESCRIPTION OF BUSINESS
OVERVIEW
NexGen is currently in the process of raising capital to develop,
construct, and/or acquire, own, and operate ethanol and biodiesel plants, and
blending terminal facilities, in the United States.
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NexGen is pursuing a vertically integrated strategy involving the blending
of ethanol and biodiesel through developing/acquiring of blending terminal and
production facilities. The Company plans to build the blending terminal
following the receipt of phase-I financing and has executed non binding letters
of intent ("LOI's") to acquire the majority interest in two separate ethanol
production facilities, which NexGen intends to acquire following receipt of
phase-II financing. In NexGen's view, controlling assets at both ends of the
ethanol and biodiesel value chains offer a highly effective means for buffering
the operating and financial impacts caused by ethanol and biodiesel price
volatility resulting from feedstock and production output supply/demand
imbalances. This reflects an evolution of NexGen's business strategy in response
to changing market conditions in the ethanol and biodiesel industries and in the
capital markets. However the LOIs have expired on May 23, 2008 and NexGen did
not pursue to extend them due to market conditions.
In addition, the Company plans to develop and own additional ethanol and
biodiesel plants with a capacity of approximately 100 million gallons for each
plant in a number of different states in the United States. It is contemplated
that the plants will be built on land over which NexGen, through its
wholly-owned subsidiaries, holds options. The proposed plant sites are located
in Iowa, Ohio, Indiana, Wisconsin and Arkansas. The size of each of the sites
ranges between 15-407 acres and are intended to accommodate rail loops and the
plant. All of the sites are located near existing grain production, roads, rail
transportation and livestock. However, as on today, all options on these sites
have expired except Iowa which will expire on August 17, 2009. NexGen does not
intend to extend these options until market conditions improve.
In phase I, NexGen is looking to build a 10 million gallon storage and
blending terminal. We intend to blend 10% ethanol with gasoline and distribute
E-10 as well as blending 2% biodiesel with diesel and distribute B-2. This
blending terminal will provide a total throughput of 500 million gallons
capacity to per year, based on a weekly 10 million gallon turnover. The terminal
site is located in a strategic site with deep water access enabling the
transport of fuel on barges, tankers, rail and highways.
In phase II, NexGen intends to acquire majority control in two ethanol
plants that are located in the Midwest for an aggregate purchase price of
approximately $50 million in cash and ordinary shares. Each of the plants will
have a name plate capacity of more than 40 million gallons of ethanol. NexGen
has entered into non-binding LOI's with respect to the acquisition of such
plants. The closings of the acquisitions are subject to the completion of due
diligence, the negotiation of definitive purchase document and the receipt of
financing. These LOI's have expired on May 23, 2008. NexGen did not extend these
LOIs and may not seek to acquire these or similar plants until market conditions
improve.
Ethanol is a type of alcohol that in the United States is produced
principally from corn. Bio-diesel is a type of mono-alkyl esters of long chain
fatty acids derived from vegetable oils or animal fats and is made in the United
States mostly from soybean oil. Ethanol/bio-diesel are used as a blend component
in the gasoline and diesel fuel markets. Refiners and marketers, including some
of the major integrated oil companies and a number of independent refiners and
distributors, have historically blended ethanol/bio-diesel with gasoline and
petroleum diesel to increase octane and reduce tailpipe emissions. According to
the Renewable Fuel Association (RFA), the ethanol/bio-diesel industry has grown
significantly over the last few years. NexGen believes that the fuel blends
composed of ethanol/bio-diesel will become increasingly important over time as
an alternative to petroleum based gasoline/diesel, as a result of its favorable
production economics relative to petroleum gasoline/diesel, ethanol/bio-diesel's
clean burning characteristics, a shortage of domestic petroleum refining
capacity, geopolitical concerns, and federally mandated renewable fuel usage.
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BUSINESS STRATEGY
NexGen's objective is to meet the need for clean, economic, alternative
energy sources that achieve less dependence on hydrocarbons. NexGen expects to
capitalize on economic benefits and public policy drivers for renewable fuels
such as ethanol and bio-diesel and develop cost-competitive production
facilities. Owing to the commodity-like characteristics exhibited by biofuels,
particularly ethanol, NexGen has adopted a vertical integration business model
incorporating individual strategies for the production (upstream) and
distribution (downstream) ends of the ethanol and bio-diesel chain.
By operating as a vertically integrated entity NexGen looks to realize two
major competitive advantages: insuring downstream ethanol requirements are met
during periods of limited ethanol availability caused by distribution
bottlenecks, for example; and creating a dedicated end-user for upstream output.
However, in each case the separate business retain the flexibility allowing them
to opportunistically profit from abrupt or unexpected changes of a particular
local or alternative market.
Key elements of NexGen's strategy to achieve this objective include:
o Adopting a vertical integration business model incorporating
individual strategies for the production (upstream) and
distribution (downstream) of the ethanol and bio-diesel chain.
o Building new biofuel plants in strategic locations.
o Acquiring currently producing plants.
o Establishing strategic alliances with procurement and marketing
partners.
o Achieving good economies of scale in the plants being built
and/or acquired.
o Monitoring the market dynamics in the market and adjusting its
operations to sustain in the market place for the long-term.
INDUSTRY BACKGROUND
o ETHANOL
American-made, renewable ethanol directly displaces the amount of crude oil
needed from imports, offering independence and security from foreign sources of
energy.
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President Bush signed the Energy Policy Act establishing the Renewable
Fuels Standard, ("RFS") in 2005, which mandated annual use of 7.5 billion
gallons per year, ("BGY"), of renewable fuels in the U.S. fuel supply by the
year 2012. On December 19, 2007, President Bush signed the Energy Independence
and Security Act (the "2007 Act"), which increased the mandated minimum level of
use of renewable fuels in the RFS to 9.0 billion gallons per year in 2008,
further increasing to 36 billion gallons per year in 2022. The 2007 Act also
requires the increased use of "advanced" biofuels, which are alternative
biofuels produced without using corn starch such as cellulosic ethanol and
biomass-based diesel, with 21 billion gallons of the mandated 36 billion gallons
of renewable fuel required to come from advanced biofuels by 2022. Required RFS
volumes for both general and advanced renewable fuels in years to follow 2022
will be determined by a governmental administrator.
According to the Renewable Fuels Association in its outlook report for
2007, ethanol production capacity in the United States has grown in the last
twenty years from almost nothing to more than 7.8 billion gallons per year.
Plans to construct new plants or to expand existing plants have been announced.
The effect of this increase on the demand for, or price of, ethanol is
uncertain.
The ethanol industry has grown to over 130 production facilities in the
United States. The largest ethanol producers include Archer Daniels Midland,
Verasun, US BioEnergy, POET, LLC, Hawkeye Renewables, LLC, and Aventine
Renewable Energy Holdings, Inc .The top six producers accounted for more then
40% of the ethanol production capacity in the U.S. according to the RFA. The
industry is otherwise highly fragmented, with many small, independent firms and
farmer-owned cooperatives constituting the rest of the market. Due to the corn
price reached all time high during the year 2008 and economics of ethanol did
not work out, several ethanol and biodiesel plants have made losses and even
filed bankruptcies e.g. One of the largest ethanol companies in the United
States, Verasun Energy filed bankruptcy protection in 2008.
o BIO-DIESEL
When bio-diesel is blended with petroleum diesel it results in relatively
low start-up costs. Bio-diesel is positioned as a more environmentally friendly
fuel that can result in lower health and safety impacts than petroleum diesel
and while reducing American dependence on imported oil. Although bio-diesel can
achieve incremental reductions in smoke, unburned hydrocarbons and particulate
matter, several studies have shown that bio-diesel can result in slight NOx
increases. Other alternative fuels have demonstrated the ability to decrease all
regulated pollutants. Bio-diesel is domestically produced and renewable.
o TARGET MARKET
According to the National Corn Growers Association (NCGA), today's demand
of more than four billion gallons of ethanol per year is expected to grow to 7.5
billion gallons per year by the year 2012 under current law. If the use of
methyl tertiary butyl ether, or MTBE, is phased out on a national level in the
next few years and the regulatory requirements remain unchanged, the anticipated
growth may yield a doubling of ethanol demand much sooner. Recently, a bill
including provisions known as the Renewable Fuels Standard was signed by the
President. The new legislation is changing the use of fuel by determining the
specific volume of ethanol to be used in gasoline on a nationwide basis. NexGen
anticipates that the forecasted demand for ethanol will assist its future
plants' successful entry and continued operation in the industry. The dramatic
rise in ethanol utilization in the coming years predicted by the NCGA is
expected to require doubling present ethanol production capacity to supply the
demand.
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o ETHANOL/BIO-DIESEL PRODUCTION PROCESS
Below is a description of the production process of ethanol and bio-diesel.
ETHANOL:
The ethanol plants will produce ethanol generally by processing corn. The
corn will be received by rail and by truck, then weighed and unloaded in a
receiving building into storage bins. Thereafter, the corn will be conveyed to a
scalper to remove rocks and debris before it is transported to a hammer mill or
grinder where it is grounded into a mash and conveyed into a slurry tank for
enzymatic processing. Water, heat and enzymes will be added to break the ground
grain into fine slurry which will be heated for sterilization and pumped to a
liquefaction tank where additional enzymes are added. Next, the grain slurry
will be pumped into fermenters, where yeast is added, to begin a batch
fermentation process. A vacuum distillation system will divide the alcohol from
the grain mash. Alcohol is then transported through a rectifier column, a side
stripper and a molecular sieve system where it is dehydrated. Two hundred-proof
alcohol is then pumped to farm shift tanks and blended with five percent
denaturant, usually gasoline, as it is pumped into storage tanks. The two
hundred-proof alcohol and five percent denaturant constitute ethanol.
Ethanol's by-products, mainly distillers grains, are made when corn mash
from the distillation stripper is pumped into one of several decanter type
centrifuges for dewatering. The water ("thin stillage") is then pumped from the
centrifuges to an evaporator where it is dried into thick syrup. The solids that
exit the centrifuge or evaporators ("the wet cake") are conveyed to the
distillers dried grains dryer system. Syrup is added to the "the wet cake" as it
enters the dryer, where moisture is removed. The distillers grains can be used
as animal feed.
BIO-DIESEL:
Bio-diesel is made through a chemical process called transesterification
whereby glycerin is separated from animal fat or vegetable oil. The process
leaves behind two products -- methyl esters (the chemical name for bio-diesel)
and glycerin (a marketable by-product). There are three basic routes to produce
bio-diesel from oils and fats: (1) base catalyzed transesterification of the oil
with alcohol; (2) direct acid catalyzed esterification of the oil with methanol;
and (3) conversion of the oil to fatty acids, and then to Alkyl esters with acid
catalysis. The majority of the alkyl esters produced today are done with the
base catalyzed reaction because it is the most economic for several reasons: low
temperature (150(degree) F) and pressure (20 psi) processing, high conversion
(98%) with minimal side reactions and reaction time, direct conversion to methyl
ester with no intermediate steps and exotic materials of construction are not
necessary.
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A fat or oil is reacted with an alcohol, like methanol, in the presence of
a catalyst to produce glycerine and methyl esters or bio-diesel. The methanol is
charged in excess to assist in quick conversion and recovered for reuse. The
catalyst is usually sodium or potassium hydroxide which has already been mixed
with the methanol.
o MARKETING ARRANGEMENTS
Most all ethanol/bio-diesel plants around the country, sell
ethanol/bio-diesel and their by-products (distillers grains, corn oil, glycerin
and CO2) through a strategic alliance partner or marketing firms. They do not
engage their own sales personnel in the process.
NexGen intends to transport ethanol/bio-diesel, corn oil, DDGS and glycerin
using rail cars, trucks, and other channels of distribution as needed. NexGen
has started discussions with certain rail car leasing companies to lease
sufficient tank cars and DDGS/Corn cars to be delivered before the production
starts at each plant.
Ethanol/bio-diesel pricing is highly volatile and driven by the crude oil
prices as well as gasoline and diesel prices. Its price is frequently
proportional to imported oil prices. Historically, ethanol/bio-diesel plants
sign long-term contracts with ethanol/bio-diesel marketing companies to mitigate
risk and avoid any major cash flow swings. Most ethanol/bio-diesel plants sell
80% of their production on long-term contracts and the remaining 20% on spot
markets to take advantage of upswing prices. NexGen's management currently
expects to follow these practices and to employ hedging futures and options to
protect against downturns.
DISTRIBUTION
NexGen's downstream strategy responds to the market inefficiencies and
risks caused by severe bottlenecks in the current ethanol distribution which
interferes with the market's price-setting mechanism and the ability to get
ethanol to reach intended end-users on a timely basis. The Company's vertical
integration business model and downstream strategy anticipates the acquisition
or construction of an ethanol bulk storage blending facility with annual
throughput capacity of 500,000,000 gallons, located in an East coast seaport
within a favorable end-user market.
For a further discussion of NexGen's proposed plan of operations, see Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Plan of Operations."
EMPLOYEES
As of December 31, 2008, we had 3 employees. None of these employees are
covered by collective bargaining agreements.
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COMPETITION
The market in which NexGen will sell its ethanol, bio-diesel and ancillary
products is highly competitive. NexGen believes that its ability to compete
successfully in the biofuel industry depends on many factors, including the
following principal competitive factors:
o vertical integration business model;
o price;
o reliability of its production processes and delivery schedule;
o volume of ethanol and bio-diesel produced and sold;
o proximity to ethanol and bio-diesel markets;
o management team; and
o facility size - economies of scale.
Ethanol and Biodiesel industry is currently facing worst times of all in
terms of economics, sentiment and demand. In addition, we will be in competition
with numerous other ethanol/bio-diesel producers, some of whom may have greater
resources than we do. Additional ethanol/bio-diesel producers may enter the
market if the demand for ethanol/bio-diesel increases and existing producers may
increase the capacity of their current plants or build new ethanol/bio-diesel
production facilities. The largest ethanol/bio-diesel producers in the United
States include Archer-Daniel-Midland Company, VeraSun Energy Corporation,
Hawkeye Holdings, Inc., Aventine, Cargill, Inc. and Abengoa Bioenergy Corp., all
of which are capable of producing as much or more ethanol/bio-diesel than we
expect to initially produce.
LEGISLATION
ENERGY POLICY ACT. The Energy Policy Act of 2005 established minimum annual
volumes of renewable fuel to be used by petroleum refiners in the fuel supply.
The Energy Policy Act removed the oxygenate requirements for reformulated
gasoline that were put in place by the Clean Air Act. The Energy Policy Act also
included anti-backsliding provisions, however, that require refiners to maintain
emissions quality standards in the fuels that they produce, thus providing a
source for continued need for ethanol. On December 19, 2007, President Bush
signed the Energy Independence and Security Act (the "2007 Act"), which
increased the mandated minimum level of use of renewable fuels in the RFS to 9
billion gallons per year in 2008 , further increasing to 36 billion gallons per
year in 2022. The 2007 Act also requires the increased use of "advanced"
biofuels, which are alternative biofuels produced without using corn starch such
as cellulosic ethanol and biomass-based diesel, with 21 billion gallons of the
mandated 36 billion gallons of renewable fuel required to come from advanced
biofuels by 2022.
THE FEDERAL BLENDERS' CREDIT. The federal excise tax incentive program
allows gasoline distributors who blend ethanol with gasoline to receive a
federal excise tax rate reduction of $0.51 per gallon of ethanol or $0.50 per
gallon of bio-diesel. The incentive program is scheduled to expire in 2010.
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THE FEDERAL CLEAN AIR ACT. The use of ethanol as an oxygenate is driven, in
part, by environmental regulations. The federal Clean Air Act requires the use
of oxygenated gasoline during winter months in areas with unhealthy levels of
carbon monoxide.
State legislation banning or significantly limiting the use of MTBE. In
recent years, due to environmental concerns, 25 states have banned, or
significantly limited, the use of MTBE, including California, Connecticut and
New York. Ethanol has served as a replacement for much of the discontinued MTBE
volumes and is expected to continue to replace future MTBE volumes that are
removed from the fuel supply.
FEDERAL TARIFF ON IMPORTED ETHANOL. In 1980, Congress imposed a tariff on
foreign produced ethanol, made from sugar cane, to encourage the development of
a domestic, corn-derived ethanol supply. This tariff was designed to prevent the
federal tax incentive from benefiting non-U.S. producers of ethanol. The tariff
is $0.54 per gallon and is scheduled to expire on January 1, 2009.
Ethanol imports from 24 countries in Central America and the Caribbean
Islands are exempted from the tariff under the Caribbean Basin Initiative, which
provides that specified nations may export an aggregate of 7.0% of U.S. ethanol
production per year into the U.S., with additional exemptions from ethanol
produced from feedstock in the Caribbean region over the 7.0% limit. As a result
of new plants under development, we believe imports from the Caribbean region
will continue, subject to the limited nature of the exemption.
NAFTA also allows Canada and Mexico to export ethanol to the United States
duty-free. Canada and Mexico are exempt from duty under the current NAFTA
guidelines.
In addition, there is a flat 2.5% ad valorem tariff on all imported
ethanol.
The federal blenders' credits and tariffs, as well as other federal and
state programs benefiting ethanol, generally are subject to U.S. government
obligations under international trade agreements, including those under the
World Trade Organization Agreement on Subsidies and Countervailing Measures.
Consequently, they might be the subject of challenges thereunder, in whole or in
part.
ASTM BIO-DIESEL FUEL STANDARDS. The American Society of Testing and
Materials (ASTM) is the recognized standard-setting body for fuels and additives
in the United States. ASTM's specification for pure bio-diesel (to be used in
blends of up to 20% with diesel fuel), ASTM D 6751, has been adopted by the
Environmental Protection Agency, and compliance is required in order for our
bio-diesel to qualify as a legal motor fuel for sale and distribution. ASTM has
modified its D 6751 specification in the past, and is expected to continue to
modify the specification in the future as the use of and experience with
bio-diesel expands.
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ENVIRONMENTAL MATTERS
NexGen's planned future operations will be subject to various federal,
state and local environmental laws and regulations, including those relating to
the discharge of materials into the air, water and ground; the generation,
storage, handling, use, transportation and disposal of hazardous materials; and
the health and safety of its employees. These laws, regulations and permits also
can require expensive pollution control equipment or operational changes to
limit actual or potential impacts to the environment. A violation of these laws
and regulations or permit conditions can result in substantial fines, natural
resource damage, criminal sanctions, permit revocations and/or facility
shutdowns. NexGen does not anticipate a material adverse effect on its business
or financial condition as a result of its efforts to comply with these
requirements.
There is a risk of liability for the investigation and cleanup of
environmental contamination at each of the properties that NexGen will own or
operate and at off-site locations where NexGen will arrange for the disposal of
hazardous substances. If these substances are disposed of or released at sites
that undergo investigation and/or remediation by regulatory agencies, NexGen may
be responsible under CERCLA or other environmental laws for all or part of the
costs of investigation and/or remediation and for damage to natural resources.
NexGen may also be subject to related claims by private parties alleging
property damage and personal injury due to exposure to hazardous or other
materials at or from these properties. Some of these matters may require NexGen
to expend significant amounts for investigation and/or cleanup or other costs.
In addition, new laws, new interpretations of existing laws, increased
governmental enforcement of environmental laws or other developments could
require NexGen to make additional significant expenditures. Continued government
and public emphasis on environmental issues can be expected to result in
increased future investments for environmental controls at NexGen's planned
ethanol and bio-diesel facilities. Present and future environmental laws and
regulations (and related interpretations) applicable to NexGen's planned future
operations, more vigorous enforcement policies and discovery of currently
unknown conditions may require substantial capital and other expenditures.
NexGen's air emissions will be subject to the federal Clean Air Act, the federal
Clean Air Act Amendments of 1990 and similar state and local laws and associated
regulations. The U.S. EPA has promulgated National Emissions Standards for
Hazardous Air Pollutants, or NESHAP, under the federal Clean Air Act that could
apply to facilities that NexGen owns or operates if the emissions of hazardous
air pollutants exceed certain thresholds. In addition to costs for achieving and
maintaining compliance with these laws, more stringent standards may also limit
NexGen's operating flexibility. Because other domestic ethanol and bio-diesel
producers will have similar restrictions, however, NexGen believes that
compliance with more stringent air emission control or other environmental laws
and regulations is not likely to materially affect its competitive position.
The hazards and risks associated with producing and transporting NexGen's
products, such as fires, natural disasters, explosions, abnormal pressures,
blowouts and pipeline ruptures also may result in personal injury claims or
damage to property and third parties. As protection against operating hazards,
NexGen maintains and plans to maintain insurance coverage against some, but not
all, potential losses. NexGen's coverage includes, or will, when appropriate,
include, physical damage to assets, employer's liability, comprehensive general
liability, automobile liability and workers' compensation. NexGen believes that
its insurance is and will be adequate and customary for its industry, but losses
could occur for uninsurable or uninsured risks or in amounts in excess of
existing insurance coverage. NexGen does not currently have pending material
claims for damages or liability to third parties relating to the hazards or
risks of our business.
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ITEM 1A. RISK FACTORS
An investment in NexGen involves a high degree of risk, including the risks
and uncertainties described below.
RISKS RELATED TO THE CONSTRUCTION, DEVELOPMENT AND OPERATION OF THE
PROPOSED FACILITIES
Our principal assets consist of options to own land sites on which we
propose to construct ethanol and/or bio-diesel production facilities. We may not
obtain the funding or the consents and approvals required to construct and
operate the proposed ethanol and/or bio-diesel production facilities.
The planning, construction and operation of ethanol and/or bio-diesel
production facilities is a complex undertaking that involves various elements
including engineering, design, procurement of equipment, construction and
obtaining financing and permits required therefor.
We are entirely dependent on obtaining debt and equity financing from third
parties to fund the construction and development and/or acquisition of our
production facilities. NexGen estimates that it will cost approximately $200
million per ethanol site and $100 million per bio-diesel site, to develop and
construct such facilities. We do not have any definitive agreements or
understandings at this time to obtain this financing and there can be no
assurance that we will be successful in doing so.
If we are not successful obtaining the necessary permits and approvals or
raising the necessary funds, in a timely manner, or at all, in order to plan,
construct or operate the production facilities, you could lose all or a
substantial part of the value of your shares in our company.
WE WELL NEED TO RAISE ADDITIONAL FUNDS TO ACHIEVE OUR CURRENT BUSINESS
STRATEGY. OUR NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE WILL LIKELY INVOLVE
THE ISSUANCE OF ADDITIONAL ORDINARY SHARES, WHICH COULD DILUTE THE VALUE OF YOUR
INVESTMENT. THERE IS NO ASSURANCE, HOWEVER, THAT WE WILL BE ABLE TO RAISE
ADDITIONAL MONIES IN THE FUTURE.
At December 31, 2008, we had a negative working capital of $1,033,000. We
need to obtain the third-party financing to fund the first phase of our business
plan. However, additional funding may not be available when required or it may
not be available on favorable terms. Without adequate funds, we may need to
significantly reduce or refocus our plan of operations or obtain funds through
arrangements that may require us to relinquish rights to certain or potential
markets, either of which could have a material adverse effect on our business,
financial condition and results of operations. Failure to secure additional
financing in a timely manner and on favorable terms when needed will have a
material adverse effect on the Company's ability to continue as a going concern,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business.
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THE REPORT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONTAINS AN
EXPLANATORY PARAGRAPH QUESTIONING OUR ABILITY TO CONTINUE AS A GOING CONCERN.
The report of our independent registered public accounting firm on our
consolidated financial statements as of December 31, 2008 and 2007, and for the
year ended December 31, 2008 and for the period beginning August 10, 2006
(inception of development stage) through December 31, 2008, includes an
explanatory paragraph questioning our ability to continue as a going concern.
This paragraph indicates that we have not yet commenced revenue producing
operations and have a retained a net loss of $2,125 thousands since August 10,
2006 (inception of development stage) through December 31, 2007, which
conditions raise substantial doubt about our ability to continue as a going
concern. Our consolidated financial statements do not include any adjustment
that might result from the outcome of this uncertainty.
NEXGEN HOLDS OPTIONS TO PURCHASE THE LAND SITES THAT HAVE EXPIRED AND WHEN
COMPANY WANTS TO EXTEND THEM, THEY MAY NOT EITHER BE AVAILABLE OR NOT BE
AVAILABLE AT FAVORABLE TERMS.
NexGen's principal assets are options to purchase land sites in the United
States, which are expired now, on which we propose to construct our production
facilities. In order to obtain ownership of the land sites, we will need to
exercise these options under the terms of the option agreements. The timing of
the exercise of these options will depend, in part, on our prospects for raising
funds and prevailing and forecasted market conditions. If we do not exercise the
options prior to their expiration dates, we may have to seek alternative sites
in order to implement our business plan, which may not be available on
reasonable terms or at all.
WE MAY NEVER BECOME PROFITABLE.
We expect to incur significant losses until we successfully complete
construction and commence operations of one or more of the planned blending
terminal, ethanol/bio-diesel production facilities or otherwise acquire one or
more functional ethanol/bio-diesel production facilities that operate at
sufficient profit levels. NexGen estimates that it will take approximately 18 to
24 months to develop and construct each ethanol facility, approximately 12
months to construct blending terminal after receiving the permits and,
approximately 12 to 18 to develop and construct the bio-diesel facility, but it
may take longer. We may not be successful in our efforts to build and operate
the facilities. In addition, we may not be successful in securing financing
necessary to build and operate our terminal/ethanol/bio-diesel production
facilities or to fund our ongoing general and administrative expenses. Even if
we successfully meet all of these objectives and begin operations, we may be
unable to operate profitably. In addition, we expect to record significant
depreciation and amortization expenses which will add to our losses.
15
WE HAVE NO OPERATING HISTORY OF ETHANOL/BIO-DIESEL PRODUCTION FACILITIES,
WHICH COULD RESULT IN ERRORS IN MANAGEMENT AND OPERATIONS, CAUSING A MATERIAL
ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
NexGen has no history of operating a bio-fuels production facility. While
Mr. Ram Ajjarapu has extensive experience and knowledge within the
ethanol/bio-diesel industry in carrying out projects involving 100 million
gallons per year production facilities, NexGen does not have experience in
constructing, developing or operating an ethanol or bio-diesel production
facility.
We may be unable to manage the start-up of our facilities in a timely and
cost-effective manner, and any failure by us to do so would delay our ability to
begin producing and selling ethanol or bio-diesel. A delay in start-up
operations is likely to further delay our ability to generate revenue and
satisfy our debt obligations and our financial condition and results of
operations could be materially adversely affected.
We anticipate a period of significant growth, involving the construction
and start-up of operations of several production facilities. This period of
growth and the start-up of our facilities are likely to be a substantial
challenge to us. If we fail to manage this start-up effectively, you could lose
all or a substantial part of the value of your shares.
WE MAY BE UNABLE TO MEET THE ADMINISTRATIVE AND OPERATIONAL NEEDS OF OUR
DEVELOPMENT AND GROWTH EFFECTIVELY, WHICH COULD RESULT IN OUR INABILITY TO
ADEQUATELY INCREASE OUR SALES OR TO EFFICIENTLY OPERATE OUR BUSINESS.
Our strategy envisions a period of rapid growth and that may impose a
significant burden on our administrative and operational resources. The
completion of construction of our facilities and growth of our business, will
require significant investments of capital and management's close attention. Our
ability to effectively manage our growth will require us to substantially expand
the capabilities of our administrative and operational resources and to attract,
train, manage and retain qualified management, technicians and other personnel.
We may be unable to retain and hire the number of qualified persons necessary to
operate our facilities effectively.
WE ARE DEPENDENT UPON OUR OFFICERS AND DIRECTORS, AND OUR FAILURE TO HIRE
OR THE LOSS OF ANY OF THESE PERSONS COULD ADVERSELY AFFECT OUR operations and
RESULTS.
We are dependent upon our officers and directors for execution of our
business plan. The assembly of our management team is still not complete. Our
failure to hire or the loss of any of our officers or directors could adversely
affect the execution of our business plan and have a material adverse effect
upon our results of operations and financial position. We do not intend to
maintain "key person" life insurance for any of our officers or directors.
16
OUR MANAGEMENT'S TIME AND ATTENTION WILL BE DIVIDED AMONG OUR PLANTS, AND
EACH OF OUR PLANTS WILL BE MANAGED UNDER A SIMILAR MANAGEMENT MODEL, WHICH MAY
PREVENT US FROM ACHIEVING A MAXIMUM RETURN FROM ANY ONE PLANT.
We have established a U.S. subsidiary, NexGen 2007, Inc., that wholly-owns
separate business entities which in turn will each own one of our plants;
however each of such entities will be managed by a centralized management team.
The demands on our management's time from one plant may, from time to time,
compete with the time and attention required for the operation of the other
plants. This division of our management's time and attention among our plants
may make it difficult for us to realize the maximum return from any one plant.
IF OUR PRINCIPAL AGREEMENTS ARE TERMINATED OR BECOME UNFAVORABLE, OUR
PROJECTS MAY FAIL OR BE HARMED IN WAYS THAT SIGNIFICANTLY REDUCE THE VALUE OF
YOUR SHARES.
We will be dependent on various contractors, suppliers, lenders and other
third parties for the implementation and financing of each project. If
agreements with such parties are terminated or if the terms are amended
unfavorably to us, our projects may be harmed or even fail. Because we will be
dependent on the success of several large-scale projects, the impairment or
failure of any of these projects could significantly reduce our production and
revenues.
GIVEN THAT ALL OF OUR REVENUE WILL BE PRIMARILY DERIVED FROM THE PRODUCTION
AND MARKETING OF ETHANOL AND BIO-DIESEL AND THEIR CO-PRODUCTs, ANY DISRUPTION IN
OUR OPERATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Assuming we will successfully construct and bring some or all of the
proposed facilities to operation, our primary source of revenues will be from
the sale of ethanol and bio-diesel and related co-products that we will produce
at our facilities. We will not have an alternative line of business in the event
that we are unable to operate our facilities for any reason. Any delay or
stoppage in our anticipated production would substantially reduce our revenues
and adversely affect our results of operations.
OUR DEPENDENCY ON KEY SUPPLIERS TO DESIGN AND BUILD OUR FACILITIES AND
SUPPLY NECESSARY EQUIPMENT MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We are highly dependent upon general contractors and key vendors to design,
engineer and build the proposed facilities. We do not have any definitive
agreements or understandings with any such contractors or vendors at this time.
If one of our future contractors or vendors were to terminate its relationship
with us, there is no assurance that we would be able to obtain a replacement
contractor or vendor or that a replacement would be able to complete
construction within the originally contracted time frame and at the same or a
lower price. Any delay in the planning, construction or commencement of
operations of our facilities or problems in the design or engineering of our
facilities could have a material adverse effect on our production and results of
operations and could force us to abandon our business plan.
17
OUR GENERAL CONTRACTORS, SUPPLIERS AND VENDORS MAY HAVE CONFLICTING
INTERESTS THAT COULD CAUSE THEM TO PUT THEIR FINANCIAL INTERESTS AHEAD OF OURS,
WHICH MAY HAVE A MATERIAL ADVERSE EFFECT OUR BUSINESS.
Our contractors, suppliers and vendors may experience conflicts of interest
that cause them to put their financial interests ahead of our best interests.
Our contractors, suppliers and vendors may also have conflicts of interest due
to the fact that they are involved in the design and construction of other
ethanol/bio-diesel plants. Although schedule and performance guarantees may
motivate our contractors, suppliers and vendors to perform their agreements with
respect to our facilities, we cannot ultimately require them to devote their
full time or attention to our activities. As a result, they may come to have, a
conflict of interest in allocating personnel, materials and other resources to
our facilities which could result in inefficiencies and delays in our
production, which could materially adversely affect our business. Such conflicts
of interest may reduce our profitability and the value of our shares.
THE COST AND TIME TO CONSTRUCT OUR FACILITIES AND COMMENCE OPERATIONS MAY
BE MORE THAN WE ANTICIPATE.
The cost to construct our facilities and commence operations may be higher
than expected and the construction of any of our facilities could take longer
than anticipated. For example, in order to commence construction of our
facilities, we will need to obtain numerous governmental and regulatory permits,
including the consent of municipal authorities to change the zoning regarding
some of our proposed facilities. It may take us significantly more time than
anticipated to obtain the necessary permits and consents for us to commence
construction.
Any significant increase in the estimated construction cost of, or in the
estimated length of time for, one or more of our facilities could hinder our
ability to complete construction and would delay our ability to generate
revenues and as a result could have a material adverse effect on our business
and results of operations or even force us to abandon our business plan.
Moreover, our failure to receive any of the required permits or consents could
have a material adverse effect on our business and results of operations or even
force us to abandon our business plan.
WE MAY ENCOUNTER DEFECTIVE MATERIAL AND WORKMANSHIP OR PROCESS ENGINEERING
THAT COULD CAUSE SIGNIFICANT DELAYS IN THE COMMENCEMENT OF OUR OPERATIONS.
Any defects in material or workmanship may cause substantial delays in the
commencement of operations of our facilities. If defects are discovered after
commencement of operations, or if our facilities fail to meet the performance
criteria, substantial delays in the commencement of operations could occur which
may have a material adverse effect on our business and results of operations.
WE WILL BE SUBJECT TO THE RISK OF LOSS DUE TO FIRE BECAUSE ETHANOL AND
BIO-DIESEL AND THE MATERIALS TO BE USED TO PRODUCE OUR PRODUCTS ARE HIGHLY
FLAMMABLE.
18
Ethanol and bio-diesel, and products such as natural gas and/or propane
which are used in the production thereof, are highly flammable materials and we
are therefore subject to the risk of loss arising from fires. The risk of fire
associated with these materials cannot be completely eliminated. We intend to
maintain insurance policies to reduce losses caused by fire, including business
interruption insurance. If any of our production facilities were to be damaged
or cease operations as a result of a fire, or if our insurance proves to be
inadequate, it would harm our manufacturing capacity and adversely effect our
results of operations.
THE CONDITION OF OUR CONSTRUCTION SITES MAY DIFFER FROM WHAT WE EXPECT.
If we encounter concealed or unknown conditions at our facility sites, it
could result in an increase in the cost of construction of our facilities and
may result in time delays and alternatives may not be available on reasonable
terms or at all. Concealed or unknown conditions include any concealed physical
conditions at each site that materially differ from the conditions contemplated.
Although the sites have undergone limited inspection by NexGen, concealed or
unknown conditions are often difficult to detect and there can be no assurance
that we will not encounter them. There is no assurance that after full
investigation some or all of the sites will be determined to be suitable for the
plants. We have not inspected the sites and are relying on NexGen's judgment as
to the suitability thereof for the construction and operation of the proposed
production facilities.
AS PART OF OUR BUSINESS STRATEGY, WE MAY SEEK TO ACQUIRE EXISTING ETHANOL
AND BIO-DIESEL PRODUCTION FACILITIES, WHICH ENTAIL A NUMBER OF RISKS.
As part of our business strategy, we may seek to acquire existing ethanol
and bio-diesel production facilities. There are numerous risks involved in
making acquisitions, including:
o possible decreases in capital resources or dilution to existing
stockholders;
o difficulties and expenses incurred in connection with an acquisition;
o the difficulties of operating an acquired business;
o the diversion of management's attention from other business concerns;
o a limited ability to predict future operating results of an acquired
business; and
o the potential loss of key employees of an acquired business.
In the event that the operations of an acquired business do not meet
expectations, we may be required to restructure the acquired business or
write-off the value of some or all of the assets of the acquired business. We
cannot assure you that any acquisition will be successfully integrated into our
operations or will have the intended financial or strategic results.
In addition, acquisitions entail an inherent risk that we could become
subject to contingent or other liabilities in connection with the acquisitions,
including liabilities arising from events or conduct pre-dating our acquisition
and that were not known to us at the time of acquisition. Although we intend to
conduct due diligence in connection with each of our acquisitions, this does not
mean that we will necessarily identify all potential problems or issues in
connection with any given acquisition, some of which could be significant.
19
Our failure to successfully complete future acquisitions or to integrate
and successfully manage completed acquisitions could have a material adverse
effect on our business, financial condition and results of operations.
RISKS RELATED TO FINANCING THE CONSTRUCTION AND DEVELOPMENT OF THE FACILITIES
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED AS A RESULT OF THE
RISKS ASSOCIATED WITH ACQUISITIONS OF FUNCTIONAL PLANTS. IN PARTICULAR, WE MAY
NOT SUCCEED IN EFFECTIVELY INTEGRATING SUCH ACQUISITIONS.
As part of our business strategy, we may make acquisitions of existing
functional plants or of companies owning such plants. We evaluate the tactical
or strategic opportunity available related to acquiring existing renewable fuel
plants or companies owning such plants. The process of integrating an acquired
company's business into our operations, may result in unforeseen operating
difficulties and large expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of our
business. Other risks commonly encountered with acquisitions include the effect
of the acquisition on our financial and strategic position and reputation, the
failure of the acquired business to further our strategies, the inability to
successfully integrate or commercialize acquired production facilities or
otherwise realize anticipated synergies or economies of scale on a timely basis,
and the potential impairment of acquired assets. Moreover, there can be no
assurance that the anticipated benefits of any acquisition or investment will be
realized. Future acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities, and
amortization expenses related to intangible assets, any of which could have a
material adverse effect on our operating results and financial condition.
WE WILL HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH MAY ADVERSELY
AFFECT OUR CASH FLOW AND OUR ABILITY TO OPERATE OUR BUSINESS.
In order to implement our business plan, we expect to have a substantial
amount of indebtedness which will result in substantial debt service
requirements, which could have important adverse consequences that could hinder
our ability to conduct our operations, including our ability to: (i) incur
additional indebtedness; (ii) make capital expenditures; (iii) make
distributions to shareholders, or redeem or repurchase shares; (iv) make certain
types of investments or acquisitions; (v) create liens on our assets; and (vi)
merge or consolidate or dispose of assets.
A large amount of indebtedness will reduce the funds available to us for
operations because a substantial portion of our operating cash flow will be used
to pay interest and principal on debt subject all or substantially all of our
operating subsidiaries' assets to liens, limit our ability to adjust to changing
market conditions, which could make us more vulnerable to a downturn in the
economy, the ethanol/bio-diesel industry or our business. We cannot be certain
that our earnings will be sufficient to allow us to pay the principal and
interest on our debt and meet our other obligations. If we do not have enough
money to service our debt, we may be unable to refinance all or part of our
debt, sell assets, borrow more money or raise equity on terms acceptable to us,
if at all, in order to meet our obligations. Furthermore, if we breach any of
the covenants or undertakings in our loan agreements, a lender could require us
to immediately repay all loans made by them to us, plus penalties, and they
would be entitled to exercise the remedies available to them under our loan
agreements, which may include the enforcement of liens against all of our
assets. This would have a material adverse effect on our company and may cause
us to cease our operations.
20
OUR INABILITY TO OBTAIN THE DEBT FINANCING NECESSARY TO CONSTRUCT AND
OPERATE OUR PLANNED PRODUCTION FACILITIES COULD RESULT IN THE FAILURE OF THOSE
PROJECTS.
Our financing plan requires a significant amount of debt financing. The
amount and nature of the debt financing that we will be seeking will be subject
to fluctuating interest rates and an ever-evolving credit environment as well as
general economic factors and other factors over which we have no control. The
construction and start-up of each facility is contingent on our ability to
arrange debt financing from third party financing sources. If the debt financing
we need is not available for any reason, we could be forced to abandon one or
more of our projects which singularly or in the aggregate could adversely impact
our business and could force us to abandon our business plan.
RISKS RELATED TO OWNERSHIP OF OUR SHARES
THE PRICE OF OUR SHARES HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH
COULD RESULT IN SUBSTANTIAL LOSSES FOR INDIVIDUAL SHAREHOLDERS.
The market price of the Company's ordinary shares during 2008 ranged
between a high sales price of $ 1.09 and a low sales price of $ 0.02 and may
continue to be highly volatile and subject to wide fluctuations in response to
factors including the following, some of which are beyond the Company's control:
o actual or anticipated variations in the Company's quarterly operating
results;
o announcements or new pricing practices by the Company or its
competitors;
o changes in government regulations relating to the construction of our
production facilities and the production of our products;
o results of regulatory inspections;
o changes in earnings estimates or recommendations by research analysts
who might follow us or other companies in our industry;
o announcements by the Company or its competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o additions or departures of key personnel; and
o sales of additional ordinary shares.
21
In addition, the stock market in general has from time to time experienced
extreme price and volume fluctuations. These broad market fluctuations may
adversely affect the market price of the Company's ordinary shares, regardless
of the Company's actual operating performance.
OUR ISSUING OF ADDITIONAL SHARES WILL DILUTE OR OTHERWISE LIMIT YOUR VOTING
OR ECONOMIC RIGHTS.
To enable us to plan, construct, develop and/or operate each of the
production facilities, we expect to seek additional equity financing, which
would cause dilution to the holders of our shares, and a reduction in their
voting and equity interests. It is currently anticipated that in the first two
phases of our business plan, in which we intend to construct a blending terminal
and acquire the majority interest in two separate ethanol production facilities,
we will seek to raise approximately $73 million through equity. Shareholders do
not have any preemptive rights with regard to shares to be issued by us in the
future in connection with any such additional equity financing. If we sell
additional shares, the sale price of those shares could be higher or lower than
the price per share of the Company's shares prior to the Arrangement. In
addition, it is likely that we will issue in the future options to purchase
additional shares of the Company, to attract, retain and reward our key
directors, managers, employees, consultants and service providers, an act that
would be dilutive to all existing shareholders. We may also decide to pay in
kind all or a portion of the purchase price of the land underlying our land
options by issuing shares or other securities.
CONCENTRATION OF OWNERSHIP OF THE COMPANY'S SHARES MIGHT LOWER THEIR
TRADING VOLUME.
RACA, the Company's principal shareholder, owns approximately 84% of our
outstanding shares and the shares held by MAC are restricted securities under
U.S. securities laws. This concentration of ownership may result in low trading
volumes of our shares which could adversely affect our shareholders' ability to
sell their shares in the short term period or at all.
RACA, THE COMPANY'S PRINCIPAL SHAREHOLDER, EXERTS SIGNIFICANT INFLUENCE
OVER US AFTER THE CONSUMMATION OF THE ARRANGEMENT. ITS INTERESTS MAY NOT
COINCIDE WITH YOURS AND IT MAY MAKE DECISIONS WITH WHICH YOU MAY DISAGREE.
RACA, the Company's principal shareholder owns approximately 84% of our
outstanding shares. As a result, RACA controls substantially all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change in control of our company and make some
transactions more difficult or impossible without the support of MAC. The
interests of MAC may not always coincide with our interests as a company or the
interest of other shareholders. Accordingly, MAC could cause us to enter into
transactions or agreements that you would not approve or make decisions with
which you may disagree.
22
OUR ORDINARY SHARES ARE TRADED OVER THE COUNTER, WHICH MAY DEPRIVE
STOCKHOLDERS OF THE FULL VALUE OF THEIR SHARES.
Our ordinary shares are quoted via the Over The Counter Bulletin Board
(OTCBB). As such, our ordinary shares may have fewer market makers, lower
trading volumes and larger spreads between bid and asked prices than securities
listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock
Market. These factors may result in higher price volatility and less market
liquidity for the ordinary shares.
A LOW MARKET PRICE MAY SEVERELY LIMIT THE POTENTIAL MARKET FOR OUR ORDINARY
SHARES.
Our ordinary shares are currently trading at a price substantially below
$5.00 per share, subjecting trading in the stock to certain SEC rules requiring
additional disclosures by broker-dealers. These rules generally apply to any
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions (a "penny stock"). Such rules require the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and institutional or wealthy investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotations for
the penny stock and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Such information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to the customer.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stock. The additional burdens imposed upon broker-dealers by such requirements
could discourage broker-dealers from effecting transactions in our ordinary
shares.
WE MAY NOT EVER DISTRIBUTE DIVIDENDS.
The Company has not paid cash dividends on its ordinary shares in the past
and has no plans to pay such dividends in the future. However, the Company does
not rule out the possibility of paying such dividends in the future in the
appropriate circumstances. An investor should not rely on an investment in the
Company if such investor requires dividend income; the only return that such
investor may receive may come from the appreciation, if any, in the value of the
Company's ordinary shares. In determining whether to pay dividends, the
Company's Board of Directors will consider many factors, including its earnings,
capital requirements and financial condition. In addition, under Israeli law,
the Company may only pay cash dividends from its retained earnings, if any, as
calculated under Israeli law.
RISKS RELATED TO GOVERNMENT REGULATION
THE UNITED STATES RENEWABLE FUELS INDUSTRY IS HIGHLY DEPENDENT UPON A
MYRIAD OF FEDERAL AND STATE LEGISLATION AND REGULATIONS, AND ANY CHANGES IN
LEGISLATION OR REGULATIONS COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
23
The elimination of or significant reduction in federal ethanol and bio-diesel
tax incentives could have a material adverse effect on our results of operations
and financial condition. The cost of production of ethanol and bio-diesel is
made significantly more competitive with regular gasoline by federal tax
incentives. Before January 1, 2005, the federal excise tax incentive program
allowed gasoline distributors who blended ethanol with gasoline to receive a
federal excise tax rate reduction for each blended gallon they sold while there
was no credit for bio-diesel blends. If the fuel was blended with 10% ethanol,
the refiner/marketer paid $0.052 less tax per gallon of blended fuel, which
equated to an incentive of $0.52 per gallon of ethanol. The $0.52 per gallon
incentive for ethanol was reduced to $0.51 per gallon in 2005 and a refund
system was created for bio-diesel, allowing an incentive of $0.50 per gallon of
bio-diesel. Unless otherwise extended, the refund system for ethanol and
bio-diesel will expire at the end of 2010 (2008 in the case of bio-diesel). We
cannot provide you with any assurance that the federal tax incentives will be
renewed in 2010, or if renewed, on what terms they will be renewed. The
elimination or any significant reduction in the federal tax incentives may have
a material adverse effect on our results of operations and financial condition.
The effect of the Renewable Fuels Standard, or RFS, in the recent U.S.
Energy Policy Act of 2005 is uncertain. The use of fuel oxygenates, including
ethanol, was mandated through government regulations, and much of the forecasted
growth in demand for ethanol was expected to result from additional mandated use
of oxygenates. The Energy Policy Act of 2005, or the Energy Policy Act, however,
eliminated the mandated use of oxygenates and established minimum nationwide
levels of renewable fuels, including ethanol to be included in gasoline. The
Energy Policy Act also included provisions for trading of credits for use of
renewable fuels. We can provide no assurance that the favorable ethanol
provisions in the Energy Policy Act will not be adversely affected by
regulations or the enactment of additional legislation in the future.
FEDERAL REGULATIONS CONCERNING TAX INCENTIVES COULD EXPIRE OR CHANGE WHICH
COULD REDUCE OUR REVENUES.
The U.S. federal government presently encourages ethanol and bio-diesel
production by taxing it a lower rate. This currently equates to a $0.51 per
gallon subsidy of ethanol and $0.50 per gallon subsidy of bio-diesel. Some
states and cities provide additional incentives. The Energy Policy Act of 2005
effectively mandates increases in the amount of annual ethanol and bio-diesel
consumption in the United States. The result is that the ethanol/bio-diesel
industry's economic structure is highly dependent on government policies.
Although current policies are favorable factors, any major change in federal
policy, including a decrease in ethanol/bio-diesel production incentives, would
have significant adverse effects on our proposed plan of operations and cause us
to discontinue our ethanol/bio-diesel business.
There is disagreement in the scientific community about the wisdom of
policies encouraging ethanol/bio-diesel production, which could result in
changes in governmental policies concerning ethanol.
Some past studies have challenged whether ethanol is an appropriate source
of fuel and fuel additives because of concerns about energy efficiency,
potential health effects, cost and impact on air quality. Federal energy policy,
as set forth in the Energy Policy Act of 2005, strongly supports ethanol
production.
24
If a consensus develops that ethanol production does not enhance the
U.S. overall energy policy, our ability to produce and market ethanol could be
materially and adversely affected.
THE COST OF COMPLIANCE AND/OR NON-COMPLIANCE WITH THE EXTENSIVE
ENVIRONMENTAL LAWS AND REGULATIONS THAT APPLY COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
We will be subject to various federal, state and local environmental laws
and regulations, with regards, inter alia, to the construction of the
facilities, and operation of the plants, such as, discharge of materials into
the air, water and ground, the generation, storage, handling, use,
transportation and disposal of hazardous materials. We are required to obtain
permits that must be renewed from time to time to operate our business.
Additionally, compliance with new or amended environmental laws, regulations
and/or permits, or new interpretations of such laws, regulations and/or permits,
could require us to incur significant expense. Such changes in laws, regulations
and/or permits, or increased enforcement by governmental authorities, may have a
material adverse effect on our financial condition. These laws, regulations and
permits may limit our operations, require us to alter our production process or
purchase pollution control equipment, any of which could negatively impact our
business. We may not at all times be in complete compliance with these laws,
regulations and/or permits and we cannot guarantee that we will be successful in
obtaining all permits required to operate our business. A violation of these
laws and regulations or permits can result in significant fines, criminal
sanctions, permit revocations, damages and/or operational shutdowns, all or any
of which may adversely affect our business.
WE MAY BE SUBJECT TO LEGAL ACTIONS BROUGHT BY THIRD PARTIES FOR ACTUAL OR
ALLEGED VIOLATIONS OF CERTAIN OF OUR ENVIRONMENTAL PERMITS OR ENVIRONMENTAL LAWS
AND REGULATIONS.
We also may be subject to legal actions from third parties alleging that we
have an obligation to remediate or respond to an environmental condition or
alleging property damage and/or personal injury resulting from the handling,
producing, storing, transporting, and/or using our raw materials and/or
products. Ethanol and bio-diesel production may produce an odor which may be
objectionable to surrounding residents, and may increase dust in the vicinity of
the plant due to our operations and the transportation of grain to our
facilities and transportation of ethanol, bio-diesel, glycerin and distillers
grains from our facilities. Such activities could subject us to nuisance,
trespass or similar claims by employees of our facilities or property owners or
residents in the vicinity of the plant. The occurrence of events which result in
significant personal injury or damage to property or third parties that is not
fully covered by insurance could have a material adverse impact on our results
of operations and financial condition.
We may be subject to liability for the investigation and cleanup of
environmental contamination at our facilities and/or at off-site properties
where we arrange for the disposal of hazardous materials. If such materials are
disposed of or released at sites that undergo investigation and/or remediation,
we may be responsible under environmental laws for all or part of the costs of
such investigation and/or remediation, and for damages to natural resources. We
may also be subject to related claims by private parties alleging property
damage and/or personal injury due to exposure to hazardous or other materials
at, on, under or from such properties. Some of these matters may require us to
expend significant amounts of money for investigation and/or cleanup or other
costs.
25
AS A RESULT OF THE CLOSING OF THE PLAN WE ARE NO LONGER CONSIDERED A
FOREIGN PRIVATE ISSUER UNDER U.S. SECURITIES LAWS, AND ARE SUBJECT TO BROADER
REPORTING REQUIREMENTS, WHICH MAY PUT A STRAIN ON OUR ACCOUNTING, INTERNAL AUDIT
AND OTHER MANAGEMENT SYSTEMS AND RESOURCES, AND MAY SUBJECT OUR SHAREHOLDERS TO
ADDITIONAL LEGAL REQUIREMENTS.
As a result of the closing of the Plan we are required to comply with
reporting requirements for a domestic company rather than a foreign private
issuer under U.S. securities laws. As a domestic reporting company, the Company
is required to file more detailed reports with the SEC. Furthermore, the
Company's officers and directors will also be subject to certain liabilities
such as the reporting and "short swing" profit recovery provisions contained in
Section 16 of the U.S. Securities Exchange Act, and reporting requirements to
which they are currently exempted, such as the requirement to report their
holdings of the Company's shares.
Since NexGen Bio was a privately held company, we anticipate that we will
need to implement additional financial and management controls, reporting
systems and procedures, implement an internal audit function and hire additional
accounting, internal audit and finance staff in order to prepare our new
management to comply with the financial reporting and other requirements to
which we are or may become subject. If we are unable to accomplish these
objectives in a timely and effective fashion, our ability to comply with our
financial reporting requirements and other rules that apply to reporting
companies could be impaired. Any failure to maintain effective internal controls
could have a material adverse effect on our business, operating results and
share price.
RISKS RELATED TO THE ETHANOL AND BIO-DIESEL INDUSTRY
THE MARKET PRICE OF ETHANOL/BIO-DIESEL IS VOLATILE AND SUBJECT TO
SIGNIFICANT FLUCTUATIONS WHICH MAY CAUSE OUR PROFITABILITY TO FLUCTUATE
SIGNIFICANTLY.
The market prices of ethanol/bio-diesel are influenced by many factors,
including the price of gasoline and diesel and crude oil and the supply of
ethanol/bio-diesel in the market. Oil prices are highly volatile and difficult
to forecast due to frequent changes in global politics and the world economy and
the demand for petroleum-derived products. The supply and demand for oil
throughout the world is affected by incidents in unstable political
environments, the demand for oil from rapidly developing countries such as China
and India, weather conditions, drilling, extraction and refinery technology,
success in exploration, decisions made by OPEC and its member countries,
industrial output and many other factors. We cannot predict the future price of
crude oil or gasoline. Although the market price of ethanol/bio-diesel has
historically tracked the market price of gasoline and diesel, we cannot provide
any assurance that this will continue to occur. Low prices for crude oil,
gasoline and diesel and the relationship between ethanol/bio-diesel supply and
demand may reduce the price of ethanol/bio-diesel to a level that makes it
unprofitable to produce. In recent years, the prices of crude oil, gasoline and
diesel and ethanol/bio-diesel have all reached historically high levels. If the
prices of crude oil, gasoline or diesel were to decline, our revenues and
ultimately our profitability may be adversely affected. Fluctuations in the
market price of ethanol or bio-diesel may cause our profitability to fluctuate
significantly.
26
OUR BUSINESS WILL BE HIGHLY SENSITIVE TO CORN, SOYBEAN OIL AND OTHER
FEEDSTOCK PRICES AND WE GENERALLY WILL NOT BE ABLE TO PASS ON INCREASES IN CORN,
SOYBEAN OIL AND OTHER FEEDSTOCK PRICES TO OUR FUTURE CUSTOMERS.
The principal raw materials we will use to produce ethanol and bio-diesel
and co-products, including dry and wet distiller grains in ethanol plants and
glycerin in bio-diesel plants, will be corn, soybean oil, animal fats and palm
oil or other vegetable oils. We may also use other feedstock. As a result,
changes in the prices of our feedstock can significantly affect our business. In
general, rising feedstock prices result in lower profit margins. For example,
because ethanol and bio-diesel compete with non-corn-based fuels, we generally
will be unable to pass on increased corn costs to our future customers. At
certain levels, feedstock prices may make ethanol and bio-diesel uneconomical to
use in fuel markets. The prices of feedstock are influenced by many factors
including world supply and demand, weather conditions, crop yields, farmer
planting decisions and general economic, market and regulatory factors and
subsidies with respect to agriculture. The significance and relative effect of
these factors on the price of our feedstock is difficult to predict. Any event
that tends to negatively affect the supply of our feedstock, such as adverse
weather or crop disease, could increase our feedstock prices and potentially
harm our future business. In addition, we may also have difficulty, from time to
time, in physically sourcing feedstock on economical terms due to supply
shortages. Such a shortage could require us to suspend operations until
feedstock is available at economical terms, which would have a material adverse
effect on our business, results of operations and financial position. If an
additional ethanol/bio-diesel production facility is built in the same general
vicinity as where we intend to build our facilities, the price we pay for our
feedstock at a facility could increase and the local supply of the feedstock be
reduced, which may result in increased costs and reduced profits.
THE SPREAD BETWEEN ETHANOL/BIO-DIESEL AND THE PRICES OF DOMESTIC RENEWABLE
RESOURCES CAN VARY SIGNIFICANTLY AND WE DO NOT EXPECT THE SPREAD TO REMAIN AT
RECENT HIGH LEVELS WHICH COULD MATERIALLY ADVERSELY IMPACT OUR GROSS MARGINS.
Our gross margins will be principally dependent on the spread between
ethanol/bio-diesel and the prices of the renewable resources used in their
production (such as corn, soybean, animal fats and palm oils). In the past, this
spread fluctuated widely and we cannot provide any assurance that fluctuations
in this spread will not continue to occur. In recent periods, the spread between
ethanol/bio-diesel and the renewable resources prices reached historical levels.
Any reduction in the spread between ethanol/bio-diesel and renewable resources
prices, whether as a result of an increase in corn, soybean, animal fats or palm
oil prices or a reduction in ethanol/bio-diesel prices, would adversely affect
our results of operations and financial condition.
27
WE MAY ENGAGE IN HEDGING TRANSACTIONS WHICH INVOLVE RISKS THAT CAN HARM OUR
BUSINESS.
In an attempt to partially offset the effects of the volatility of
ethanol/bio-diesel prices and feedstock costs, we may take hedging positions in
order to limit our exposure to commodity price fluctuations. These may include
(i) purchasing feedstock through spot cash, fixed-price forward and delayed
pricing contracts, (ii) utilizing hedging positions in the corn, soybean oil,
animal fats and palm oil futures and options markets on the Chicago Board of
Trade, or CBOT, to manage the risk of corn, soybean oil, animal fats or palm oil
price fluctuations, (iii) entering into contracts to supply a portion of our
ethanol or bio-diesel production on a forward basis and, in connection with our
feedstock hedging positions, to lock in specific "crush" margins for a portion
of our feedstock requirements, and (iv) establishing from time to time an
unleaded gasoline/NYMEX RBOB/diesel hedge position using futures to reduce our
exposure to unleaded gasoline and diesel price risk. The financial impact of
these activities is dependent upon, among other things, the commodity futures
prices involved and our ability to sell sufficient products to use all of the
feedstock for which we have futures contracts. Hedging arrangements also expose
us to the risk of financial loss in situations where the other party to the
hedging contract defaults or, in the case of physical contracts, where there is
a change in expected differential of an open position and the underlying price
in the hedging agreement affecting the actual prices paid or received by us.
Hedging activities can themselves result in losses when a position is purchased
in a declining market or a position is sold in a rising market. A hedge position
often settled in the same time frame as the physical commodity, is either
purchased, as in the case of corn, soybean oil, animal fats or palm oil, and
natural gas, or sold as in the case of ethanol or bio-diesel. Hedging losses may
be offset by a decreased cash price for corn, soybean oil, animal fats and palm
oil, and an increased cash price for ethanol and bio-diesel. We may also vary
the amount of hedging or other risk mitigation strategies we undertake, and we
may choose not to engage in hedging transactions at all. Our hedging activities
may cause us to forego additional future profits or result in our making cash
payments.
SINCE THE PRODUCTION OF ETHANOL/BIO-DIESEL REQUIRES A SIGNIFICANT SUPPLY OF
WATER AND ELECTRICITY, OUR BUSINESS WILL BE MATERIALLY HARMED IF WE ARE UNABLE
TO OBTAIN AN ADEQUATE QUALITY AND QUANTITY OF WATER AND ELECTRICITY.
Our facilities will require a significant and uninterrupted supply of water
and electricity to operate. We anticipate that we will enter into arrangements
with local electric companies and municipalities to provide our supply of
electricity and water. However, there can be no assurances that, with respect to
water, we will be able to reach definitive agreements for our water supply. In
the event that we do not reach definitive agreements for our water supply, we
may be required to expend significant amounts to drill wells and to provide for
the necessary infrastructure for such well water to reach our planned
facilities. In addition, there are no assurances that such water will be of an
adequate quality. If the water quality from any of these sources is not
adequate, we may, at greater cost to us, need to treat the water or find other
sources. In addition, there can be no assurances that the water and electricity
companies will be able to reliably supply the water and electricity that we need
at any of our facilities or that back-up water wells that we may build will be
adequate to sustain production over an extended period of time. If there is an
interruption in the supply of water or electricity for any reason, which may
include natural disasters, we might be required to halt production. If
production is halted for an extended period of time, or there is any
interruption in the quantity or quality of our water or electricity, it may have
a material adverse effect on our operations, cash flows and financial
performance.
28
THE TRANSPORTATION OF FEEDSTOCK TO US AND OF ETHANOL/BIO-DIESEL TO OUR
CUSTOMERS WILL BE AFFECTED BY BUSINESS RISKS THAT ARE LARGELY OUT OF OUR
CONTROL, ANY OF WHICH COULD SIGNIFICANTLY REDUCE OUR REVENUES AND OPERATING
MARGINS.
The operation of our facilities will depend on our ability to receive
adequate amounts of feedstock (over and above our storage capability) in a
timely manner and our failure to receive sufficient feedstock could have a
material adverse effect on our production, revenues and results of operations.
We anticipate purchasing corn, soybean oil, animal fats and other feedstock from
states in the U.S. Midwest, to be delivered to us by rail and truck. We will
rely on third parties to transport feedstock to us and our ethanol/bio-diesel to
our customers. The transportation companies with whom we contract may be subject
to risks that are largely out of their and our control, including weather,
limitations on capacity in the transportation industry, security measures, fuel
prices, taxes, license and registration fees, and insurance premiums. In
addition, to the extent we will rely upon delivery by trains and trucks of
feedstock to us and ethanol/bio-diesel to our customers, we may be affected by
any overall shortage of rail road service or truck drivers caused by the Hazmat
Threat Assessment Program implemented under the US Patriot Act or any other
security measures instituted as a result of the threat of terrorism. This
shortage may result in increased shipping costs or delays in transport, which
could adversely affect our production and profits.
WORK STOPPAGES AND OTHER LABOR RELATIONS ISSUES COULD RESULT IN DECREASED
SALES OR INCREASED COSTS, EITHER OF WHICH WOULD NEGATIVELY IMPACT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATION.
We do not anticipate that our employees will be unionized. However, while
we believe that our relations with employees will be satisfactory, any prolonged
work stoppage or strike could have a negative impact on our business, financial
condition or results of operations. In addition, our suppliers, contractors or
other third parties associated with the construction of our facilities or the
operation of our business may have unionized work forces. A labor strike, work
stoppage or slowdown by unionized employees could halt or slow the construction
of our facilities or the production, transportation or sale of our products,
which could increase our costs and have a significant adverse impact on our
operations.
NATURAL DISASTERS, SUCH AS FIRES, HURRICANES, FLOODS, UNUSUALLY HEAVY OR
PROLONGED RAIN AND DROUGHTS MAY CAUSE FLUCTUATIONS IN THE PRICE, AVAILABILITY
AND QUALITY OF SUPPLIES, LABOR AND RAW MATERIALS WHICH COULD RESULT IN
PRODUCTION DELAYS AND INCREASE COSTS CAUSING A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
29
Fluctuations in the price, availability and quality of supplies, labor, and
raw materials that we need in order to produce, transport and sell
ethanol/bio-diesel could have a material adverse effect on our construction,
cost of sales or ability to meet our customers' demands. The price and
availability of such supplies, labor, and raw materials may fluctuate
significantly, depending on many factors, including natural disasters, such as
fires, hurricanes, floods, unusually heavy or prolonged rain, and droughts
natural resources. These events can also cause increased freight costs.
OUR BUSINESS WILL BE SUBJECT TO SEASONAL FLUCTUATIONS, WHICH COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL POSITION.
Our operating results will be influenced by seasonal fluctuations in the
price of our primary operating inputs such as corn, soybean oil, animal fats and
palm oil, and the price of our primary products, ethanol and bio-diesel. In
addition, ethanol and bio-diesel prices are substantially correlated with the
price of unleaded gasoline and diesel. The price of unleaded gasoline and diesel
tends to be highest in the summer and winter months. Given our lack of operating
history, we do not know yet how these seasonal fluctuations will affect our
results over time.
WE WILL BE DEPENDENT ON OTHERS FOR THE SALE OF OUR PRODUCTS.
As is customary in the ethanol/bio-diesel industry, we intend to sell
ethanol/bio-diesel and their by-products through strategic alliance partners or
marketing firms as opposed to maintaining our own sales force. As such, we will
be highly dependent on third parties to sell our products. Such third parties
may not have exclusive contracts with us and therefore may put the interests of
their other customers, which may be competitors to us, ahead of our interests.
WE WILL OPERATE IN A COMPETITIVE INDUSTRY AND COMPETITION MAY NEGATIVELY
IMPACT OUR PROFITABILITY.
We will be in competition with numerous other ethanol/bio-diesel producers,
some of whom may have greater resources than we do. Additional
ethanol/bio-diesel producers may enter the market if the demand for
ethanol/bio-diesel increases and existing producers may increase the capacity of
their current plants or build new ethanol/bio-diesel production facilities. The
largest ethanol/bio-diesel producers in the United States include
Archer-Daniel-Midland Company, VeraSun Energy Corporation, Hawkeye Holdings,
Inc., Aventine, Cargill, Inc. and Abengoa Bioenergy Corp., all of which are
capable of producing as much or more ethanol/bio-diesel than we expect to
initially produce.
We also face increasing competition from international suppliers of
ethanol/bio-diesel. According to the Renewable Fuel Association, or RFA, Brazil
is currently the world's second largest producer and exporter of
ethanol/bio-diesel. In Brazil, ethanol/bio-diesel is produced primarily from
sugarcane, which is also used to produce food-grade sugar. Brazil experienced a
dramatic increase in ethanol/bio-diesel production and trade in 2006, exporting
several million gallons to the U.S. alone. Ethanol/bio-diesel imported from
Brazil may be a less expensive alternative to U.S. domestically produced
ethanol, which is primarily made from corn. For example, the current $0.54 per
gallon import duty imposed on Brazilian ethanol may be reduced in the future.
Competition from ethanol/bio-diesel imported from Brazil may affect our ability
to sell our ethanol/bio-diesel profitably, which would reduce the value of your
shares.
30
Lastly, ethanol/bio-diesel is not the only product that can be added to
gasoline to reduce emissions and increase octane levels. Oil companies have
historically used methyl tertiary butyl ether, or MTBE, as a fuel additive to
reduce emissions, and although the use of MTBE has been limited or banned in 25
states in the U.S. due to potentially adverse environmental effects from its
production, it is still used by several major oil companies in some markets.
Alternatives to ethanol/bio-diesel and MTBE are continually under development
and existing alternatives, such as alkylates and ethyl tertiary butyl ether, or
ETBE, may become more cost effective. Our competitors may be able to
successfully develop and market alternatives to ethanol/bio-diesel which could
adversely affect our business and results of operations.
NEW PLANTS UNDER CONSTRUCTION OR DECREASES IN THE DEMAND FOR ETHANOL OR
BIO-DIESEL MAY RESULT IN EXCESS PRODUCTION CAPACITY IN OUR INDUSTRY CAUSING A
MATERIAL ADVERSE EFFECT ON OUR REVENUES AND PROFITABILITY.
According to the Renewable Fuels Association of the U.S. Energy Information
Administration, domestic ethanol production capacity has increased steadily from
1.77 BGY (or billion gallons per year) in 2001 to an annualized rate of
approximately 7.8 BGY in 2007. In addition, 2007 closed with 68 bio-refineries
under construction or expending in the U.S. that are expected to add 4 billion
gallons of new production capacity by 2008. According to the U.S. National
Bio-diesel Board, there are 101 bio-diesel production plants under construction
or expansion as of June 2007 representing a total potential production of 1.89
BGY. Excess capacity in the ethanol and bio-diesel industries would have an
adverse impact on our results of operations, cash flows and financial condition.
In a manufacturing industry with excess capacity, producers have an incentive to
manufacture additional products for so long as the price exceeds the marginal
cost of production. This incentive can result in the reduction of the market
price of ethanol/bio-diesel to a level that is inadequate to generate sufficient
cash flow to cover our costs. In addition, increased production of
ethanol/bio-diesel could result in increased demand for corn, soybean oil,
animal fats, palm oil or other feedstock. This could result in higher prices for
corn, soybean oil, animal fats, palm oil and other feedstock and cause higher
ethanol/bio-diesel production costs and, in the event that we are unable to pass
increases in the price of corn or other feedstock to our customers, would result
in lower profits. Excess capacity may also weaken pricing for wet distiller
grains with solubles, known as WDGS, or dry distiller grains with solubles,
known as DDGS, an ethanol co-product we intend to produce and sell to local
feedyards and feed lots. Any material decline in the price of ethanol, WDGS or
DDGS will adversely affect our revenues and results of operations.
Excess capacity may result or intensify from increases in capacity coupled
with insufficient demand. Demand could be impaired due to a number of factors,
including regulatory developments and reduced U.S. gasoline and diesel
consumption. Reduced gasoline and diesel consumption could occur as a result of
increased prices for gasoline and diesel or crude oil.
For example, price increases could cause businesses and consumers to reduce
driving or acquire vehicles with more favorable gasoline mileage. There is some
evidence that this has occurred in the recent past as U.S. gasoline prices have
increased.
31
DEVELOPMENT OF ALTERNATIVE ETHANOL OR BIO-DIESEL PRODUCTION SYSTEMS OR
ALTERNATIVE FUELS COULD AFFECT OUR RESULTS OF OPERATIONS.
Alternative fuels and gasoline and diesel oxygenates production methods are
continually under development. A number of automotive, industrial and power
generation manufacturers are developing more efficient engines, hybrid engines
and alternative clean power systems using fuel cells or clean burning gaseous
fuels. Vehicle manufacturers are working to develop vehicles that are more fuel
efficient and have reduced emissions using conventional gasoline. Vehicle
manufacturers have developed and continue to work to improve hybrid technology,
which powers vehicles by engines that utilize both electric and conventional
gasoline fuel sources. The emerging fuel cell industry may offer a technological
option to address increasing worldwide energy costs, the long-term availability
of petroleum reserves and environmental concerns. Fuel cells have emerged as a
potential alternative to certain existing power sources because of their higher
efficiency, reduced noise and lower emissions. Fuel cell industry participants
are currently targeting the transportation, stationary power and portable power
markets in order to decrease fuel costs, lessen dependence on crude oil and
reduce harmful emissions. If the fuel cell and hydrogen industries continue to
expand and gain broad acceptance, and hydrogen becomes readily available to
consumers for motor vehicle use, we may not be able to compete effectively. This
additional competition could reduce the demand for ethanol or bio-diesel, which
would negatively impact our profitability.
In addition, many of our competitors invest heavily in research and
development of alternative ethanol or bio-diesel production systems and
alternative fuels. Our inability to meet the substantial capital investments
required to remain technologically competitive could result in our competitors
being able to produce ethanol or bio-diesel more cost effectively or produce
less expensive alternative fuels, which could adversely affect the demand for
our production. These events could have a material adverse effect on our
business.
CORN-BASED ETHANOL MAY COMPETE WITH CELLULOSE-BASED ETHANOL IN THE FUTURE,
WHICH COULD MAKE IT MORE DIFFICULT FOR US TO PRODUCE ETHANOL ON A COST-EFFECTIVE
BASIS AND COULD REDUCE THE VALUE OF YOUR INVESTMENT.
Most ethanol is currently produced from corn and other raw grains, such as
milo or sorghum (especially in the United States Midwest). The current trend in
ethanol production research is to develop an efficient method of producing
ethanol from cellulose-based biomass such as agricultural waste, forest residue,
municipal solid waste, and other biomass material. This trend is driven by the
fact that cellulose-based biomass is generally cheaper to obtain than corn and
that the use of cellulose-based biomass to produce ethanol would create
opportunities to locate plants and produce ethanol in areas that are not
suitable to grow corn in significant amounts. Although the current technology
for converting cellulose-based biomass to ethanol is not sufficiently efficient
to be competitive with ethanol produced from corn, a report by the U.S.
Department of Energy entitled "Outlook for Biomass Ethanol Production and
Demand" indicates that new conversion technologies may be developed in the
future. If an efficient method of producing ethanol from cellulose-based biomass
is developed, we may not be able to compete effectively. Our facilities will not
be equipped to convert cellulose-based biomass into ethanol, and to convert our
facilities to be able to process cellulose-based ethanol would require
significant additional capital investments. If we are unable to produce ethanol
as cost-effectively as cellulose-based producers, our ability to generate
revenue will be negatively impacted and your shares could lose value.
32
CONSUMER RESISTANCE TO THE USE OF ETHANOL OR BIO-DIESEL, WHICH MAY BE BASED
ON THE BELIEFS THAT ETHANOL IS EXPENSIVE, ADDS TO AIR POLLUTION, HARMS ENGINES
OR TAKES MORE ENERGY TO PRODUCE THAN IT CONTRIBUTES, MAY AFFECT THE DEMAND FOR
ETHANOL AND BIO-DIESEL.
Certain individuals believe that the use of ethanol/bio-diesel will
increase consumer gasoline prices such as at gas stations. Some also believe
that ethanol/bio-diesel adds to air pollution and harms car and truck engines.
Still other consumers believe that the process of producing ethanol/bio-diesel
actually uses more fossil energy, such as oil and natural gas, in relation to
the amount of ethanol/bio-diesel that is produced and its benefits. These
consumer beliefs could potentially be wide-spread. If consumers choose not to
buy ethanol/bio-diesel, it would affect the demand for our products and
negatively affect our profitability and financial condition.
THE EXPANSION OF DOMESTIC ETHANOL AND BIO-DIESEL PRODUCTION IN COMBINATION
WITH STATE BANS ON MTBE AND/OR STATE RENEWABLE FUELS STANDARDS MAY BURDEN RAIL
AND TERMINAL INFRASTRUCTURE, RAISING THE COST OF OUR SHIPMENT TO BLENDING
TERMINALS.
If the volume of ethanol/bio-diesel shipments continues to increase and
blenders switch from MTBE to ethanol and bio-diesel, there may be weaknesses in
infrastructure such that our ethanol/bio-diesel cannot reach its target markets.
Many terminals may need to make infrastructure changes to blend
ethanol/bio-diesel instead of MTBE. If the blending terminals do not have
sufficient capacity or the necessary infrastructure to make the switch, there
may be an oversupply of ethanol/bio-diesel in the market, which could depress
ethanol/bio-diesel prices and negatively impact our financial performance. In
addition, rail infrastructure may be inadequate to meet the expanding volume of
ethanol/bio-diesel shipments, which could prevent us from shipping our products
to our target markets.
Substantial development of infrastructure will be required for our
operations and the ethanol/bio-diesel industry generally, to grow. Areas
requiring expansion include, but are not limited to additional rail capacity,
additional storage facilities for ethanol/bio-diesel, increases in truck fleets
capable of transporting ethanol/bio-diesel within localized markets, expansion
of refining and blending facilities to handle ethanol/bio-diesel, and growth in
service stations equipped to handle ethanol/bio-diesel.
There is no assurance that the substantial investments required for these
infrastructure changes and expansions will be made or that they will be made on
a timely basis. Any delay or failure in making the changes to or expansion of
infrastructure could hurt the demand or prices for our products, impede our
delivery of products, impose additional costs on us or otherwise have a material
adverse effect on our results of operations or financial position. Our business
is dependent on the continuing availability of infrastructure and any
infrastructure disruptions could have a material adverse effect on our business.
33
ETHANOL CAN BE IMPORTED DUTY FREE FROM CERTAIN COUNTRIES INTO THE UNITED
STATES, WHICH MAY UNDERMINE THE ETHANOL INDUSTRY IN THE UNITED STATES.
Ethanol can be imported into the U.S. duty-free from some countries, which
may negatively affect the ethanol industry in the U.S. and our operations.
Imported ethanol is generally subject to a $0.54 per gallon tariff that was
designed to offset the $0.51 per gallon ethanol incentive available under the
federal excise tax incentive program for refineries that blend ethanol in their
fuel. A special exemption from the tariff exists for ethanol imported from 24
countries in Central America and the Caribbean, which is limited to a total of
7% of the previous year's U.S. production per year. Imports from the exempted
countries may increase as a result of new plants under development in such
countries and also due to increased domestic production. In addition, reductions
in the tariff currently applicable to ethanol imports from countries other than
those in Central America and the Caribbean that qualify for the exemption, or
increases in the percentage of ethanol that may be imported from Central America
and the Caribbean on a duty-free basis, may result in more ethanol from
countries having a lower cost of production than the United States being
imported into the U.S. An increase in such imported ethanol could adversely
affect the demand for domestically-produced ethanol and the price at which we
will be able to sell our ethanol.
COMPETITION FOR QUALIFIED PERSONNEL IN THE ETHANOL AND BIO-DIESEL
INDUSTRIES IS INTENSE AND MAY PREVENT US FROM HIRING AND RETAINING QUALIFIED
PERSONNEL TO OPERATE OUR PRODUCTION PLANTS.
Our success will depend in part on our ability to attract and retain
competent personnel. For each of our plants, we must hire qualified managers,
engineers, operators and other personnel, which can be challenging in the rural
communities in which our facilities will be located. Competition for both
managers and plant employees in the ethanol and bio-diesel industries is
intense, and we may be unable to attract and retain qualified personnel. If we
are unable to hire and retain productive and competent personnel, the
implementation of our business plan may be adversely affected, the amount of
ethanol/bio-diesel we produce may decrease and we may not be able to efficiently
operate our production plants and execute our business strategy.
CHANGES IN SPECIFICATION STANDARDS FOR BIO-DIESEL FUEL MAY INCREASE
PRODUCTION COSTS OR REQUIRE ADDITIONAL CAPITAL EXPENDITURES TO UPGRADE AND/OR
MODIFY OUR BIO-DIESEL FACILITY TO MEET THEM. SUCH UPGRADES AND/OR MODIFICATIONS
MAY ENTAIL DELAYS IN OR STOPPAGES OF PRODUCTION.
The American Society of Testing and Materials (ASTM) is the recognized
standard-setting body for fuels and additives in the United States. ASTM's
specification for pure bio-diesel (to be used in blends of up to 20% with diesel
fuel), ASTM D 6751, has been adopted by the Environmental Protection Agency, and
compliance is required in order for our bio-diesel to qualify as a legal motor
fuel for sale and distribution. ASTM has modified its D 6751 specification in
the past, and is expected to continue to modify the specification in the future
as the use of and experience with bio-diesel expands. There is no guarantee that
our future production facility will be able to produce compliant bio-diesel fuel
in the event of changes to the specification. We may need to invest significant
capital resources to upgrade or modify our future bio-diesel facility, which
might cause delays in or stoppages of production and the resultant loss of
revenues, or which might not be economically feasible at all. Any modifications
to the production facility or to the bio-diesel specifications may entail
increased production costs or reduced production capacity. These consequences
could result in a negative impact on our financial performance.
34
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
A. Land purchase options
The following table sets forth information concerning NexGen's land
purchase options as of March 31, 2009, WE ARE NOT PLANNING TO RENEW THE OPTIONS
UNTIL MARKET CONDITIONS IMPROVE FOR ETHANOL/BIODIESEL:
INTENDED TYPE OF SIZE OF LAND OPTION EXPIRATION
LOCATION OF LAND SITE FACILITY (ACRES) DATE PURCHASE PRICE
- --------------------- ------------------- ------------- ----------------------- ------------------
Arkansas Ethanol 407 EXPIRED $3,715,300
- --------------------- ------------------- ------------- ----------------------- ------------------
Wisconsin Ethanol 88 EXPIRED $ 800,000
- --------------------- ------------------- ------------- ----------------------- ------------------
Iowa Bio-diesel 15 August 17, 2009 $ 337,500
- --------------------- ------------------- ------------- ----------------------- ------------------
Ohio Ethanol 72 EXPIRED $1,440,000
- --------------------- ------------------- ------------- ----------------------- ------------------
Indiana Ethanol 160 EXPIRED $4,000,000
- --------------------- ------------------- ------------- ----------------------- ------------------
B. Principal offices
The Company's principal offices are in Tampa, Florida.
In 2007 the Company entered into a three-year lease for 1,250 square feet
of office space in Wesley Chapel, Florida. This lease was terminated on December
31, 2008 and moved to a smaller office at 8909 Regents Park Dr., Suite 210
Tampa, FL 33547.
ITEM 3. LEGAL PROCEEDINGS - LITIGATION
As of the date of this Report, the Company has received a legal notice from
Indiana EPA to its subsidiary Indiana Biofuels, Inc to pay for its permit
application. As it has not received the permit yet, it will pursue the case
shortly.
35
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED MATTERS
Our ordinary shares are quoted in the OTC Bulletin Board ("OTC-BB") under
the symbol "NXGNF". The following table sets forth the high and low sales
prices, of our common stock, as reported by NASDAQ and the OTC-BB, for each
quarter of 2007 and 2008.
2007 HIGH LOW
- ---- ---- ---
First Quarter 1.98 1.12
Second Quarter 2.03 0.92
Third Quarter 1.19 0.80
Fourth Quarter 1.15 0.80
2008 HIGH LOW
- ---- ---- ---
First Quarter 1.09 0.05
Second Quarter 0.79 0.10
Third Quarter 0.30 0.07
Fourth Quarter 0.19 0.02
As of March 2009, the number of shareholders of record was 72 and the
number of beneficial owners of its ordinary shares was approximately 1.
The Company has never paid a cash dividend on its ordinary shares. In the
foreseeable future, the Company intends to retain earnings for use in its
business, but does not rule out the possibility of paying cash dividends in the
appropriate circumstances. Future dividend policy will be determined by the
board of directors, and will depend upon the Company's earnings and financial
condition, capital requirements and other relevant factors, including the impact
of the distribution of dividends on the Company's tax liabilities. Declaration
of any final annual cash dividend requires shareholder approval, which may
reduce but not increase such dividend from the amount proposed by the board.
ITEM 6. SELECTED FINANCIAL DATA (
The following table presents selected consolidated financial and operating
data as of the dates and for the periods indicated. The selected consolidated
balance sheet financial data as of December 31, 2008 and 2007 and the selected
consolidated income statement data and other financial data for the year ended
December 31, 2008 and for the period beginning August 10, 2006 (inception of
development stage) through December 31, 2006 and for the period beginning August
10, 2006 (inception of development stage) through December 31, 2007, have been
derived from our audited consolidated financial statements that are included in
Item 15 in this Form 10-K.Consolidated financial statements as of December 31,
2008 were audited by Barzily&Co Consolidated financial statements as of
December 31, 2007 was audited by Kost, Forer, Gabbay and Kasierer and
consolidated financial statements as of December 31, 2006 were audited by Pender
NewKirk & Company. You should read the following table in conjunction with
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and the accompanying
notes. Among other things, those financial statements include more detailed
information regarding the basis of presentation for the following consolidated
financial data.
36
In accordance with that the Purchase Agreement, on December 31, 2007, the
Company completed the Plan pursuant to which the Company transferred
substantially all of its existing business and assets in the field of
biotechnology and medical devices to Gamida and acquired NexGen Bio's principal
assets in the field of ethanol and bio-diesel fuel production.
The Plan was treated as a reverse merger of the Company for financial
accounting purposes. Accordingly, the historical financial statements of the
Company before the Plan will be replaced with the historical financial
statements of NexGen Bio before the Plan in all future filings that the Company
makes with the SEC, including this Report.
AUGUST 10, 2006
YEAR ENDED DECEMBER 31, (DATE OF INCECPTION)
2008 2007 TO DECEMBER 31, 2008
------------ ------------ ------------
(DOLLAR IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EXPENSES:
Legal and professional $ 468 $ 547 $ 1,220
Salaries expense 478 447 1,120
Travel expense 118 208 391
Loss from expiration of land purchase options
and futures trading 102 129 231
Compensation on shares issuance and options 621 - 621
Other expenses 132 235 405
------------ ------------ ------------
Net loss from operations (1,919) 1,566 (3,974)
Interest expense (14) (63) (84)
Capital gain 4 - 4
------------ ------------ ------------
Net loss $ (1,929) $ (1629) $ (4,054)
============ ============ ============
Basic and diluted loss per share 0.04 0.12 0.04
============ ============ ============
Weighted average number of shares used in
computing basic loss per share to Ordinary
shareholders 42,326,206 41,759,498 34,906,154
============ ============ ============
OTHER FINANCIAL DATA:
Working capital(deficit) (1,033) (247)
Net cash used in operating activities (845) (2,341) (1,345)
Net cash used in investing activities (351) (310) 147
Net cash provided by financing activities 1,148 2,655 1,201
37
BALANCE SHEET DATA:
As of December 31
2007 2006
Dollars in thousands
--------------------
Total assets 93 574
Total equity (deficit) (944) (76)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
NexGen is a development stage company that is currently seeking to develop
and/or acquire ethanol and bio-diesel plants, and blending terminal facilities,
in the United States. Inability to raise funds and the changes in the markets
have caused the company to minimize its activities and this shall have an effect
on the action plan it pursues.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements included in this Report requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments. Management bases its
estimates and judgments on historical experiences and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. We
believe that the application of the following critical accounting policies
entails the most significant judgments and estimates used in the preparation of
our consolidated financial statements:
IMPAIRMENT OF LONG-LIVED ASSETS
Under Statement of Financial Accounting Standard No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," long-lived assets, such as
property and equipment, and purchased intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset group to estimated undiscounted future cash flows
expected to be generated by the asset group. If the carrying amount of an asset
group exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the asset group exceeds
the fair value of the asset group. During the year ended December 31, 2008 and
through December 31, 2007, we have not recorded impairment charges for
long-lived assets.
38
GOING CONCERN PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has incurred
recurring losses from operations and has a net working capital deficiency and
net capital deficiency that raises substantial doubt about its ability to
continue as a going concern. The Report of Independent Registered Public
Accounting Firm included in this Report stated that these conditions, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. Company management intends to raise additional debt and equity
financing to fund future operations and to provide additional working capital.
However, there is no assurance that such financing will be obtained in
sufficient amounts necessary to meet the Company's needs. The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the outcome
of this uncertainty.
PLAN OF OPERATIONS
We intend to plan, develop, construct and/or acquire, own and operate
blending terminal facilities and ethanol and biodiesel plants.
We intend to build 10 million gallon storage and blending terminal in the
U.S.. We intend to blend 10% ethanol with gasoline and distribute E-10 as well
as blending 2% biodiesel with diesel and distribute B-2. This blending process
will create a total throughput of 500 million gallons blending and distribution
capacity per year, based on a weekly 10 million gallon turnover. The terminal
site is located in a strategic site with deep water access enabling the
transport of fuel on barges.
We intend to develop, construct and/or acquire ethanol and biodiesel plants
with aggregate capacity of up to 100 million gallons each. The ethanol plants
will be corn-based dry mill fuel-grade ethanol plants located in Arkansas,
Indiana, Ohio, Wisconsin and other states in the United States. The bio-diesel
plant will use palm and/or soybeans as well as animal fats.
We will not generate any revenues until we acquire an operating plant or,
complete construction of a blending terminal or, complete construction of one of
our plants. We anticipate that our losses will continue to increase until at
least one facility is operational. The construction period for an ethanol plant
is approximately 18 to 24 months. The construction period for a bio-diesel plant
is approximately 12 to 18 months. The construction period for building 10
million gallon storage and blending terminal is approximately 12 months. Our
intention is to start construction on the blending terminal first.
In order to be responsive to changing market conditions in the ethanol and
bio-diesel industries, we will also consider acquiring existing ethanol and
bio-diesel plants rather than constructing new plants, if we are able to make
such acquisitions at favorable enterprise valuations and have access to
reasonable financing terms. Acquired plants may be located in different states
and have different operating characteristics than the plants we propose to
construct. We have executed non binding letters of intent ("LOI's"), which are
expired now, to acquire the majority interest in two separate ethanol production
facilities, which NexGen intends to acquire following receipt of phase-II
financing.
39
We have limited financial resources and are entirely dependent on funds
that will be raised from third party financing sources for working capital
purposes and for the development of the blending terminal, the ethanol and
bio-diesel plants. Our goal is to raise $25 million and $63 million, utilizing
different financial instruments in order to fund the first two phases of our
business.
The following is the estimated breakdown of the sources and uses of such
financing:
PHASE I SOURCE OF FUNDS
Common Equity 40% $ 10,000,000
Long Term Debt 40% $ 10,000,000
Line of credit 20% $ 5,000,000
Total Source of Funds 100% $ 25,000,000
------------
USE OF FUNDS
Design, Construction & Startup
Plant Construction, Control System, etc. $ 12,500,000
Land & Site-Development Cost $ 5,000,000
STARTUP COSTS
Inventory $ 2,500,000
Working Capital $ 2,500,000
Pre-production period costs $ 250,000
Rolling Stock $ 500,000
Fire Protection/Water Supply $ 850,000
$ 6,600,000
ORGANIZATIONAL & FINANCING
Equity/ Debt Raising Costs $ 800,000
Organizational Costs $ 100,000
$ 900,000
Total Use of Funds $ 25,000,000
------------
Phase II SOURCE OF FUNDS
Common Equity $ 63,000,000
------------
USE OF FUNDS
Ethanol Plant acquisitions
Plant I $32,000,000
Plant II $20,000,000
Working Capital $ 6,000,000
Fees and other Costs $ 5,000,000
Total Use of Funds $ 63,000,000
------------
40
If we elect to commence operations by constructing new plants rather than
acquiring existing plants, our source and use of funds and timeline to bring the
plants to production will be different.
PLAN OF OPERATIONS UNTIL PLANT START-UP-
Until the fourth quarter of 2010, or earlier if possible, we will be
actively involved in six principal tasks in connection with the first phase of
our development plans, if we elect to commence operations by constructing plants
rather than acquiring existing plants:
(1) Raising our equity and securing debt capital;
(2) Acquiring and preparing our plant and blending terminal sites;
(3) Completing construction agreements and securing necessary permits;
(4) Constructing our sites;
(5) Arranging and negotiating agreements for the purchase of corn, natural
gas and other needs and for marketing our ethanol and distillers
grains;and
(6) Hiring and training management and operating employees.
Assuming that we successfully complete our financing objectives and obtain
adequate debt and equity financing, we believe that we will have sufficient cash
resources to cover all of our expenses associated with the construction and
commencement of operations of the plants, including site acquisition and
development, installation of road and rail access and utilities, application for
and receipt of permits, equipment acquisition and plant construction. We also
believe that we will have sufficient operating capital to cover our staff,
office, audit, legal, compliance, training and other start-up expenses during
this period.
We have contacted and have had limited discussions with prospective lenders
and investors, but have no agreement with any lender for the debt or investors
for the equity financing that we need.
If for any reason our options on one or more sites expire before we have
our equity and debt financing available to acquire such sites, we may find it
necessary to pay more than the option purchase price for such sites or to locate
alternative sites. There is no assurance that after full investigation we will
determine that any of our sites will be suitable for our plants or will be
acquired for those purposes. New sites could be identified by our site
acquisition team. Our Board of Directors reserves the right to change the
locations of the sites for our plants, in its sole discretion, for any reason.
We expect to continue the permitting process on our sites, and, if necessary
conduct investigations on other sites, including overall suitability for our
plants, environmental matters and road and rail access considerations.
41
CONSTRUCTION AGREEMENTS AND PERMITS
We expect to enter into an agreement with EPC contractors which will
provide for the construction of each of our plants. We anticipate that the
agreement will provide that the EPC contractors will prepare engineering
diagrams and drawings for our sites, plants, utilities and process systems,
assist us in obtaining permits for the construction of our plants, establish
final project specifications, contract documents and contract pricing and place
orders on our behalf for equipment, particularly equipment with lengthy order
lead times.
We anticipate that the EPC agreements will state the complete set of design
and construction services to be provided by our EPC contractors to construct our
blending terminal, ethanol and bio-diesel plants for us, state the allocated
costs of the work to be performed, state the manner in which increased costs due
to equipment and materials expense increases and change orders requested by us
would be allocated, state the responsibility for our EPC contractors and us to
acquire permits, provide a timetable for construction, and include warranties
and guarantees with respect to plant capacity and operation, payment terms and
similar matters.
After we identify our EPC contractors, we expect to work with the
contractors on the preliminary and final designs of the terminal/plants so
construction may be commenced as soon as possible following successful
completion of our equity and debt financings. Concurrently, we will seek
necessary construction permits, environmental permits and other contracts and
permits necessary for the construction of our sites.
Construction of our terminal and plants will include completion and
approval of the final design for the plant, final site preparation, installation
of underground piping, conduits and footings, structural framing, installation
of tanks, equipment and above-ground piping, enclosing structures, installation
of outside yard facilities, loading docks and related structures, and a variety
of other tasks. The construction phase will include testing of the plants
through certification by the construction engineers. Commencement of operations
will include training of plant operations personnel and incorporation of
operational testing, quality control and safety procedures.
With construction complete, we will move to the plant start-up phase, which
will involve complete start-up and testing of all equipment and facilities,
including any adjustments necessary. This process will take approximately two
months for each site. Assuming the availability of final operating permits, and
following a final capacity test run and certification by our construction
engineers, the blending terminal/plant will be turned over to us for the
commencement of commercial operations.
42
RESULTS OF OPERATIONS
AUGUST 10, 2006
YEAR ENDED YEAR ENDED (DATE OF INCEPTION)TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008
------- ------- -------
(DOLLAR IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------
EXPENSES:
Legal and professional $ 468 $ 547 $ 1,220
Salaries expense 478 447 1,106
Travel expense 118 208 391
Loss on disposal of assets 102 129 231
Compensation on shares issuance and options 621 621
Other expenses 132 235 405
------- ------- -------
Net loss from operations (1,919) (1,566) (3,974)
Interest expense (14) (63) (84)
Capital gain 4 - 4
------- ------- -------
Net loss $(1,929) $(1,629) $(4,054)
======= ======= =======
Other financial data:
Net cash used in operating activities (1,345) (845) (2,341)
======= ======= =======
RESULTS OF OPERATIONS - 2008 COMPARED TO 2007 (IN THOUSANDS)
NexGen is a development stage company which has operational cost related to
our efforts to plan, develop, construct and/or acquire biofuels business. These
costs include Legal and professional costs, Salaries, Travel and other.
The Legal and professional cost amounted to $468 in 2008 compared to $547
in 2007. Those costs related mainly to the land purchase options and the
Purchase Agreement.
The Salaries amounted to $478 in 2008 compared to $447 in 2007
The travel expenses amounted to $118 in 2008 compared to $208 in 2007
Travel costs are for travel in the U.S. and out of the U.S. in connection
with the land purchase options, the Purchase Agreement and, our efforts to raise
funds.
Loss from expiration of purchase option and futures trading amounted to
$102 in 2008 and $129 in 2007.
Compensation on shares issuance and options amounted to $621 in 2008 and $0
in 2007
Other expenses amounted to $132 in 2008 and $235 in 2007
Total loss from operation amounted to $1,919 in 2008 compared to $1,566 for
2007
Net loss amounted to $1,929 in 2008 and $1,629 in 2007.
43
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was a deficit of $1,033 at December 31, 2008
compared to a deficit of $247 at December 31, 2007. Historically, our cash needs
have been satisfied primarily through proceeds from private placements of our
equity securities and related party advances. We expect to continue to be
required to raise capital in the future, but cannot guarantee that such
financing activities will be sufficient to fund our current and future projects
and our ability to meet our cash and working capital needs.
Net cash used in operating activities amounted to $1,345 in 2008 compared to
$845 in 2007.
Cash used in investing activities amounted to $ (147) in 2008 compared to
$351 in 2007.
Cash was provided from financing activities in the amount of $1,201 in 2008
compared to $1,148 in 2007 . Financing activities for both periods represent net
cash received from the Company's controlling shareholder for the development of
NexGen's business.
During January 2008, we raised approximately $225 through cash generated by
the sale of stock via a private offering. Additionally, we have an unsecured
line of credit available through a controlling shareholder for $500.This line of
credit was provided at an interest of LIBOR+3% and is to be repaid subject to
terms agreed but not later then April 1,2009. We believe these funds will be
sufficient to fund our current operations until we obtain the third-party
financing to fund the first phase of our business plan. However, additional
funding may not be available when required or it may not be available on
favorable terms. Without adequate funds, we may need to significantly reduce or
refocus our plan of operations or obtain funds through arrangements that may
require us to relinquish rights to certain or potential markets, either of which
could have a material adverse effect on our business, financial condition and
results of operations. Failure to secure additional financing in a timely manner
and on favorable terms when needed will have a material adverse effect on the
Company's ability to continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business.
As of December 31, 2008, the Company was not subject to any off balance
agreements, other than the office lease agreement disclosed under Item 2
"Description of Property".
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements", or SFAS 157, which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 applies to other accounting
pronouncements that require or permit fair value measurements and, accordingly,
does not require any new fair value measurements. SFAS 157 is effective for
fiscal years beginning after November 15, 2007 for financial assets and
liabilities, as well as for any other assets and liabilities that are carried at
fair value on a recurring basis, and should be applied prospectively.
44
The adoption of the provisions of SFAS 157 related to financial assets and
liabilities and other assets and liabilities that are carried at fair value on a
recurring basis, is not anticipated to materially impact our consolidated
financial position and results of operations. Subsequently, the FASB provided
for a one-year deferral of the provisions of SFAS 157 for non-financial assets
and liabilities that are recognized or disclosed at fair value in the
consolidated financial statements on a non-recurring basis. We are currently
evaluating the impact of adopting the provisions of SFAS 157 for non-financial
assets and liabilities that are recognized or disclosed on a non-recurring
basis.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities", or SFAS 159. Under this Standard, we may elect to report financial
instruments and certain other items at fair value on a contract-by-contract
basis with changes in value reported in earnings. This election is irrevocable.
SFAS 159 provides an opportunity to mitigate volatility in reported earnings
that is caused by measuring hedged assets and liabilities that were previously
required to use a different accounting method than the related hedging contracts
when the complex provisions of SFAS 133 hedge accounting are not met. SFAS 159
is effective for years beginning after November 15, 2007. We do not expect the
adoption of SFAS 159 will have a material impact on our consolidated financial
statements.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141 (Revised 2007)"Business Combinations", or SFAS 141R. SFAS
141Rwill change the accounting for business combinations. Under SFAS 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS 141R will change the accounting treatment and
disclosure for certain specific items in a business combination. SFAS 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. SFAS 141R will have an impact on accounting for future
business combinations once adopted and not on prior acquisitions.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements," referred to as SFAS 160. SFAS 160
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the non-controlling interest,
changes in a parent's ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. SFAS 160
also establishes reporting requirements that provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the non-controlling owners. This standard is effective for fiscal
years beginning after December 15, 2008 and should be applied prospectively.
However, the presentation and disclosure requirements of the statement shall be
applied retrospectively for all periods presented. The adoption of the
provisions of SFAS 160 is not anticipated to materially impact our consolidated
financial position and results of operations.
45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2008, the Company was not exposed to interest rate risk
as it did not have any outstanding borrowings that were subject to fluctuating
interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On August the company retained the services of Barzily&Co and dismissed
Ernst&Young, this change was in the normal course of business.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules, regulations and related forms, and
that such information is accumulated and communicated to our principal executive
officer, as appropriate, to allow timely decisions regarding required
disclosure.
Within the 90 days prior to the filing date of this annual report, the
Company carried out an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures. Based upon that evaluation,
management concluded that the Company's disclosure controls and procedures were
effective in alerting it in a timely manner to information relating to the
Company required to be disclosed in this report.
The Company's management, which is comprised of Ram Ajjarapu , has carried
out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(c) and
5d-15(c). Based upon that evaluation, our officers and employees identified a
significant deficiency (as defined by standards established by the Public
Company Accounting Oversight Board). A significant deficiency is a control
deficiency where there is more than a remote likelihood that a misstatement of
the Company's annual or interim financial statements that is more than
inconsequential will not be prevented or detected. The significant deficiency
related to the Company having a three employees, Management has decided that the
risks associated with the dependence upon Mr. Ajjarapu compared to the potential
benefits of adding new employees do not justify the expenses that would need to
be incurred to remedy this situation especially since the Company currently has
no operations Management will periodically re-evaluate this situation. If the
situation changes and/or sufficient capital is obtained, it is the Company's
intention to increase staffing to mitigate the current dependence upon Mr.
Ajjarapu.
46
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the period from August 10, 2006 (Date of inception) to December 31,
2008, there were no changes in the Company's internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
As of March 31, 2009, the executive officers and directors of the Company
are as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
J. Ram Ajjarapu 39 Chief Executive Officer & Director
J. RAM AJJARAPU. has been a board member since the Closing Date and has
been Chief Executive Officer since January 9, 2008. Mr. Ajjarapu has been
President and Chief Executive Officer of NexGen Bio since August 2006. Prior to
joining NexGen Bio, Mr. Ajjarapu served as President and a director of American
Ethanol until he left the company in July 2006. In 2004, he co-founded Wahoo
Ethanol, LLC and Sutton Ethanol, LLC and served as Managing Member until both
were sold to American Ethanol in January 2006. While at Wahoo and Sutton, Mr.
Ajjarapu negotiated EPC (Engineering Procurement and Construction) agreements,
as well as procurement and off-take agreements. Mr. Ajjarapu was also
instrumental in obtaining Tax Increment Financing (TIF) of $10 million for each
company, as well as sales tax refunds and community grants. In 1995, he
co-founded and served as President and Director for 10-years of Global
Information Technology, Inc, an IT outsourcing and system design company. He
co-founded and also served as Managing Director for an Indian outsourcing
company from 1997 to 2004. He received a Bachelors degree in Electronics and
Communication Engineering from The Institute of Engineer (India) and a Masters
in Business Administration from University of South Florida.
TERMS OF OFFICE
The Company's Articles of Association, as amended, provide for a board of
directors that consists of not less than two and no more than thirteen
Directors, including the external directors to be appointed and hold office in
accordance with the provisions of the Companies Law and any Regulations enacted
thereunder, as amended from time to time.
With the exception of the election of external directors which shall be
governed in accordance with the provisions of the Companies Law, directors shall
be elected at the Annual General Meeting by an ordinary majority .The directors
so elected shall hold office until the next Annual General Meeting unless
determined otherwise at a subsequent General Meeting. Notwithstanding the
aforesaid, if no directors are appointed at the Annual General Meeting, the
directors appointed at the previous Annual General Meeting shall continue to
hold office.
47
With the exception of the removal of external directors which shall be
governed in accordance with the provisions of the Companies Law, at a General
Meeting by an Ordinary Majority, the shareholders shall be entitled to remove
any director(s) from office, to elect directors in place of the director(s) so
removed or to fill any vacancy, however created, including a vacancy resulting
from an enlargement of the Board of Directors by resolution of the Board of
Directors, on the Board of Directors.
The Board of Directors may, from time to time, appoint an additional
director or additional directors to the Company, in order to fill the office of
a director which has been vacated or for any reason or as an additional director
or additional directors, provided that the overall number of directors does not
exceed the maximum number specified above. A director appointed as aforesaid
shall cease to hold office at the end of the Annual Meeting following his
appointment.
The Companies Law requires the board of directors of a public company to
determine the number of directors who shall possess accounting and financial
expertise. On March 29, 2006 the board of directors determined the minimum number
to be two directors. The Company may be deemed to be a "controlled company"
under the applicable Nasdaq regulations because RACA, the Company's principal
stockholder owns approximately 84% of the Company's issued and outstanding
shares. As such, the Company is exempt from the requirements of Nasdaq Rule
4350(c) with respect to the nomination of directors.
ALTERNATE DIRECTORS
The Articles of Association of the Company provide that any director may,
by written notice to the Company, appoint another person to serve as an
alternate director, subject to the approval of the directors, and may cancel
such appointment. According to the Companies Law, the following persons may not
be appointed nor serve as an alternate director: (i) a person not qualified to
be appointed as a director, (ii) an actual director, or (iii) another alternate
director. Appointment of an alternate director for a member of a committee of
the board of directors is only permitted if the alternate director is a member
of the board of directors and does not regularly serve as a member of such
committee. If the committee member being substituted is an external director,
such alternate director may only be another outside director possessing the same
expertise as the external director being substituted and may not be a regular
member of such committee. There are currently no alternate directors.
EXTERNAL DIRECTORS
Pursuant to Israeli law, the Company is required to appoint two external
directors. These directors must be unaffiliated with the Company and its
principals. A person shall be qualified to serve as an external director only if
he or she possesses accounting and financial expertise or professional
qualifications. At least one external director must posess accounting and
financial expertise and the other external directors are to possess professional
qualifications, as promulgated by regulations to the Companies Law. These
regulations provide that financial and accounting expertise require such
external director to possess a high level of understanding in business matters,
such that he or she can read and understand financial statements in depth and be
able to raise issues with respect to the manner in which the financial data is
presented therein.
48
The company's board of directors is to determine such candidate's
qualifications based on his or her education, experience and skills regarding
financial and control matters in companies of similar size and in a similar
industry and knowledge of preparation and approval of financial statements under
the Companies Law and Israeli securities laws These requirements do not apply to
external directors appointed before the recent amendment to the Companies Law
but will apply to their re-appointment for an additional term.
External directors are to be elected by a majority vote at a shareholders'
meeting, provided that such majority includes at least one-third of the shares
held by non-controlling shareholders voted at the meeting or that the total
number of shares held by non-controlling shareholders voted against the election
of the director does not exceed one percent of the aggregate voting rights in
the Company.
The initial term of an external director is three years and may be extended
for. additional periods of up to three years each, pursuant to a recent
amendment to the Companies Law, provided that the audit committee and the board
of directors confirm that, in light of the outside director's expertise and
special contribution to the work of the board of directors and its committees,
the reelection for such additional period(s) is beneficial to the company
External directors may be removed only by the same percentage of shareholders as
is required for their election, or by a court, and then only if the external
directors cease to meet the statutory qualifications for their appointment or if
they violate their duty of loyalty to the Company. Under the Companies Law, any
committee of the Board of Directors must include at least one external director,
and the Audit Committee must include all if the external Directors.
The Companies Law details certain standards for the independence of
external directors. These directors must be unaffiliated with the company on
whose board they serve and such company's principals. They are entitled to
obtain all information relating to such company's management and assets and to
receive assistance, in special cases, from outside experts at the expense of the
company. The Companies Law imposes an obligation on these directors to convene a
meeting of a company's board of directors upon becoming aware of matters that
suggest infringements of law, neglect of good business practice or improper
conduct.
An external director is entitled to compensation, as provided for in
regulations adopted under the Companies Law, but is prohibited from receiving
any other compensation, directly or indirectly, in connection with service
provided as an external director.
Most of the Directors of the company were resigned as of December 31, 2008
to pursue other opportunities outside the company. Company is in the process of
electing two new directors in the upcoming shareholders' meeting.
DIRECTORS' COMPENSATION
The Company's executive directors (i.e. directors who receive remuneration
from the Company either as employees or consultants) are not entitled to receive
any separate compensation in consideration for their services as directors of
the Company. The Company's non-executive directors receive annual fees which
amounted to $8,000 per person for 2008 on account of all services as directors,
including participation in board and audit committee proceedings.
49
The members of the board do not receive any additional remuneration upon
termination of their services as directors.
AUDIT COMMITTEE
The Companies Law requires that certain transactions, actions and
arrangements be approved in certain cases, by the audit committee of the
company's board of directors, whose members meet certain criteria of
independence as defined in the Companies Law and by the board of directors
itself and in certain circumstances, shareholder approval is also required. The
vote required by the audit committee and the board of directors for approval of
such matters, in each case, is a majority of the disinterested directors
participating in a duly convened meeting. The Company's audit committee is
comprised of Professors Varda Rotter, Mr. Rodrick P. Morrow and Dr. Elan Penn.
The Company has determined that the members of the audit committee meet the
applicable NASDAQ and SEC independence standards. In addition, the Company has
determined that Dr. Elan Penn is a financial expert as defined by the SEC. Audit
committee members resigned as of December 31, 2008 to pursue other opportunities
outside the company.
INTERNAL AUDITOR
Under the Companies Law, Israeli companies whose securities are publicly
traded are also required to appoint an Internal Auditor in accordance with the
proposal of the audit committee. The role of the Internal Auditor is to examine,
inter alia, whether the Company's actions comply with the law, integrity and
orderly business procedure. In November 2000, Mr. Yossi Ginosar was appointed as
the Company's Internal Auditor. In March 2007, Mr. Yossi Ginosar was
re-appointed as such.Mr. Ginosar did not provide the company with any reports in
the last year.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange act requires the Company's officers,
directors and persons who beneficially own more than 10% of the Company's common
stock to file reports of ownership and changes in ownership with the SEC. These
reporting persons also are required to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, no officers,
directors and persons who beneficially own more than 10% of the Company's
ordinary shares have failed to file the reports required pursuant to Section
16(a).
CODE OF ETHICS
The Board of Directors has adopted a Code of Ethics that applies to all of
our officers, directors and employees. The Code sets forth fundamental
principles of integrity and business ethics and is intended to ensure ethical
decision making in the conduct of professional responsibilities. The full text
of the Code is filed as an exhibit to the Report.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual salary, bonuses and all other
compensation awards and pay outs on account of NexGen Bio's Chief Executive
Officer for services rendered to it during the fiscal years ended December 31,
2008 and December 31, 2007. No executive officer received more than US$100,000
per annum during this period.
50
SUMMARY COMPENSATION TABLE
Change in
Pension Value
Non-Equity and
Incentive Nonqualified
Stock Option Plan Deferred
Name and Principal Salary Bonus Awards Awards Compensation Compensation All Other Total
Position Year (US$) (US$) (US$) US$) (US$) Earnings (US$) Compensation (US$)
- ----------------------- -------- ----------- -------- ---------- ---------- ------------- ---------------- ------------ ----------
J. Ram Ajjarapu, 2008 150,000(1) - - - - - - 150,000
Chairman and CEO 2007 76,344(1) - - - - - - 76,344
- ----------------------- -------- ----------- -------- ---------- ---------- ------------- ---------------- ------------ ----------
Eran Rotem (2) 2008 46,875 - - - - - - 46,875
Chief Financial Officer 2007 25,347 - - - - - - 25,347
- ----------------------- -------- ----------- -------- ---------- ---------- ------------- ---------------- ------------ ----------
Aruna Ajjarapu (3) 2008 90,000 - - - - - - 90,000
Secretary 2007 - - - - - - - -------
- ----------------------- -------- ----------- -------- ---------- ---------- ------------- ---------------- ------------ ----------
(1) The salaries for the year ended December 31, 2008 and for the period
beginning January 1, 2008 (inception of development stage) through December
31, 2008 were accrued and have not been paid.
(2) Mr. Eran Rotem was the Chief Financial Officer until March 31, 2008.
(3) Arruna Ajjarapu's salary was accrued for the year 2008, and have not been
paid.
51
COMPENSATION AGREEMENTS
Our executive compensation is divided into the following components:
BASE SALARY
Base salaries for our executive officers are established based on the scope
of their roles, responsibilities, experience levels and performance, taking into
account competitive market compensation paid by comparable companies for similar
positions. Base salaries are reviewed approximately annually, and may be
adjusted from time to time to realign salaries with market levels after taking
into account individual performance and experience.
Base salaries for the named executive officers can be found in the Summary
Compensation Table described above. For 2008, our Chief Executive Officer salary
will be established by our Audit committee and Board of directors during the
second quarter of 2008.
Mr. Eran Rotem, The Company's Chief Financial Officer before the completion
of the Plan, is the Company's Chief Financial Officer. Mr. Rotem's base salary
is $180,000 per year.
According to a new employment agreement that was signed with Mr. Rotem in
2008, the Company granted the Mr. Rotem 650,000 options to purchase Ordinary
shares of the Company under the ISO Plan (defined below). The Options have the
following terms, among others: (i) a term of 5 years, subject to earlier
expiration ; (ii) an exercise price of $1.50 per share, and (iii) vesting and
exercise rights in five equal installments of 130,000 shares each, on the first
through fourth anniversary dates of Mr. Rotem's employment. In addition, Mr.
Rotem received 400,000 Ordinary Shares of the Company. These 400,000 shares are
subject to other restrictions.
In connection with the Company's request that Mr. Rotem relocate from
Israel to Tampa, Florida, the Company agreed to pay Mr. Rotem $10,000 in order
to compensate him for moving costs, such as temporary housing and storage, air
fares, shipment cost, etc.
OTHER COMPENSATION
In addition to the compensation components described, we intend to continue
to maintain modest executive benefits and perquisites for officers, including
our named executive officers; provided, however, that the Audit Committee may
revise, amend, or add to the officers' executive benefits and perquisites if it
deems advisable in order to remain competitive with comparable companies and/or
to retain individuals who are critical to the company.
EMPLOYEE SHARE OPTION PLANS
In July 2000, the shareholders of the Company approved the Company's 2000
Incentive Share Option Plan (the "ISO PLAN") adopted by the Company's board of
directors in February 2000, pursuant to which share options in the Company may
be granted to employees, directors and consultants of the Company or any
subsidiary. An aggregate of 500,000 Ordinary Shares of the Company were reserved
for issuance under the ISO Plan, subject to certain adjustment. The ISO Plan was
administered by the board of directors either directly or upon the
recommendation of the Share Option Committee. The Company's board of directors
appointed the members of the Company's audit committee to also serve as the
Company's Share Option Committee.
52
On August 28, 2003 the Company amended the ISO Plan, as detailed below,
pursuant to amendments to the Israel Income Tax Ordinance regarding options that
had come into effect. Under the amended plan, a total of 377,500 ordinary shares
of the Company are reserved and authorized for the purpose of the option plan,
subject to certain adjustments. The plan is administered by the Board of
Directors, (either directly or upon the recommendation of the Share Option
Committee), which has broad discretion, subject to certain limitations, to
determine the persons entitled to receive options, the terms and conditions on
which options are granted and the number of shares subject to each grant.
Options under the plan are issued to Israeli employees, directors, office
holders, consultants, advisers and service providers of the Company and its
subsidiaries.
On August 27, 2007 the Company amended the ISO Plan to include the ability
to grant ordinary shares and share units of the Company, in addition to options
to purchase shares of the Company; and increase the number of the ordinary
shares of the Company available for issuance to 2,000,000 (two million) ordinary
shares.
As of December 31, 2007 options to purchase 1,613,334 ordinary shares
remained available for issuance under the plan and, there were options
outstanding to purchase 341,500 ordinary shares. All the outstanding options
were exercised to shares during the first quarter of 2008.
EQUITY COMPENSATION PLAN INFORMATION
There are no unexercised options as of December 31, 2008
DIRECTOR COMPENSATION
The following table sets forth information concerning the compensation paid
to the non-employee directors of NexGen Bio during fiscal 2008:
- -----------------------------------------------------------------------------------------------------------------
Change in
Pension Value
Fees Non-Equity and
Earned Incentive Nonqualified
or Paid Option Plan Deferred All Other
in Cash Stock Awards Compensation Compensation Compensation
Name (US$) Awards ($) ($) ($) Earnings ($) Total (US$)
- ---------- --------- ----------- --------- ------------ --------------- ------------ ---------------
J. Ram Ajjarapu 0 - - - - - 0
- -----------------------------------------------------------------------------------------------------------------
Bruce W. Wilkinson $3 - - - - - $3
- -----------------------------------------------------------------------------------------------------------------
Roderick P.. Morrow $3 - - - - - $3
- -----------------------------------------------------------------------------------------------------------------
Kenneth Hoyt $3 - - - - - $3
- -----------------------------------------------------------------------------------------------------------------
Israel Amir $3 - - - - - $3
- -----------------------------------------------------------------------------------------------------------------
Varda Rotter $1.5 - - - - - $1.5
- -----------------------------------------------------------------------------------------------------------------
Elan Penn $3.393 - - - - - $3.393
- -----------------------------------------------------------------------------------------------------------------
53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets out, to the best of our knowledge, the numbers of
shares in the Company beneficially owned as at December 31, 2008 by:
(i) each of our present Executive Officers and Directors,
(ii) each person (including any "group" as that term is defined in Section
13(d)(3) of the Securities Exchange Act) who beneficially owns more
than 5% of our Common Stock, and
(iii) all of our present Directors and officers as a group.
PERCENTAGE OF
ORDINARY
NUMBER OF ORDINARY SHARES OWNED
NAME SHARES(1) OUTSTANDING(1) ADDRESS
- ---- --------- -------------- -------
J. Ram Ajjarapu 35,187,542 (2) 84% 8909 Regents Park Dr, Suite 210, Tampa, FL 33647
Eran Rotem 137,000 (3) 32 Hshaham St. Petach Tikva, Israel, 49170
Bruce W. Wilkinson 64,229 8909 Regents Park Dr, Suite 210, Tampa, FL 33647
Roderick P.. Morrow 42,820 11223 Bloomington Dr., Tampa 33635
Kenneth Hoyt 42,820 4610 Westford Circle, Tampa, 33618
Israel Amir 386,666 0.9% 32 Hshaham St. Petach Tikva, Israel, 49170
Varda Rotter - 32 Hshaham St. Petach Tikva, Israel, 49170
Elan Penn - 32 Hshaham St. Petach Tikva, Israel, 49170
Officers and Directors as a
Group (9 persons) 35,861,077 (3) 84.90%
RACA Investors Partners LP 35,187,542 84% 9120 Rockrose Dr, Tampa, FL 33647
(1) Based upon 41,759,498 ordinary shares outstanding as of December 31, 2008.
(2) Including 35,151,842 shares owned by RACA, as to which Mr. Ajjarapu may be
deemed to share beneficial ownership.
(3) Includes 117,000 shares issuable upon exercise of options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
On March 23, 2009, company has signed a non-binding Letter of Intent with
World Venture Management Inc., a Nevada based company (herein referred to as
("WVM" ) and Mac Bioventures, Inc. The transaction includes (i) the transfer to
NexGen of WVM's assets relating to its Real Estate acquisitions and asset
management enterprise, such as Hotel/Casinos, Wineries and Vineyards,
Refineries, Office Buildings and Apartment Complexes, Shopping Malls and other
commercial buildings, in addition to the management of certain assets such a
Gemstones, Gold and Diamonds and in-ground assets such as Coal and Oil, Gas and
Natural Gas, in the United States in consideration for a controlling stake in
NexGen and (ii) the purchase of NexGen's holdings in its subsidiaries by Mac
Bioventures in consideration for a part of the debt it's assuming in NexGen.
54
The Letter of Intent further contemplates that the number of shares up to
65 million to be issued in consideration for WVM's assets shall be based on the
valuation of the assets to be provided by a recognized valuation firm.
Closing of the transaction announced is subject to the negotiation and
execution of definitive agreements, the completion of due diligence, the receipt
of the necessary corporate, regulatory and third party approvals, including
NexGen's shareholders and the approval of an Israeli District Court. No
assurance can be given that a definitive agreement will be signed or that the
transaction will close.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company's principal accountants for the years 2006 and 2007 were Kost
Forer Gabbay & Kasierer, a member of Ernst & Young Global. NexGen's Bio
principle accountants for the year 2006 were Pender NewKirk & Company, CPAs.
The table below summarizes the audit and other fees paid (in thousands of
USD) the Company and its consolidated subsidiaries to Barzily&Co and Kost Forer
Gabbay & Kasierer during each of 2008 and 2007:
Year Ended December 31, 2007 Year Ended December 31, 2006
---------------------- -----------------------
Amount Percentage Amount Percentage
------ ---------- ------ ----------
Audit Fees (1) $20 100% $40 92%
Audit-Related Fees (2) $ 0 0% $ 0 0%
Tax Fees (3) $ 5 0% $ 8%
Total $25 100% $40 100%
(1) "Audit fees" includes annual audit fees for NexGen and its
subsidiaries.
(2) "Audit-related fees" are fees related to assurance and associated
services that traditionally are performed by the independent auditor, including
consultation concerning reporting standards.
55
(3) for services rendered to the company during and/or pertaining to the
year 2006 in connection with the following: tax related work, consulting
services as to government grants, review of the financial statements,
consultation as to various transaction and the like.
The Audit Committee pre-approves on an annual basis the audit and certain
non-audit services provided to the Company by its auditors. Such annual
pre-approval is given with respect to particular services and sets forth a
specific budget for such services. Additional services not covered by the annual
pre-approval may be approved by the Audit Committee on a case-by-case basis as
the need for such services arises.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(To
1. Financial Statements
See "Index to Consolidated Financial Statements and Financial
Statement Schedule" set forth on page F-1.
2. Financial Statement Schedule.
See "Index to Consolidated Financial Statements and Financial
Statement Schedule" set forth on page F-1.
3. Exhibits.
See "Index to Exhibits" set forth on the following page.
56
INDEX TO EXHIBITS
(D) EXHIBITS
EXHIBIT NO. INCORP. BY REFERENCE DESCRIPTION
- ----------- -------------------- -----------
3.1 1.1(1) Memorandum of Association of the Registrant, as amended
3.2 1.2(2) Articles of Association, restated to include all amendments
in effect as of December 31, 2006
3.3 1.3(3) Amendment to Articles of Association
10.1 4.34(2) Purchase Agreement between Healthcare Technologies Ltd.,
Gamida For Life B.V., MAC Bioventures Inc. and NexGen
Biofuels Inc.
10.2 4.35(3) Amendment No. 1 to Purchase Agreement.
14 11(2) Code of Ethics
21 (4) List of Subsidiaries
23.1 * Consent of Independent Public Accountant (Kost Forer Gabbay & Kasierer)
23.2 (2) Consent of Independent Public Accountant (Pender Newkirk & Company LLP)
31.1 * Certification of Chief Executive Officer required by Rule
13a-14(a) under the Exchange Act
32.1 * Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
99.1 4.33(5) Audit Committee Charter
99.2 4.36(6) AAA Valuation dated May 4, 2007 and letter dated July 13,
2007.
99.3 4.37(6) Valuation from David Boas Business Consultant Ltd., dated
January 20, 2007.
- ----------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Annual
Report on Form 20-F for the Fiscal year ended December
31, 1997.
(2) Incorporated by reference to the Registrant's Annual
Report on Form 20-F for the Fiscal year ended December
31, 2006.
(3) Incorporated by reference to the Registrant's Current
Report on Form 8-K dated December 31, 2007.
(4) Incorporated by reference to the Consolidated Financial
Statements that are filed as a part of this Form 10-K.
(5) Incorporated by reference to the Registrant's Annual
Report on Form 20-F for the Fiscal year ended December
31, 2004.
(6) Incorporated by reference to the Registrant's Proxy
Statement filed as an exhibit to the Registrant's Form
6-K dated August 2007, filed on August 16, 2007.
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2008
NEXGEN BIOFUELS AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2008
(IN US DOLLARS)
INDEX TO FINANCIAL STATEMENTS
PAGE
--------------
Report of Independent Auditors F - 2
FINANCIAL STATEMENTS:
Balance sheets as of December 31, 2008 and 2007 F - 3 - F - 4
Statements of Operations
for the Years ended December 31, 2008 and 2007 F - 5
Statements of Changes in Shareholders' Deficiency
for the Years ended December 31, 2008 and 2007 F - 6
Statements of Cash Flows
for the Years ended December 31, 2008 and 2007 F - 7
Notes to the Financial Statements F - 8 - F - 19
F - 1
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
NEXGEN BIOFUELS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
We have audited the accompanying consolidated balance sheet of Nexgen Biofuels
Ltd. And its subsidiaries (hereinafter "the Company") as of December 31, 2008
and the related consolidated statements of operations, changes in shareholders'
deficit and cash flows for the year then ended. The consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated balance sheets as of December 31, 2007 and the
consolidated statement of operations, changes in shareholder's deficit and cash
flows of the company for the year than ended were audited by other auditors,
whose qualified opinion on those financial statements was rendered on April 15,
2008 and whose report has been furnished to us and our opinion, insofar as it
relates to the amounts included for the year 2007, is based solely on the report
of other auditors. Those financial statements include an explanatory paragraph
describing conditions that raised substantial doubt about the Company's ability
to continue as a "going concern."
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes 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, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditor, the
aforementioned consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company as of December 31,
2008 and the consolidated results of the operations, changes in shareholders'
deficit and cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The consolidated financial statements referred to above have been prepared
assuming that the Company will continue as a "going concern." As discussed in
Note 1c to the financial statements, the Company's recurring losses and negative
cash flows from operations raise substantial doubt as to the Company's ability
to continue as a "going concern." The Company will need to raise additional
funds in order to realize its business plan. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Barzily & Co.
Certified Public Accountants
A Member of MSI Worldwide
Jerusalem, Israel
April 15, 2009
F - 2
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
DECEMBER 31
2008 2007
--------- ---------
NOTE US DOLLARS IN THOUSANDS
---- -----------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 4 1
Gamida For Life B.V. 3 - 397
Other accounts receivable and prepaid expenses - 5
--------- ---------
Total current assets 4 403
--------- ---------
LONG-TERM INVESTMENTS
Investments in land purchase options 4 84 166
--------- ---------
PROPERTY AND EQUIPMENT, NET 5 5
--------- ---------
Total Assets 93 574
========= =========
The accompanying notes to these financial statements are an integral part
thereof.
F - 3
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
DECEMBER 31
2008 2007
--------- ---------
NOTE US DOLLARS IN THOUSANDS
---- -----------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term credit from bank 5 - 39
Loan from Gamidor Diagnostics 6 - 230
Trade Payables 217 319
Shareholders Loans 7 807
Other accounts payables 13 62
Total current liabilities 1,037 650
--------- ---------
SHAREHOLDERS' DEFICIT
Share capital
Ordinary shares NIS 0.04 par value -Authorized
1,900,000,000 shares as of December 31, 2008
and 2007;
Issued and outstanding: 42,730,998 and
41,759,498 shares as of December 31, 2008
and 2007, respectively 445 434
Additional paid-in capital 2,665 1,615
Accumulated deficit (4,054) (2,125)
--------- ---------
Total shareholders' deficit (944) (76)
--------- ---------
Total liabilities and shareholders' deficit 93 574
The accompanying notes to these financial statements are an integral part
thereof.
April 15, 2009
Date of Approval of the Financial Statements Director
F - 4
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
AUGUST 10,
2006 (DATE OF
INCEPTION) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
2008 2007 2008
----------- ------------ ------------
EXPENSES:
Legal and professional 468 547 1,220
Salaries expense 478 447 1,106
Travel expense 118 208 391
Loss from expiration of land purchase option and
futures trading 102 129 231
Compensation on shares issuance and options 621 - 621
Other expenses 132 235 405
----------- ------------ ------------
Net loss from operations (1,919) (1,566) (3,974)
Interest expense (14) (63) (84)
Capital gain 4 - 4
----------- ------------ ------------
NET LOSS (1,929) (1,629) (4,054)
----------- ------------ ------------
Basic and diluted loss per share 0.04 0.04 0.12
=========== ============ ============
Weighted average number of shares used in
computing basic and diluted loss per
share attributed to Ordinary shareholders 42,326,206 41,759,498 34,906,154
=========== ============ ============
The accompanying notes to these financial statements are an integral part
thereof.
F - 5
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
DEFICIT
ACCUMULATED
ORDINARY SHARES **) ADDITIONAL ORDINARY DURING THE
--------------------- PAID-IN SHARES DEVELOPMENT
SHARES AMOUNT CAPITAL PAYABLE STAGE TOTAL
---------- -------- ---------- -------- -------- -------
Balance January 1, 2007 649,317 33 (313) 300 (469) (476)
Shares issued in January 2007,
$ 0.0001/share founders shares 6,737,643 63 - (63) - -
Common Stock Payable Founders - - - * - -
Shares issued in January 2007,
$ 0.0001/share founders shares 101.468 1 (1) - - -
Shares issued in February 2007,
$ 0.0001/share founders shares 7,990 * - - - -
Shares issued in May 2007,
$ 0.0001/share founders shares
related to January 2007 stock
commitment 79,896 1 (1) * - -
Shares issued in May 2007, $0.45
/share-employee/consulting
services 10,387 * 29 - - 29
Shares issued in May 2007,
$0.45/share-consulting services 159,792 2 - - - 2
Shares issued in May 2007,
$0.45/share-consulting services 17,577 * 50 - - 50
Shares issued in August 2007,
$0.91/share-director services 27,964 * - - - -
Shares issued in August 2007,
$1.02/share-consulting services 798 * 5 - - 5
Amortization of prepaid stock
services - - 10 - - 10
Purchase of treasury shares (4,700,000) (68) - - - (68)
Issuance of common stock in
connection with the merger, net
of acquisition cost of $ 280 38,666,666 402 1,836 (237) - 2,001
Net Loss - - - - (1,629) (1,629)
Balance as of December 31, 2007 41,759,498 434 1,615 - (2,125) (76)
Share issued in January-March 165,000 2 225 - - 225
Exercise of options 341,500 4 200 - -
Compensation related to stock
issuance 455,000 5 621 - - 626
Shares issued in April-June 10,000 - 4 - - 4
Net loss - - - - (1,929) (1,929)
---------- -------- ---------- -------- -------- -------
Balance as of December 31, 2008 42,730,998 445 2,665 - (4,054) (944)
* Represent amount less then one thousand dollar
** All share information included in this report has been retroactively adjusted
to reflect the reverse merger.
The accompanying notes to these financial statements are an integral part
thereof.
F - 6
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
AUGUST 10, 2006
(DATE OF INCEPTION)
YEAR ENDED YEAR ENDED TO
DECEMBER 31, 2008 DECEMBER 31, 2007 DECEMBER 31, 2008
----------------- ----------------- -------------------
OPERATING ACTIVITIES
Net loss (1,929) (1,629) (4,054)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense - 1 1
Compensation related to share and option
issuance to employees 621 (63) 577
Expiration of land purchase option and
futures trading 102 54 156
Issuance of shares - 187 187
Increase (decrease) in other receivables 5 - 5
Increase (decrease) in trade payables (95) 255 328
Increase (decrease) in other accounts
payables (49) 350 459
----------------- ----------------- ------------------
Net cash used in operating activities (1,345) (845) (2,341)
----------------- ----------------- ------------------
INVESTING ACTIVITIES
Purchase of computer equipment - (1) (4)
Cash used in connection with acquisition - (280) (280)
Repayment of Gamida For Life B.V. debt 397 - 397
Repayment of loan to Gamidor Diagnostics (230) - (230)
Investments in land purchase options and
futures trading (20) (70) (193)
----------------- ----------------- ------------------
Net cash provided by (used in) investing
activities 147 (351) (310)
----------------- ----------------- ------------------
FINANCING ACTIVITIES
Net proceeds from line of credit from
related party 800 1,216 2,321
Repayment of short term bank credit (39) - (39)
Purchase of treasury shares - (68) (68)
Proceeds from issuance of shares 440 - 441
----------------- ----------------- ------------------
Net cash provided by financing activities 1,201 1,148 2,655
----------------- ----------------- ------------------
NET INCREASE (DECREASE) IN CASH 3 (48) 4
CASH AT BEGINNING OF PERIOD 1 49 -
----------------- ----------------- ------------------
CASH AT END OF PERIOD 4 1 4
================= ================= ==================
The accompanying notes are an integral part of the consolidated financial
statements.
F - 7
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 1:- GENERAL
a. NexGen Biofuels Ltd. (formally: Healthcare Technologies Ltd.) and
its subsidiaries (the "Company" or "NexGen"), is a development
stage company that is currently seeking to develop and/or acquire
blending terminal facilities and, ethanol and bio-diesel plants in
the United States.
NexGen Biofuels Ltd. was established as an Israeli corporation.
Prior to the closing of the Purchase Agreement on December 31,
2007, the Company's business was in the field of diagnostic and
biotech. In accordance with the Purchase Agreement, dated as of
January 16, 2007, as amended (the "Purchase Agreement"), and
consummated on December 31, 2007, by and among, the Company,
NexGen Biofuels, Inc., ("NexGen Bio"), MAC Bioventures Inc.,
("MAC"), the parent company of NexGen Bio, and Gamida for Life
B.V., ("Gamida"), the parent company of NexGen, the Company
completed a Plan of Arrangement (the "Plan") as following:
1. The Company transferred substantially all of its existing
assets and liabilities to Gamida, in consideration for
4,700,000 shares of the Company held by Gamida.
2. NexGen Bio transferred its principal assets (the "NexGen
Assets") in the ethanol and biodiesel fuel industry
consisting of options to purchase five Greenfield sites in
the United States and permitting for 100 million gallons of
annual ethanol or bio-diesel production capacity per site to
NexGen 2007, Inc ("NewCo"), a wholly-owned subsidiary of the
Company;
3. The Company issued to MAC and MAC's designees an aggregate of
38,280,000 ordinary shares, representing the $58 million
appraised value of the NexGen Assets divided by $1.50 (the
agreed upon value of NexGen share) less 1%; In addition, the
Company issued 386,666 ordinary shares to one of its
directors.
The Plan was subject to shareholders approval which was granted on
December 4, 2007.
Prior to the Plan, the Company had no substantial operations as it
transferred all of its existing assets to Gamida. Therefore, the
financial statements and accompanying notes represent the
historical results of NexGen Bio, unless otherwise stated.
On January 28, 2008, the Company changed its name from Healthcare
Technologies Ltd. to NexGen Biofuels Ltd.
F - 8
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 1:- ORGANIZATION AND BASIS OF PRESENTATION (CONT.)
b. Development Stage Enterprise
The Company has been in the development stage since its formation
on August 10, 2006. It has primarily been engaged in the
development of blending terminals and ethanol/biodiesel plants
while raising capital to carry out its business plan. The Company
expects to continue to incur significant operating losses and to
generate negative cash flow from operating activities while it
develops projects, its customer base and establishes itself in the
marketplace. The Company's ability to eliminate operating losses
and to generate positive cash flow from operations in the future
will depend upon a variety of factors, many of which the Company
may be unable to control. If the Company is unable to implement
its business plan successfully, it may not be able to eliminate
operating losses, generate positive cash flow, or achieve or
sustain profitability, which would materially adversely affect its
business, operations, and financial results, as well as its
ability to make payments on its debt obligations.
c. Going Concern
The Company incurred a net loss of $ 4,054 thousand for the period
August 10, 2006 (date of inception) through December 31, 2008. As
of December 31, 2008 the Company had $ 233 thousand of negative
working capital, $ 944 thousand shareholders deficiency and $ 4
thousand of cash. The Company depends upon capital to be derived
from future financial activities, such as subsequent offerings of
its Ordinary Shares, or debt financing in order to operate and
grow the business. There can be no assurance that the Company will
be successful in raising such capital. The key factors that are
not within the Company's control and that have a direct bearing on
operating results include, but are not limited to, acceptance of
the Company's business plan, the ability to raise capital in the
future, the ability to expand its customer base, and the ability
to hire key employees to grow the business. There may be other
risks and circumstances that management may be unable to predict.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments
relating to recoverability of assets and classification of
liabilities that might be necessary should the Company be unable
to continue as a going concern.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been identified as critical to
the Company's business operations and the understanding of its results
of operations.
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
F - 9
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
b. Financial statements in US dollars:
The majority of the Company's sales is in US dollars or in US
dollar linked currencies. In addition, the majority of the
Company's financing is received in US dollars. Accordingly, the
Company has determined the US dollar as the currency of its
primary economic environment and thus, its functional and
reporting currency. Non-dollar transactions and balances have been
measured into US dollars in accordance with Statement of Financial
Accounting Standard No. 52 "Foreign Currency Translation" ("SFAS
No. 52"). All transaction gains and losses from the measurement of
monetary balance sheet items denominated in non-dollar currencies
are reflected in the statement of operations as financial income
or expenses, as appropriate.
c. Cash and cash equivalents:
The Company considers all highly liquid investments purchased with
maturities of three months or less at the date acquired to be cash
equivalents.
d. Short-term bank deposits:
The Company classifies bank deposits with maturities of more than
three months and less than one year as short-term deposits.
Short-term deposits are presented at cost, including accrued
interest.
e. Inventories:
Inventories, consisting of completed devices, devices partially
completed and components are valued at the lower of cost
determined by the moving-average basis or market value. The value
of the inventory is adjusted for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions as
to future demand and market conditions.
F - 10
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
f. Property and equipment:
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, at the
following annual rates:
%
--------------------
Machinery and Equipment 10
Office furniture and equipment 7 - 33
Vehicles 15
Leasehold improvements 10
g. Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144") 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 a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the
assets. 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. As of December 31, 2008, management believes that all of
the Company's long-lived assets are recoverable.
h. Revenue recognition:
The Company will recognizes revenue in accordance with Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in
Financial Statements". Under SAB No.104, the Company recognizes
revenue from the sale of products upon shipment to the customer,
and the following criteria have been met: persuasive evidence of
an arrangement exists, title has been transferred, price is fixed
and determinable, no significant Company obligations remain and
collection of the related receivable is reasonably assured.
When the above revenue recognition criteria are not met at the
time products are shipped, the Company records deferred revenue.
i. Research and Development:
Costs incurred in connection with the research and development of
the Company's products are expensed as incurred.
j. Marketing and Advertising:
Marketing and advertising costs are expensed as incurred.
F - 11
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
k. Income taxes:
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). This Statement prescribes the use of the
liability method whereby deferred tax assets and liability account
balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The Company provides a
valuation allowance, if necessary to reduce the amount of deferred
tax assets to their estimated realizable value.
l. Severance pay:
The Company's liability for severance pay is calculated pursuant
to Israeli severance pay law based on the most recent salary of
the employees multiplied by the number of years of employment as
of balance sheet date. Employees are entitled to one month's
salary for each year of employment, or a portion thereof. The
Company's liability in Israel is fully provided by monthly
deposits with insurance policies and by an accrual.
The deposited funds include profits accumulated up to the balance
sheet date. The deposited funds may be withdrawn only upon the
fulfillment of the obligation pursuant to Israeli severance pay
law or labor agreements. The value of the deposited funds is based
on the cash surrendered value of these policies, and includes
immaterial profits.
m. Basic and diluted net loss per share:
Basic net loss per share is computed based on the weighted average
number of Common shares outstanding during each year. Diluted loss
per share is computed based on the weighted average number of
Common shares outstanding during each year, plus dilutive
potential Common shares considered outstanding during the year, in
accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS No. 128").
n. Fair value of financial instruments:
The financial instruments of the Company consist mainly of cash
and cash equivalents, other accounts receivable, short-term bank
credit, trade payables, other accounts payable and long-term loans
from others.
In view of their short term nature, the fair value of the
financial instruments included in working capital of the Company
is usually identical, or close, to their carrying value. The fair
value of long-term loans also approximates the carrying value,
since they bear interest at rates approximating the prevailing
market rates.
F - 12
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
o. Stock-based compensation plans:
In December 2004, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123 (R)"). SFAS 123 (R) requires companies to measure all
employee stock-based compensation awards using a fair value method
and recognize compensation cost in its financial statements. The
Company recognizes the fair value of stock-based compensation
awards as general and administrative expense in the statements of
operations on a straight-line basis over the vesting period.
p. Recent accounting pronouncements:
FASB STAFF POSITION ("FSP") ACCOUNTING PRINCIPLES BOARD ("APB")
14-1, ACCOUNTING FOR CONVERTIBLE DEBT INSTRUMENTS THAT MAY BE
SETTLED IN CASH UPON CONVERSION (INCLUDING PARTIAL CASH
SETTLEMENT):
In May 2008, the FASB issued FASB Staff Position ("FSP")
Accounting Principles Board ("APB") 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)." FSP APB 14-1
applies to convertible debt instruments that, by their stated
terms, may be settled in cash (or other assets) upon conversion,
including partial cash settlement of the conversion option. FSP
APB 14-1 requires bifurcation of the instrument into a debt
component that is initially recorded at fair value and an equity
component. The difference between the fair value of the debt
component and the initial proceeds from issuance of the instrument
is recorded as a component of equity. The liability component of
the debt instrument is accreted to par using the effective yield
method; accretion is reported as a component of interest expense.
The equity component is not subsequently re-valued as long as it
continues to qualify for equity treatment. FSP APB 14-1 must be
applied retrospectively to previously issued cash-settleable
convertible instruments as well as prospectively to newly issued
instruments. FSP APB 14-1 is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal
years. The adoption of FSP APB 14-1 did not have a material impact
on the Company's financial statements.
SFAS NO. 162, "THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES":
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of
Generally Accepted Accounting Principles." SFAS No. 162 identifies
the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles. SFAS No. 162 became effective in November 2008. The
adoption of SFAS No. 162 did not have a material impact on the
Company's financial statements.
F - 13
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)
P. Recent accounting pronouncement (cont.):
In December 2007, the Financial Accounting Standards Board (the
"FASB") issued SFAS No. 141(R), "Business Combinations (revised
2007)." SFAS No. 141(R) applies the acquisition method of
accounting for business combinations established in SFAS No. 141
to all acquisitions where the acquirer gains a controlling
interest, regardless of whether consideration was exchanged.
Consistent with SFAS No. 141, SFAS No. 141(R) requires the
acquirer to fair value the assets and liabilities of the acquiree
and record goodwill on bargain purchases, with main difference the
application to all acquisitions where control is achieved. SFAS
No. 141(R) is effective for financial statements issued for fiscal
years beginning after December 15, 2008. The Company will adopt
SFAS No. 141(R) on January 1, 2009; however, the Company does not
anticipate that the adoption will have a material impact on its
financial condition or results of its operations
SFAS 159- THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
LIABILITIES:
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including
an amendment of FASB Statement No. 115," which provides a fair
value option election that permits entities to irrevocably elect
to measure certain financial assets and liabilities (exceptions
are specifically identified in the Statement) at fair value as the
initial and subsequent measurement attribute, with changes in fair
value recognized in earnings as they occur. SFAS No. 159 permits
the fair value option election on an instrument-by-instrument
basis at initial recognition of an asset or liability or upon an
event that gives rise to a new basis of accounting for that
instrument. The adoption of SFAS No. 159 on January 1, 2008, for
financial assets and liabilities, did not have a material impact
on the Company's financial position or results of operations.
SFAS 157 - FAIR VALUE MEASUREMENT:
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements ("FAS 157"). This standard defines fair value,
establishes a framework and gives guidance regarding the methods
used for measuring fair value, and expands disclosures about fair
value measurements. This standard is effective for financial
statements issued for fiscal years beginning after November 15,
2007. In February 2008, the FASB released a FASB Staff Position
(FSP FAS 157-2- Effective Date of FASB Statement No. 157) which
delays the effective date of SFAS No. 157 for all non-financial
assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) to fiscal years beginning
after November 15, 2008. The partial adoption of SFAS No. 157 on
January 1, 2008, for financial assets and liabilities did not have
a material impact on the Company's financial position or results
of operations.
NOTE 3:- GAMIDA FOR LIFE BV
According to the Purchase Agreement, Gamida is obligated to repay the
Company for all of NexGen Biofuels Ltd. Liabilities regarding the
period ended December 31, 2007.
Gamida has repaid the above liabilities in full, until March 31, 2008.
F - 14
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 4:- INVESTMENTS IN LAND PURCHASE OPTIONS
Investments in land purchase options at December 31, 2008 consist of the
following:
DESCRIPTION OF DATE OF DATE OF PRICE PER
PROPERTY SUBSIDIARY OPTION EXPIRATION ACRE OPTIONS COST OTHER COSTS TOTAL
15 acres Milla Council Bluffs 8/01/06 8/17/09 22 7.5 13.4 20.9
County, IA Biofuels, Inc.
160 Acres Indiana 4/20/07 01/20/09 25 40 22.9 62.9
Shelby County, Biofuels, Inc.
IN
----------------------------------
47.5 36.3 83.8
==================================
Investments in land purchase options at December 31, 2007 consist of the
following:
DESCRIPTION OF DATE OF DATE OF PRICE PER
PROPERTY SUBSIDIARY OPTION EXPIRATION ACRE OPTIONS COST OTHER COSTS TOTAL
15 acres Milla Council Bluffs 8/01/06 8/17/09 22 7.5 13.4 20.9
County, IA Biofuels, Inc.
2 Properties Reedsburg 10/30/06 02/01/08 2.5 20 19.2 39.2
Township of Biofuels, Inc. 10/17/06 11/01/08
Reedsburg Sauk
County, WI
160 Acres Shelby Indiana 4/20/07 4/20/08 25 40 22.9 62.9
County, IN Biofuels, Inc.
407 Acres Arkansas 10/09/07 07/09/08 9.1 20 - 20
Jefferson Biofuels, LLC
County, AR
72 Acres Port Clinton 1/12/07 1/12/08(2) 1 22 23
Township of Erie Biofuels, Inc.
Ottawa County, OH
---------------------------------
$ 88.5 $ 77.5 $ 166
=================================
(1) The aggregate purchase price of one property is $ 500; the other
property has a purchase price of $ 2.5 per acre.
(2) Price per acre ranges from $ 10 to $ 20. The purchase price for a
separate sewer and water system will be approximately $ 300 and $
500, respectively. On January 7, 2008 the Company paid $ 7.5 to
extend this option to July 12, 2008.
(3) In January 2008, the Company extended this option to April 15, 2008.
F - 15
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 5:- SHORT-TERM BANK CREDIT
INTEREST RATE LINKAGE TERMS
------------- ------------- DECEMBER 31,
2008 2007
------------- -------------
Short-term bank loans 7% NIS - $ 39
============= =============
The short-term credit was repaid to the bank as of the end of March
2008. Under the terms of the Purchase Agreement, Gamida repaid the
Company the full amount.
NOTE 6:- LOAN FROM GAMIDOR DIAGNOSTICS LTD
As part of the Purchase Agreement, the Company continues to carry
an existing loan from Gamidor Diagnostics Ltd., amounting to $
230. The loan shall only be repayable in proceeds received by the
Company from the December 31, 2007 Plan, (the "Closing Date") in
connection with the exercise of options to purchase ordinary
shares of the Company, outstanding as of the Closing Date. In the
event that the loan will not be fully repaid on or before 180 days
following the Closing Date, then such loan shall be forgiven and
cancelled and the Company shall not be obligated to make any
further payment in connection with the loan.
As of March 31, 2008, all the options were exercised and the loan
was repaid in full.
NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES
In 2007, the Company entered into a three year lease for 1,250 sq. feet
of office space in Wesley Chapel, Florida. This lease expires on
January 31, 2010. This lease was terminated by mutual agreement, and a
smaller space in Wesley Chapel, Florida was obtained.
At December 31, 2006, the Company entered into a lease agreement for
office space in New York. The lease expired on June 30, 2007.
Rent expense for the year ended December 31, 2008 and the year ended
December 31, 2007, was $ 26 and $ 32, respectively.
The following is a schedule by year of future minimum rental payments
required under the aforementioned leases as of December 31, 2008:
2009 - $3
2010 - $3
F - 16
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 8:- SHAREHOLDERS' DEFICIENCY
a. On January 9, 2008, the Company sold 150,000 ordinary shares for
an aggregate purchase price of $225 thousand to an accredited
investor in a private placement transaction. In addition, the
Company issued 15,000 shares as a 10% commission to the broker
responsible for that transaction.
b. During the first nine months of 2008, NexGen issued 465,000 shares
of common stock to employees. The Company has accounted for this
award in accordance with FAS123(R). The total grant date fair
value was $ 418 thousand, reflecting the quoted market price of
the Company's Ordinary shares as of the date of grant over the
purchase price of $ 0 as compensation expense.
In addition, the Company granted on January 9, 2008, one of its
executives 650,000 options to purchase Ordinary shares of the
Company under the ISO Plan (defined below). The Options have the
following terms, among others: (i) a term of 5 years, subject to
earlier expiration; (ii) an exercise price of $1.50 per share, and
(iii) vesting and exercise rights in five annually equal
installments of 130,000 shares each. The Company has accounted for
this award in accordance with FAS123(R). The fair value of each
option award is estimated on the date of grant using a
Black-Scholes option pricing model. In June 2008, effective as of
June 1 2008, the employment agreement with the executive was
terminated by mutual agreement. The total grant fair value
recorded was $ 28 thousand.
c. According to the Purchase Agreement, the Company granted to Israel
Amir 386,666 Ordinary Shares for his willingness to commit to
serve as a director of the Company for a period of no less than
two years after the Closing. The Company has accounted for this
award in accordance with FAS123(R). The total grant date fair
value was $ 352 thousand, reflecting the quoted market price of
the Company's Ordinary shares as of the date of grant over the
purchase price of $ 0 as compensation expense, ratably over the
release two years period of the restricted shares.
F - 17
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 9:- TAXES ON INCOME
a. Under SFAS No. 109, deferred tax assets are to be recognized for
the anticipated tax benefits associated with net operating loss
carryforwards and deductible temporary differences, unless it is
more likely than not that some or all of the deferred tax assets
will not be realized.
Since the realization of the net operating loss carryforwards and
deductible temporary differences is uncertain and considered
unlikely, a valuation allowance has not been established for the
full amount of the tax benefits. As of December 31, 2008 the
Company has net operating loss ("NOL") carryforwards for Israeli
tax purposes of approximately $ 14,000 which may be used to offset
taxable income, subject to annual limitations. Such NOL has no
expiration date.
b. Reduction in corporate income tax rate in Israel:
On July 25, 2005 an amendment to the Israeli tax law was approved
by the Israeli parliament, which reduces the tax rates imposed on
Israeli companies. This amendment states that the corporate tax
rate will be further reduced in subsequent tax years as follows:
in 2006 - 31%; in 2007 - 29%; in 2008 - 27%; in 2009 - 26% and
thereafter 25%. This change does not have a material effect on the
Company's financial statements.
F - 18
NEXGEN BIOFUELS AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
NOTE 10:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
2 Shareholders were due to receive annual compensation amounting to
$165,due to the financial situation of the company the shareholders
were unable to receive the compensation due and as a result the
salaries were accrued and not paid, total amount due is $330.
On March 30th, 2008 the company and a shareholders signed a credit
facility agreement as follows: Loan. The Lender hereby loans the
Borrower an amount of up to US $500,000 (the "Loan"). The loan will be
given in installments, as requested by the Borrower. The Loan shall
bear an annual interest rate of Libor+3%.
Maturity Date. The Loan and the interest shall become due and payable
on (i) the date that the Borrower shall raise sufficient funding from
investors or, (ii) from the first available cash above the running
cost of the Lender or, (iii) on or before April 1, 2009, which ever
comes first.
As of December 31, 2008 balance of loan and highest balance of the
year amounted to $310,an amount of $7 was recorded as interest.
NOTE 11:- SUBSEQUENT EVENTS
a. On March 29th, 2009 the company announced that it has signed a
non-binding Letter of Intent with WORLD VENTURE MANAGEMENT INC., a
Nevada based company (herein referred to as ("WVM" ) and Mac
Bioventures, Inc. The transaction includes (i) the transfer to
NexGen of WVM's assets relating to its Real Estate acquisitions
and asset management enterprise, such as Hotel/Casinos, Wineries
and Vineyards, Refineries, Office Buildings and Apartment
Complexes, Shopping Malls and other commercial buildings, in
addition to the management of certain assets such a Gemstones,
Gold and Diamonds and in-ground assets such as Coal and Oil, Gas
and Natural Gas, in the United States in consideration for a
controlling stake in NexGen and (ii) the purchase of NexGen's
holdings in its subsidiaries by Mac Bioventures in consideration
for a part of the debt it's assuming in NexGen.
The Letter of Intent further contemplates that the number of
shares up to 65 million to be issued in consideration for WVM's
assets shall be based on the valuation of the assets to be
provided by a recognized valuation firm.
Closing of the transaction is subject to the negotiation and
execution of definitive agreements, the completion of due
diligence, the receipt of the necessary corporate, regulatory and
third party approvals, including NexGen's shareholders and the
approval of an Israeli District Court. No assurance can be given
that a definitive agreement will be signed or that the transaction
will close.
b. Subsequent to balance sheet date all directors of the company
except one have resigned. This situation does not meet the
requirements of the Israeli Corporate law as to minimal number of
directors required by a public company.
F - 19
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized:
NEXGEN BIOFUELS LTD.
By: /s/ J. Ram Ajjarapu
-----------------------
J. Ram Ajjarapu
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
date indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ J. Ram Ajjarapu Chief Executive Officer and Director April 15, 2009
- ----------------------- (Principal Executive Officer)
J. Ram Ajjarapu
