As filed with the Securities and Exchange Commission on March 18, 2004
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________
ALTERNATE ENERGY CORP.
(Name of Registrant in Our Charter)
NEVADA 86-0884116
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Identification No.)
or Organization)
2813
(Primary Standard Industrial
Classification Code Number)
ALTERNATE ENERGY CORP. BLAINE FROATS
3325 NORTH SERVICE ROAD, UNIT 105 ALTERNATE ENERGY CORP.
BURLINGTON, ONTARIO, 3325 NORTH SERVICE ROAD, UNIT 105
CANADA 67N3G2 BURLINGTON, ONTARIO,
(905) 332-3110 CANADA 67N3G2
(Address and telephone number of (905) 332-3110
Principal Executive Offices and (Name, address and telephone
Principal Place of Business) number of agent for service)
COPIES TO:
Clayton E. Parker, Esq. Harris C. Siskind, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 S. Biscayne Boulevard, Suite 2000 201 S. Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
(305) 539-3300 (305) 539-3300
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) FEE
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Common Stock, par value $0.001 per share 12,421,142(2) shares $0.77 $9,564,279.34 $1,211.80
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TOTAL 12,421,142(2) shares $0.77 $9,564,279.34 $1,211.80
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. For purposes
of this table, we have used the average of the closing bid and asking
prices as of March 15, 2004.
(2) These shares include 5,861,142 shares issuable upon the exercise of
warrants.
_________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PROSPECTUS
Subject to completion, dated March 18, 2004
ALTERNATE ENERGY CORP.
12,421,142 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 12,421,142 shares of
Alternate Energy Corp.'s ("AEC" or the "Company") common stock by certain
persons who are, or are beneficially deemed to be, stockholders of AEC. Please
refer to "Selling Stockholders" beginning on page 8. AEC is not selling any
shares of common stock in this offering and therefore will not receive any
proceeds from this offering. AEC may receive proceeds from the exercise of
warrants to purchase 5,861,142 shares of common stock. All costs associated with
this registration will be borne by AEC.
The shares of common stock are being offered for sale by the selling
stockholders at prices established on the Over-the-Counter Bulletin Board during
the term of this offering. On March 16, 2004, the last reported sale price of
our common stock was $0.77 per share. Our common stock is quoted on the
Over-the-Counter Bulletin Board under the symbol "ARGY." These prices will
fluctuate based on the demand for the shares of common stock.
The selling stockholders consist of Palisades Master Fund LP, which
intends to sell up to 1,500,000 shares of common stock including 500,000 shares
from the exercise of warrants, Crescent International Ltd., which intends to
sell up to 1,200,000 shares of common stock including 400,000 shares from the
exercise of warrants, Alpha Capital AG, which intends to sell up to 1,500,000
shares of common stock including 500,000 shares from the exercise of warrants,
Bristol Investment Fund, Ltd., which intends to sell up to 450,000 shares of
common stock including 150,000 shares from the exercise of warrants, Ellis
International Limited, Inc., which intends to sell up to 300,000 shares of
common stock including 100,000 shares from the exercise of warrants, Vertical
Ventures, LLC, which intends to sell up to 900,000 shares of common stock
including 300,000 shares from the exercise of warrants, HPC Capital Management,
which intends to sell up to 165,000 shares of common stock all of which are from
the exercise of warrants, LRG Holdings Inc., which intends to sell up to 86,666
shares of common stock including 26,666 shares from the exercise of warrants,
Professional Traders Fund LLC, which intends to sell up to 433,334 shares of
common stock including 133,334 shares from the exercise of warrants, Generation
Capital Associates, which intends to sell up to 433,334 shares of common stock
including 133,334 shares from the exercise of warrants, First Mirage Inc., which
intends to sell up to 433,334 shares of common stock including 133,334 shares
from the exercise of warrants, Truk Opportunity Fund LLC, which intends to sell
up to 144,444 shares of common stock including 44,444 shares from the exercise
of warrants, Alpine Capital, which intends to sell up to 286,000 shares of
common stock all of which are from the exercise of warrants, Platinum Partners,
which intends to sell up to 750,000 shares of common stock including 250,000
shares from the exercise of warrants, Abraham Schwartz, who intends to sell up
to 75,000 shares of common stock including 25,000 shares from the exercise of
warrants, Colbart Birnet, who intends to sell up to 300,000 shares of common
stock including 100,000 shares from the exercise of warrants, Chana Braun, who
intends to sell up to 75,000 shares of common stock including 25,000 shares from
the exercise of warrants, Ronald Nash, who intends to sell up to 150,000 shares
of common stock including 50,000 shares from the exercise of warrants,
Marketwise Trading, which intends to sell up to 300,000 shares of common stock
including 100,000 shares from the exercise of warrants, West End Convertible
Fund, which intends to sell up to 450,000 shares of common stock including
150,000 shares from the exercise of warrants, Zeena Kaila, who intends to sell
300,000 shares of common stock including 100,000 shares from the exercise of
warrants and Taurus Global, LLC, which intends to sell up to 2,189,050 shares of
common stock all of which are from the exercise of warrants.
Brokers or dealers effecting transactions in these shares should
confirm that the shares are registered under the applicable state law or that an
exemption from registration is available.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 4.
No underwriter or person has been engaged to facilitate the sale of
shares of common stock in this offering. None of the proceeds from the sale of
stock by the selling stockholders will be placed in escrow, trust or any similar
account.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
The date of this prospectus is __________ __, 2004.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................1
THE OFFERING...................................................................2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION.....................................3
RISK FACTORS...................................................................4
FORWARD-LOOKING STATEMENTS.....................................................7
SELLING STOCKHOLDERS...........................................................8
USE OF PROCEEDS...............................................................11
PLAN OF DISTRIBUTION..........................................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................13
DESCRIPTION OF BUSINESS.......................................................16
MANAGEMENT....................................................................25
DESCRIPTION OF PROPERTY.......................................................30
LEGAL PROCEEDINGS.............................................................30
PRINCIPAL STOCKHOLDERS........................................................31
CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.................................33
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS.................................34
DESCRIPTION OF SECURITIES.....................................................35
EXPERTS.......................................................................37
LEGAL MATTERS.................................................................37
HOW TO GET MORE INFORMATION...................................................37
AUDITORS' REPORT...............................................................2
EXHIBIT 5.1....................................................................1
EXHIBIT 23.2...................................................................1
FINANCIAL STATEMENTS.........................................................F-1
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i
PROSPECTUS SUMMARY
OVERVIEW
AEC is an energy company committed to delivering innovative, practical
and environmentally responsible fuel and power solutions to consumer, commercial
and government markets. The Company's main technology is focused on production
of on-demand hydrogen. We believe AEC's hydrogen production process is designed
to overcome two major industry obstacles - affordability and safety. The
hydrogen production system leverages a proprietary chemical process that yields
fuel-cell-quality hydrogen from fresh or salt water, with no known harmful
by-products. Since AEC's hydrogen-maker requires little space, we believe it can
be designed to directly supply almost any application on an as-needed basis,
eliminating the need to store hydrogen in a compressed state.
AEC is focused upon the commercialization of its patent pending
hydrogen technology. The Company believes its hydrogen technology will have
application in the areas of stationary and portable fuel cell applications,
back-up power applications, electric-powered and gas combusting vehicles, and
residential and commercial/industrial applications for users wishing to gain
independence from the existing electricity grid. AEC is moving to complete the
necessary engineering refinements and industry certifications.
Management believes that AEC's long-term growth prospects are
positively affected by several market and industry trends including continued
uncertainty about the price and availability of fossil fuels, growing consumer
demand for a reliable alternative to the public electric power grid, continued
concerns about the impact of fossil fuels and greenhouse gases on the global
environment and serious concerns with the increasing reliance on imported fossil
fuels for Western nations.
Unlike most of its competitors, AEC's process does not generate its
hydrogen from fossil fuels. It also does not require any of electric power. Nor
does it require a large scale manufacturing process. The Company believes that
its technology will have both substantial environmental and cost-competitive
advantages in the marketplace.
ABOUT US
Our principal office is located at 3325 North Service Road, Suite 105,
Burlington, Ontario, Canada L7N3G2. Our telephone number is (905) 332-3110.
1
THE OFFERING
This offering relates to the sale of common stock by certain persons
who are, or are beneficially deemed to be, stockholders of AEC. The selling
stockholders consist of Palisades Master Fund LP, which intends to sell up to
1,500,000 shares of common stock including 500,000 shares from the exercise of
warrants, Crescent International Ltd., which intends to sell up to 1,200,000
shares of common stock including 400,000 shares from the exercise of warrants,
Alpha Capital AG, which intends to sell up to 1,500,000 shares of common stock
including 500,000 shares from the exercise of warrants, Bristol Investment Fund,
Ltd., which intends to sell up to 450,000 shares of common stock including
150,000 shares from the exercise of warrants, Ellis International Limited, Inc.,
which intends to sell up to 300,000 shares of common stock including 100,000
shares from the exercise of warrants, Vertical Ventures, LLC, which intends to
sell up to 900,000 shares of common stock including 300,000 shares from the
exercise of warrants, HPC Capital Management, which intends to sell up to
165,000 shares of common stock all of which are from the exercise of warrants,
LRG Holdings Inc., which intends to sell up to 86,666 shares of common stock
including 26,666 shares from the exercise of warrants, Professional Traders Fund
LLC, which intends to sell up to 433,334 shares of common stock including
133,334 shares from the exercise of warrants, Generation Capital Associates,
which intends to sell up to 433,334 shares of common stock including 133,334
shares from the exercise of warrants, First Mirage Inc., which intends to sell
up to 433,334 shares of common stock including 133,334 shares from the exercise
of warrants, Truk Opportunity Fund LLC, which intends to sell up to 144,444
shares of common stock including 44,444 shares from the exercise of warrants,
Alpine Capital, which intends to sell up to 286,000 shares of common stock all
of which are from the exercise of warrants, Platinum Partners, which intends to
sell up to 750,000 shares of common stock including 250,000 shares from the
exercise of warrants, Abraham Schwartz, who intends to sell up to 75,000 shares
of common stock including 25,000 shares from the exercise of warrants, Colbart
Birnet, who intends to sell up to 300,000 shares of common stock including
100,000 shares from the exercise of warrants, Chana Braun, who intends to sell
up to 75,000 shares of common stock including 25,000 shares from the exercise of
warrants, Ronald Nash, who intends to sell up to 150,000 shares of common stock
including 50,000 shares from the exercise of warrants, Marketwise Trading, which
intends to sell up to 300,000 shares of common stock including 100,000 shares
from the exercise of warrants, West End Convertible Fund, which intends to sell
up to 450,000 shares of common stock including 150,000 shares from the exercise
of warrants, Zeena Kaila, who intends to sell 300,000 shares of common stock
including 100,000 shares from the exercise of warrants and Taurus Global, LLC,
which intends to sell up to 2,189,050 shares of common stock all of which are
from the exercise of warrants.
COMMON STOCK OFFERED 12,421,142 shares by selling stockholders
OFFERING PRICE Market price
COMMON STOCK OUTSTANDING
BEFORE THE OFFERING 130,700,395 shares as of March 11, 2004(1)
USE OF PROCEEDS We will not receive any proceeds of the
shares offered by the selling stockholders.
Any proceeds received from the exercise of
warrants will be used for general working
capital. See "Use of Proceeds."
RISK FACTORS The securities offered hereby involve a high
degree of risk and immediate substantial
dilution. See "Risk Factors" and "Dilution."
OVER-THE-COUNTER BULLETIN
BOARD SYMBOL "ARGY"
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(1) Excludes option to purchase 4,280,135 shares of common stock and warrants to
purchase a total of 5,861,142 shares of common stock outstanding as of March 11,
2004.
2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
------------------ ------------------
STATEMENT OF OPERATION DATA:
Revenues $ -- $ --
Administrative expenses 76,973 71,995
Consulting fees 2,857,703 721,098
Management fees 240,000 239,201
Professional fees 29,443 18,075
Stock option benefit 697,000 --
Amortization of goodwill -- --
Recovery of loan (202,000) --
Loss on investments -- (1,059,197)
Net Profit (loss) (3,699,119) (2,109,366)
Net Profit (loss) per share (0.08) (0.32)
Weighted average number of common shares outstanding 45,798,538 6,521,203
DECEMBER 31, DECEMBER 31,
2003 2002
------------------ ------------------
BALANCE SHEET DATA:
Cash $ 411,727 $ --
Deferred consulting costs 3,122,456 --
Prepared expenses and sundry assets 38,801 --
Technology, licenses and patents 1,969,236 --
Total assets 5,542,220 --
Accounts payable and accrued liabilities 236,954 202,000
Stock option liability 864,780 153,180
Note due to related party 180,362 --
Total liabilities 1,291,096 355,180
Capital stock 125,747 13,181
Additional paid-in capital 18,696,548 10,503,691
Deficit (14,571,171) (355,180)
Total liabilities and stockholders' deficit 5,542,220 --
3
RISK FACTORS
WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
AEC HAS LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have not been profitable and have lost money on both a cash and
non-cash basis. For the year ended December 31, 2003 and December 31, 2002, we
lost $3,699,119 and $2,109,566, respectively. Our accumulated deficit was
$14,571,171 at December 31, 2003. Future losses are likely to occur, as we are
dependent on spending money to pay for our operations. No assurances can be
given that we will be successful in reaching or maintaining profitable
operations.
AEC MAY NEED TO RAISE ADDITIONAL CAPITAL OR DEBT FUNDING TO SUSTAIN OPERATIONS
Unless AEC can become profitable with the existing sources of funds we
have available, we will require additional capital to sustain operations and we
may need access to additional capital or additional debt financing to develop
our products. In addition, to the extent that we have a working capital deficit
and cannot offset the deficit from profitable sales we may have to raise capital
to repay the deficit and provide more working capital attain revenues. We cannot
assure you that financing whether from external sources or related parties will
be available if needed or on favorable terms. Our inability to obtain adequate
financing will result in the need to reduce the pace of business operations. Any
of these events could be materially harmful to our business and may result in a
lower stock price.
OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY
There has been a limited public market for our common stock and there
can be no assurance that a public trading market for our common stock will
develop. An absence of an active trading market could adversely affect our
shareholders' ability to sell our common stock in short time periods, or
possibly at all. Our common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations, which could adversely
affect the market price of our common stock without regard to our operating
performance. In addition, we believe that factors such as quarterly fluctuations
in our financial results and changes in the overall economy or the condition of
the financial markets could cause the price of our common stock to fluctuate
substantially. These fluctuations may also cause short sellers to enter the
market from time to time in the belief that AEC will have poor results in the
future. We cannot predict the actions of market participants and, therefore, can
offer no assurances that the market for our stock will be stable or appreciate
over time.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ listed stock must still have a price of not
less than $5.00 per share); or
o In issuers with net tangible assets less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $10.0 million (if in continuous operation for less
than three years), or with average revenues of less than $6.0
million for the last three years.
4
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Our success largely depends on the efforts and abilities of key
executives, including Blaine Froats, our Chairman of the Board and Chief
Executive Officer. The Company does not have an employment agreement with Mr.
Froats and does not maintain key man life insurance on Mr. Froats. The loss of
the services of Mr. Froats could materially harm our business because of the
cost and time necessary to replace and train a replacement. Such a loss would
also divert management attention away from operational issues. To the extent
that we are smaller than our competitors and have fewer resources we may not be
able to attract the sufficient number and quality of staff.
WE MAY NOT BE ABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THE
FOUNDATION OF OUR BUSINESS, WHICH COULD HARM OUR BUSINESS BY MAKING IT EASIER
FOR OUR COMPETITORS TO DUPLICATE OUR SERVICES
We regard certain aspects of our products, processes, services and
technology as proprietary. We have taken steps to protect them with patent
applications, restrictions on disclosure and other methods. Despite these
precautions, we cannot be certain that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar products, services and technology. Any
infringement, misappropriation or independent development could severely
detriment our operations.
We may have to resort to litigation to enforce our intellectual
property rights, protect our trade secrets, determine the validity and scope of
the proprietary rights of others, or defend ourselves from claims of
infringement, invalidity or unenforceability. Litigation may be expensive and
divert resources even if we win. This could adversely affect our business,
financial condition and operating results such that it could cause us to reduce
our operations.
OTHER PARTIES MAY ASSERT THAT OUR TECHNOLOGY INFRINGES ON THEIR INTELLECTUAL
PROPERTY RIGHTS, WHICH COULD DIVERT MANAGEMENT TIME AND RESOURCES AND POSSIBLY
FORCE AEC TO REDESIGN OUR TECHNOLOGY
Technology-based industries, such as ours, are characterized by an
increasing number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert patent,
copyright and other intellectual property rights to technologies that are
important to us. While there currently are no outstanding infringement claims
pending by or against us, we cannot assure you that third parties will not
assert infringement claims against us in the future, that assertions by such
parties will not result in costly litigation, or that they will not prevail in
any such litigation. In addition, we cannot assure you that we will be able to
license any valid and infringed patents from third parties on commercially
reasonable terms or, alternatively, be able to redesign products on a
cost-effective basis to avoid infringement. Any infringement claim or other
litigation against or by us could have a material adverse effect on us and could
cause us to reduce our operations.
OUR PRODUCTS USE INHERENTLY DANGEROUS, FLAMMABLE FUELS, WHICH COULD SUBJECT US
TO PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability claims that are
inherent in hydrogen and products that use hydrogen. Hydrogen is a flammable gas
and therefore a potentially dangerous product. Our products produce hydrogen
from water utilizing a new metallurgy and chemical process and to the extent
that hydrogen is in our product or the surrounding power systems, it is
flammable. Any accidents involving our products or other hydrogen-based products
could materially impede widespread market acceptance and demand for our hydrogen
generator or other products. We have not negotiated a products liability policy
at this time and also cannot predict whether we would be able to maintain
insurance coverage on acceptable terms. In addition, we may be held responsible
for damages beyond the scope of insurance coverage.
RISKS RELATED TO THIS OFFERING
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 130,700,395 shares of common stock outstanding as of March 11, 2004,
14,559,921 shares are currently freely tradable without restriction and
116,150,474 are restricted. These restricted shares of common stock may be
5
resold in the public market only if registered or pursuant to an exemption from
registration. In addition, we have issued warrants to purchase 5,861,142 shares
of common stock and have options outstanding to purchase 4,280,135 shares of
common stock.
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE
The selling stockholders intend to sell in the public market 12,421,142
shares of common stock being registered in this offering. That means that up
approximately 12,421,142 shares may be sold pursuant to this offering. Such
sales may cause our stock price to decline.
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER OR LOWER
THAN THE PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING
The price in this offering will fluctuate based on the prevailing
market price of the common stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the
prices paid by other people participating in this offering.
6
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus
may contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.
This prospectus contains forward-looking statements, including
statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis or Plan of Operations" and "Description of Business," as well as in
this prospectus generally. Actual events or results may differ materially from
those discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
7
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. A description of each selling stockholder's relationship to AEC
and how each selling shareholder acquired the shares to be sold in this offering
is detailed in the information immediately following this table.
PERCENTAGE OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OUTSTANDING SHARES BENEFICIALLY
OWNED BEFORE BENEFICIALLY OWNED SHARES TO BE SOLD OWNED AFTER
OFFERING BEFORE OFFERING(1) IN THE OFFERING OFFERING(1)
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JANUARY 2004 FINANCING TRANSACTION
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Palisades Master Fund LP 1,500,000 1.14% 1,500,000 0.00%
Crescent Intemational Ltd. 1.200,000 * 1,200,000 0.00%
Alpha Capital AG 1,500,000 1.14% 1,500,000 0.00%
Bristol Investment Fund, Ltd. 450,000 * 450,000 0.00%
Ellis International Limited, Inc. 300,000 * 300,000 0.00%
Vertical Ventures, LLC 900,000 * 900,000 0.00%
Platinum Partners 750,000 * 750,000 0.00%
Abraham Schwartz 75,000 * 75,000 0.00%
Colbart Birnet 300,000 * 300,000 0.00%
Chana Braun (David Leiner) 75,000 * 75,000 0.00%
Ronald Nash 150,000 * 150,000 0.00%
Marketwise Trading 300,000 * 300,000 0.00%
West End Convertible Fund 450,000 * 450,000 0.00%
Zeena Kaila 300,000 * 300,000 0.00%
--------------------------------------------------------------------------------------
TOTAL FOR JANUARY 2004 FINANCING 8,250,000 6.18% 8,250,000 0.00%
TRANSACTION --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 2003 FINANCING TRANSACTION
- -------------------------------------------------------------------------------------------------------------------------
LRG Holdings Inc. 86,666 * 86,666 0.00%
Professional Traders Fund LLC 433,334 * 433,334 0.00%
Generation Capital Associates 433.334 * 433,334 0.00%
First Mirage Inc. 433,334 * 433,334 0.00%
Truk Opportunity Fund LLC 144,444 * 144,444 0.00%
--------------------------------------------------------------------------------------
TOTAL FOR DECEMBER 2003 FINANCING 1,531,112 1.17% 1,531,112 0.00%
TRANSACTION --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CONSULTANTS
- -------------------------------------------------------------------------------------------------------------------------
HPC Capital Management 165,000 * 165,000 0.00%
Alpine Capital 286,000 * 286,000 0.00%
Taurus Global, LLC 2,189,030 1.65% 2,189,030 0.00%
--------------------------------------------------------------------------------------
TOTAL FOR CONSULTANTS 2,640,030 1.98% 2,640,030 0.00%
--------------------------------------------------------------------------------------
TOTAL 12,421,142 9.10% 12,421,142 0.00%
======================================================================================
- -------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 130,700,395 shares of
common stock outstanding as of March 11, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days
of March 11, 2004, for each stockholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to securities
exercisable or convertible into shares of common stock that are
currently exercisable or exercisable within 60 days of March 11, 2004,
are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Note that
affiliates are subject to Rule 144 and Insider trading regulations -
percentage computation is for form purposes only.
8
The following information contains a description of each selling
shareholder's relationship to AEC and how each selling shareholder acquired the
shares to be sold in this offering is detailed below. None of the selling
stockholders have held a position or office, or had any other material
relationship, with AEC:
JANUARY 2004 FINANCING. In January 2004, AEC entered into a Securities
Purchase Agreement with Palisades Master Fund LP, Crescent International Ltd.,
Alpha Capital AG, Bristol Investment Fund, Ltd., Ellis International Limited,
Inc., Vertical Ventures, LLC, Platinum Partners, Abraham Schwartz, Colbart
Birnet, Chana Braun, Ronald Nash, Marketwise Trading, West End Convertible Fund,
and Zeena Kaila pursuant to which AEC sold a total of 5,500,000 shares of common
stock at a price of $0.50 per share and warrants to purchase a total of
2,750,000 shares of common stock at an exercise price of $0.85 per share. The
warrants have a three year term. AEC received gross proceeds of $2,750,000 from
this transaction.
DECEMBER 2003 FINANCING. In December 2003, AEC entered into a
Securities Purchase Agreement with LRG Holdings Inc., Professional Traders Fund
LLC, Generation Capital Associates, First Mirage Inc., Truk Opportunity Fund
LLC, pursuant to which AEC sold a total of 1,060,000 shares of common stock at a
price of $0.50 per share and warrants to purchase a total of 471,112 shares of
common stock and an exercise price of $1.20 per share. The warrants have a three
year term. AEC received gross proceeds of $530,000 from this transaction.
CONSULTANT SHARES. As part of these financings, AEC has issued warrants
to consultants of the Company. HPC Capital Management was issued warrants to
purchase 165,000 shares of common stock at $0.85 per share as part of the
January 2004 financing transaction. Alpine Capital was issued warrants to
purchase a total of 281,000 shares of common stock. Of this total, warrants to
purchase 106,000 shares of common stock at $1.20 per share were issued as part
of the December 2003 financing transaction and warrants to purchase 180,000
shares of common stock at $0.85 per share as part of the January 2004 financing
transaction. In exchange for introduction to strategic partners and other
business services, Taurus Global, LLC has been issued warrants to purchase a
total of 2,189,030 shares of common stock. Of this total, warrants to purchase
1,973,030 shares of common stock have an exercise price of $1.67 per share,
warrants to purchase 144,000 have an exercise price of $0.50 per share, and
warrants to purchase 72,000 shares of common stock have an exercise price of
$0.85 per share.
Palisades Master Fund LP is organized under the laws of British Virgin
Islands. All investment decisions for Palisades Master Fund LP are made by PEF
Advisors LLC, the general partners.
Crescent International Ltd. is organized under the laws of Bermuda. All
investment decisions for Crescent International Ltd. are made by Mel Craw and
Maxi Brezzi.
Alpha Capital AG is organized under the laws of Liechtenstein. All
investment decisions for Alpha Capital AG are made by Konrad Ackerman.
Bristol Investment Fund, Ltd. is organized under the laws of the Cayman
Islands. All investment decisions for Bristol Investment Fund, Ltd. are made by
Paul Kessler, Director and Member of the investment manager to Bristol
Investment Fund, Ltd.
Ellis International Limited, Inc. is organized under the laws of
Panama. All investment decisions for Ellis International Limited, Inc. are made
by Wilhelm Ungar.
Vertical Ventures, LLC is organized under the laws of Delaware. All
investment decisions for Vertical Ventures, LLC are made by Josh Silverman.
Platinum Partners is organized under the laws of New York. All
investment decisions for Platinum Partners are made by Frank Giorgio.
Abraham Schwartz, Colbart Birnet, Chana Braun, Ronald Nash and Zeena
Kaila are accredited investors who purchased shares of common stock and warrants
in the January 2004 financing transaction.
Marketwise Trading is organized under the laws of New York State. All
investment decisions for Marketwise Trading are made by Rachel Gershan.
West End Convertible Fund is organized under the laws of Cayman
Islands. All investment decisions for West End Convertible Fund are made by
Ethan Benovitz, Jaime Hartman and Daniel Saks.
9
LRG Holdings Inc. is organized under the laws of Ontario, Canada. All
investment decisions fro LRG Holdings Inc. are made by Shimshon Gross.
Professional Traders Fund LLC is organized under the laws of NY State.
All investment decisions for Professional Traders Fund LLC are made by Mark
Swickle.
Generation Capital Associates is organized under the laws of Georgia.
All investment decisions for Generation Capital Associates are made by Frank E.
Hart.
First Mirage Inc. is organized under the laws of Delaware. All
investment decisions for First Mirage Inc. are made by Dave Rapaport.
Truk Opportunity Fund LLC is organized under the laws of Delaware. All
investment decisions for Truk Opportunity Fund LLC are made by Michael E. Fein
and Stephen E. Saltstein.
HPC Capital Management is organized under the laws of Georgia. All
investment decisions for West End Convertible Fund are made by Vince Sbarra and
Paul T. Mannion jr.
Alpine Capital is organized under the laws of Delaware. All investment
decisions for Alpine Capital are made by Evan Bines.
Taurus Global, LLC is organized under the laws of Delaware. All
investment decisions for Taurus Global are made by Franco Scalamandre and
Michael Rosenberg.
10
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by certain selling stockholders. There will
be no proceeds to us from the sale of shares of common stock in this offering,
except to the extent that the selling shareholders exercise their respective
warrants. The exercise of the warrants to purchase 5,861,142 shares would
generate a total of $6,751,444.50 in proceeds for AEC. Any proceeds generated by
the exercise of warrants would be used by AEC for general working capital
purposes.
11
PLAN OF DISTRIBUTION
The selling stockholders of the common stock of AEC and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise; or
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), if available, rather
than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The selling stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the common stock.
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the selling stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following discussion and analysis should be read in conjunction
with the financial statements, and the notes thereto included herein. The
information contained below includes statements of AEC's or management's
beliefs, expectations, hopes, goals and plans that, if not historical, are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. For a discussion on forward-looking statements, see
the information set forth in the Introductory Note to this registration
statement under the caption "Forward Looking Statements", which information is
incorporated herein by reference.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND NEW ACCOUNTING PRONOUNCEMENTS
Management's discussion and analysis of our financial condition and
results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
that we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. At each balance sheet date, management evaluates its estimates.
We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions. The
estimates and critical accounting policies that are most important in fully
understanding and evaluating our financial condition and results of operations
include those listed below:
DEFERRED CONSULTING COSTS
Shares have been issued to service providers and consultants over the
term of contracts ranging from 1 to 3 years. Shares have been issued at the fair
market value price at date of contract signing and the expense will be amortized
over the term of the contract.
IMPAIRMENT OF INTANGIBLE ASSETS WITH INDEFINITE LIVES
On May 22, 2003, the Company adopted SFAS No 142, "Goodwill and Other
Intangible Assets." Under the new statement, the Company no longer amortizes
intangible assets with indefinite lives, but instead tests for impairment on at
least an annual basis. In accordance with SFAS No. 142, the Company evaluates
the carrying value of other intangible assets annually as of December 31 and
between annual evaluations if events occur or circumstances change that would
more likely than not reduce the fair value of the reporting unit below its
carrying amount. Such circumstances could include, but are not limited to, (1) a
significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether the other intangible asset is impaired, the
Company compares the fair value of the reporting unit to which the other
intangible asset is assigned to its carrying amount. If the carrying amount of a
reporting unit exceeds its fair value, then the amount of the impairment loss
must be measured. The impairment loss would be calculated by comparing the
implied fair value of reporting unit to its carrying amount. In calculating the
implied fair value of the other intangible assets, the fair value of the
reporting unit is allocated to all of the other assets and liabilities of that
unit based on their fair values. The excess of the fair value of a reporting
unit over the amount assigned to its other assets and liabilities is the implied
fair value of its intangibles. The initial evaluation of the intangible assets
completed as of October 1, 2003 in accordance with SFAS No. 142 resulted in no
impairment losses. Additionally, the Company performed its periodic review of
its intangible assets for impairment as of December 31, 2003, and did not
identify any asset impairment as a result of the review.
STOCK OPTION PLANS
The Company applies the fair value based method of accounting
prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION in
accounting for its stock options granted to both employees and non-employees. As
such, compensation expense is recorded on the date of grant based on the fair
market value of the stock and expensed in the period which the option was
granted.
13
RESULTS OF OPERATIONS
FOR FISCAL YEAR ENDED DECEMBER 31, 2003, COMPARED TO THE FISCAL YEAR
ENDED DECEMBER 31, 2002
REVENUES
For the fiscal years ended December 31, 2003 and December 31, 2002, AEC
had no revenues. AEC continues its efforts to develop its hydrogen production
system.
EXPENSES
AEC had total expenses of $3,699,119 and $2,109,566 in the fiscal year
ended December 31, 2003 and December 31, 2002, respectively. AEC's expenses for
the fiscal year ended December 31, 2003 consisted of $76,973 in administrative
expenses, $2,857,703 in consulting fees, $240,000 in management fees, $29,443 in
professional fees, and $697,000 in stock option benefits. During the fiscal year
ended December 31, 2002, AEC's expenses were substantially the same as in fiscal
year 2003, except for consulting fees, which were $721,098 in the 2002 period
and AEC had no stock option benefit expense in the 2002 period. The stock option
benefit expense resulted from AEC's adoption of a stock option plan in May 2003,
and the subsequent grant of options to purchase 4,1000,00 shares of AEC's common
stock. AEC did recover $202,000 on a loan made by AEC, which offset AEC's
expenses in fiscal year 2003. Additionally, AEC had a loss on an investment of
$1,059,197 in 2002, and no loss on investments in 2003. Over the next 12 months,
AEC anticipates that its expenses will increase over its expenses in fiscal year
2003 as a result of AEC's continuation of the development of its hydrogen
production system.
NET LOSS
AEC had a net loss of $3,699,119 for the fiscal year ended December 31,
2003, compared with a net loss of $2,109,566 for the fiscal year ended December
31, 2002. The increase of $1,589,553 in the net loss for the 2003 fiscal year
compared to the 2002 fiscal year relates mainly to the increase in consulting
fees and stock option benefit expenses in the 2003 period, offset by the
$1,059,197 AEC incurred as a result of a loss on investments in the 2002 period.
Management believes that, for the fiscal year ending December 31, 2004, AEC will
only be able to reduce its net loss if AEC can create and sustain significant
revenues from its hydrogen production system.
LIQUIDITY AND CAPITAL RESOURCES
AEC's financial statements have been prepared on a going concern basis
that contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. AEC incurred a net loss of
$3,699,119 and $2,109,566 for the years ended December 31, 2003 and December 31,
2002, respectively, and has an accumulated deficit of $14,571,171 at December
31, 2003. AEC had $2,612,013 in United Stated Dollars and $23,766 in Canadian
Dollars in cash on hand as of March 3, 2004. Management may obtain additional
capital principally through the sale of equity securities. The realization of
assets and satisfaction of liabilities in the normal course of business is
dependent upon AEC ultimately obtaining profitable operations. However, no
assurances can be given that AEC will be successful in these activities. Should
any of these events not occur, the accompanying financial statements will be
materially affected.
AEC is at present meeting its current obligations from financing
activities. However, due to no cash generated from operations, AEC currently
does not internally generated cash sufficient to pay all of its incurred
expenses and other liabilities. As a result, AEC is dependent on investor
capital and loans to meet its expenses and obligations. Although investor funds
have allowed AEC to meet its obligations in the recent past, there can be no
assurances that AEC's present methods of generating cash flow will be sufficient
to meet future obligations. Historically, AEC has, from time to time, been able
to raise additional capital, but there can be no assurances that AEC will be
able to raise additional capital in this manner.
Net cash used in operating activities was $1,668,601 for the twelve
month period ended December 31, 2003, compared with $136,489 for the twelve
month period ended December 31, 2002. The Net Cash for the 2003 period resulted
mainly from an adjustment to the Company's net loss for stock issuances for
services of $7,773,423, deferred consulting costs of $3,122,456 and stock option
liability of $693,600.
Net cash obtained from financing activities was $712,362 for the twelve
month period ended December 31, 2003, compared with $141,794 for the twelve
month period ended December 31, 2002. In the 2003 period, the Company issued
shares of common stock for $532,000 and received advances from directors
totaling $180,362.
14
Net cash used in investing activities for the fiscal year ended
December 31, 2003 was $1,969,236 for the purchase of intangible assets. There
was no cash used for investing activities during the fiscal year ended December
31, 2002.
In January 2004, AEC entered into a Securities Purchase Agreement with
Palisades Master Fund LP, Crescent International Ltd., Alpha Capital AG, Bristol
Investment Fund, Ltd., Ellis International Limited, Inc., Vertical Ventures,
LLC, Platinum Partners, Abraham Schwartz, Colbart Birnet, Chana Braun, Ronald
Nash, Marketwise Trading, West End Convertible Fund, and a trust account
pursuant to which AEC sold a total of 5,500,000 shares of common stock at a
price of $0.50 per share and warrants to purchase a total of 2,750,000 shares of
common stock at an exercise price of $0.85 per share. The warrants have a three
year term. AEC received gross proceeds of $2,750,000 from this transaction.
In December 2003, AEC entered into a Securities Purchase Agreement with
LRG Holdings Inc., Professional Traders Fund LLC, Generation Capital Associates,
First Mirage Inc., Truk Opportunity Fund LLC, pursuant to which AEC sold a total
of 1,060,000 shares of common stock at a price of $0.50 per share and warrants
to purchase a total of 471,112 shares of common stock and an exercise price of
$1.20 per share. The warrants have a three year term. AEC received gross
proceeds of $530,000 from this transaction.
May 22, 2003, AEC issued 104,870,715 shares of common stock to AEC1,
Inc. in exchange for technology, products and licenses.
AEC expects to have sufficient cash to meet its short-term capital
requirements. However, there are no assurances that AEC will be able to raise
sufficient funds to meet long-term capital needs. AEC may also seek alternative
sources of financing, including from more conventional sources such as bank
loans and credit lines. Again, no assurances can be given that AEC will be able
to meet its needs through the sale of securities or otherwise. Further, the
availability of any future financing may not be on terms that are satisfactory
to AEC.
From time to time, AEC may evaluate potential acquisitions involving
complementary businesses, content, products or technologies. AEC has no present
agreements or understanding with respect to any such acquisition. AEC's future
capital requirements will depend on many factors, including growth of AEC's
business, the success of its operations, economic conditions and other factors
including the results of future operations.
PLAN OF OPERATION
AEC is currently building and testing prototype units for the hydrogen
production system that is one of the key elements to producing a viable fuel
cell, which we intend to be used in both residential and commercial
applications. The prototype units are being built at AEC's facility with certain
components being provided by outside contractors.
The prototype units are being tested in our newly built lab in order
that the design will allow for the production hydrogen in a safe and cost
effective manner. The technology will need to go through extensive safety
testing and will have to meet various government safety standards prior to
placement in homes and businesses.
In order to accomplish these steps management estimates that the
Company we will require several million dollars. As the Company does not have
any current revenue, such funds will come from loans from officers and private
placements of the Company's common stock.
15
DESCRIPTION OF BUSINESS
BACKGROUND
AEC (formerly known as COI Solutions, Inc.) was incorporated under the
laws of the State of Nevada on August 1, 1997 as Expedia Com Global, Inc., to
engage in the business of furnishing Internet and telecommunications consulting
services to businesses engaged in the health care, trade and commerce, and
travel and tourism industries.
On August 23, 1997, Expedia Com Global, Inc. changed its name to
Expediacom Global Inc. On November 16, 1998, Expediacom Global Inc. changed its
name to COI Solutions, Inc. The common shares of the Company commenced trading
in June 1998 on the Bulletin Board operated by the National Association of
Securities Dealers Inc. ("NASD") under the symbol "COSL." The Company's common
stock was delisted from the Bulletin Board on October 25, 1999, as a result of
the Company's failure to file reports with the Securities and Exchange
Commission as mandated by the NASD. The Company filed the Form 10-SB which was
declared effective and has traded on the OTC Bulletin Board since July, 2000,
under the symbol COII.
The Company was formerly engaged in the business of furnishing Internet
and telecommunications consulting services to businesses engaged in the health
care, trade and commerce, and travel and tourism industries.
During 1997 to 1999, the Company had an agreement with World Telehealth
(WTH), a Florida based healthcare company, to develop their company
infrastructure and the associated web based products. This contract was
terminated in 1999 due to a lack of funding.
During 1999 to 2001, the Company provided consulting services to build
the TeleMedica Group business. The Company developed a web based platform to
allow the facilitation of healthcare services on a global basis. An additional
administrative application was under development in 2001 and 2002 to facilitate
the marketing and servicing of insurance products to expatriates living outside
their country of origin. Through the conversion of debt to equity, the Company
acquired a 95% ownership stake in TeleMedica during the period from October 2000
to April 2001.
In 2002 the Company entered into an agreement to acquire an Asian
health insurance concern, ICura. However, in August 2002 our partner in the
transaction pulled out after significant expense was incurred.
In December 2002, the Company entered into an agreement with AEC1,
Inc., formerly known as Alternate Energy Corp. to acquire their assets. AEC1,
Inc. is a company that is not in the industry that the Company was in. However,
the board of directors decided that the Company would not be able to execute its
e-health business plan. The agreement with AEC1, Inc. required the Company to
initiate a 2.2 for 1 reverse split. The Company then issued 104,870,715 new
shares to AEC1, Inc. and received a forgiveness of $202,000 of debt owed to
AEC1, Inc. for the assets. The acquisition of the assets was completed on May
23, 2003 and a new board of directors was elected. The Company changed its name
to Alternate Energy Corp. and its trading symbol to "ARGY."
OVERVIEW
AEC is an energy company committed to delivering innovative, practical
and environmentally responsible fuel and power solutions to consumer, commercial
and government markets. The Company's main technology is focused on production
of on-demand hydrogen. We believe AEC's hydrogen production process is designed
to overcome two major industry obstacles - affordability and safety. The
hydrogen production system leverages a proprietary chemical process that yields
fuel-cell-quality hydrogen from fresh or salt water, with no known harmful
by-products. Since AEC's hydrogen-maker requires little space, we believe it can
be designed to directly supply almost any application on an as-needed basis,
eliminating the need to store hydrogen in a compressed state.
AEC is focused upon the commercialization of its patent pending
hydrogen technology. The Company believes its hydrogen technology will have
application in the areas of stationary and portable fuel cell applications,
back-up power applications, electric-powered and gas combusting vehicles, and
residential and commercial/industrial applications for users wishing to gain
independence from the existing electricity grid. AEC is moving to complete the
necessary engineering refinements and industry certifications.
16
Management believes that AEC's long-term growth prospects are
positively affected by several market and industry trends including continued
uncertainty about the price and availability of fossil fuels, growing consumer
demand for a reliable alternative to the public electric power grid, continued
concerns about the impact of fossil fuels and greenhouse gases on the global
environment and serious concerns with the increasing reliance on imported fossil
fuels for Western nations.
Unlike most of its competitors, AEC's process does not generate its
hydrogen from fossil fuels. It also does not require any of electric power. Nor
does it require a large scale manufacturing process. The Company believes that
its technology will have both substantial environmental and cost-competitive
advantages in the marketplace.
TECHNOLOGY
The AEC Hydrogen Production Technology improves the production of
hydrogen, and resultant gaseous formation, without the need for external energy
input at time of production. The components are comprised of a unique metal
alloys immersed in an aqueous media. These alloys can produce effective, highly
purified hydrogen utilizing a low cost mix of materials.
Suitable water sources for the aqueous media includes, but are not
limited to, distilled water, natural sea water, artificial sea waters formulated
with the addition of mineral salts to distilled or other water, brine, mineral
waters, or any manner of natural fresh waters.
Upon immersion of fabricated alloys into the aqueous media, immediate
production of aqueous ions and gaseous components, including but not limited to,
hydrogen and oxygen, result. No source of external energy is introduced or
required for such production. The process does not involve electrolysis, or the
use of external source of electrical power of any manner. Removal apparatus for
the oxygen are not required for the purity levels required in use by alkaline
fuel cells and internal combustion engines.
Gaseous output has been successfully utilized as the sole fuel source
to power an internal combustion engine for indefinite periods of time, with only
the ongoing addition of water, and as the power source for a motorized fuel cell
vehicle. The output from the AEC process was certified by Maxxam Analytics, and
analytical laboratory company in Canada, to be 99.9% pure hydrogen on October 7,
2003.
STRATEGY
AEC's strategy is to attempt to achieve a leading market position in
the market segments that we believe that we can penetrate rapidly and with
relatively little difficulty. The factors evaluated in selecting the initial
markets include market size, certifications and licenses required, established
competitors, distribution channels, ease of penetration, warranty and service,
and several others.
Based upon AEC's evaluation of the various factors, we have targeted
for initial penetration the commercial back-up power market due to initial speed
to market, large market, open market, distribution channels, and ease of
penetration, along with the green energy markets due to its being a small market
that we believe can be quickly and relatively easily captured through an open
market, strong distribution channels, and ease of penetration. Phase II markets
include Marine Power due to its being a smaller market with high margins which
can be readily accessed and Vehicle Propulsion due to the large amount of grant
and other subsidized financing available.
In entering the initial markets, AEC is first introducing the
technology to the various resources that would add the proper imprimatur to the
technology, including major engineering firms and US federal government
contracting entities. We are looking to these resources to provide an evaluation
of the technology including engineering and test reports, determination of their
market strengths and available support in distributing the technology, the
purchase of units for testing purposes, and introduction to appropriate federal
government agencies through their existing relationships. Applications for CRADA
and SBIR grants to conduct these tests and purchases may be applied for as part
of the development and certification process. Each agency will be approached on
a strategic alliance level to assist in not only testing, but deployment
throughout their network of agencies and customers within government, and access
to their Fortune 100 alliances. We additionally intend to create a targeted
advisory panel and develop relationships with these key individuals as
appropriate.
Upon establishing a secure position in its initial markets, AEC will
consider additional markets as appropriate. AEC has divided its prospective
markets into four phases as follows: PHASE I - IMMEDIATE IMPLEMENTATION: Markets
that have immediate corporate action and resources; PHASE II - SECONDARY
IMPLEMENTATION: Upon establishing a solid marketing position in Phase I markets,
17
Phase II markets may be selectively considered while not distracting from the
market penetration of Phase I markets. Phase II market operations may be
prepared during implementation of Phase I. PHASE III - MID RANGE MARKETS: Upon
establishing solid control of Phase I markets and strong market position in
Phase II markets, Phase III markets may be selectively developed. PHASE IV -
LONG RANGE MARKETS: These markets may be postponed for an extended period until
prior phases are accomplished.
Based upon AEC's evaluation of the various market segments (see
Marketing for further details), it has categorized them as follows:
PHASE I - IMMEDIATE IMPLEMENTATION: Commercial Back-Up Power, Green
Energy (Residential and Commercial)
PHASE II - SECONDARY IMPLEMENTATION: Technology Back-Up Power, Marine
Power Systems, Vehicle- Propulsion, Vehicle- Electric Power/Hybrid, Offshore
Emergency Back-Up
PHASE III - MID RANGE MARKETS: Residential Back-Up Power- Retrofit, Off
The Grid (Residential and Commercial), First Responder, Emergency Power
PHASE IV - LONG RANGE MARKETS: Government Back-Up Power, New
Residential Construction, Offshore Brown Out, Offshore Ecological
PRODUCT
AEC's hydrogen production system leverages a proprietary chemical
process that yields fuel-cell-quality, on-demand hydrogen from fresh or salt
water, with no known harmful by-products - at low comparative cost. AEC first
purchased the technology from the creator in July, 2003 in exchange for the
payment of 4,500,000 shares of the Company's common stock and $140,800 in cash
and later acquired the proprietary hydrogen technology for all fuel cells
globally in September of 2003.
We have been further refining the hydrogen production process at our
head office facility in Burlington, Ontario, Canada. Due to the strict purity
and volume requirements of a fuel cell, our engineering team has worked in
conjunction with a number of recognized independent laboratories to ensure that
outputs met acceptable levels for this application. We have also been working
with Astris Energi Inc. under a letter of intent to enter into a joint venture
agreement. Astris has used AEC's affordable hydrogen on their 1kw alkaline fuel
cell. AEC further validated our proprietary process when its hydrogen
successfully powered the Astris' 1kw golf cart on September 16th, 2003 using
hydrogen derived from water with no other energy input.
Currently, patent applications have been filed for our on-demand
hydrogen technology and we are conducting third party lab testing to quantify
product-engineering specifications, as well as refining the technology into a
smaller size for more practical market applications.
RESEARCH AND DEVELOPMENT
Based on 25 years of research and development, we believe that the
hydrogen production system is now at a stage that can be turned over to a
specially qualified engineering group. Our in-house research team has bench
tested the results of the technology configuration. This configuration and its
associated mechanical designs are now ready for the final engineering prior to
productization and commercialization. Both of these elements will play a major
role in marketing the early release units to the Phase I markets as designated
in our marketing summary.
Since May 2003, we have spent in excess of $360,000 on research and
development of our hydrogen production process.
MANUFACTURING
We intend to lease a facility in Oak Ridge, Tennessee, which is located
near our research contractor. The Oak Ridge National Laboratory has conducted
advanced research on hydrogen for over twenty years and has a broad background
and knowledge of this science and its related applications. The location of the
fabrication facility in Oak Ridge should also take advantage of the semi-retired
and retired PhD's that are available in the area to assist in developing market
specific applications for the use of hydrogen. In addition we believe that there
is an ample supply of qualified labor to build the initial early release units
for each market sector described in our product plan.
18
We have located a facility, that should be very reasonable to rent or
purchase, which was built by the Tennessee Valley Authority for similar research
on energy products. Management believes this area offers a unique source of
knowledgeable expertise and capacities.
MARKETING
We have evaluated the prospective markets for our products by several
evaluation criteria. The results are numerically summarized in the following
table (1 = most favorable to the Company and 5 = least favorable to the
Company):
Speed Maint- Cost of
to Avail- enance sale, Sales Warranty
initial able Distr- Ease of and market- and and Operating
product Gross Market market ibution pene- cost to ing financing Manufa- after Expecta- Grant
launch margin Size share channels tration operate overhead Service structure cturing market tions Money
------ ----------- ----- -------- ------- ------- -------- ------- --------- ------- ------ ----- -----
Commercial
back-up
power 2 3 2 1 1 1 2 3 2 4 3 1 4 4
Green
energy
(res.
and comm.) 1 2 4 2 1 1 2 1 3 1 2 3 1 2
Technology
Back-up
Power 2 4 1 4 2 4 3 4 3 2 2 2 4 5
Marine
Power
Systems 1 1 4 3 2 2 2 2 3 2 3 2 4 5
Vehicle-
Propulsion 5 5 1 5 4 5 4 5 5 2 5 5 5 1
Vehicle-
Electric
Power/hybrid 2 4 1 5 4 5 4 5 5 2 5 5 5 1
Offshore
Emergency
Back-up 3 4 2 3 4 3 2 3 2 4 2 2 5 1
Residential
Back-up
Power
(Retrofit) 1 3 4 2 1 1 3 3 3 4 2 2 3 4
Off the
grid
(res.
and comm.) 2 4 5 5 3 3 2 3 3 4 3 4 1 5
First
Responder 3 2 3 4 3 4 2 2 3 2 3 3 4 2
Emergency
Power 2 3 2 5 5 5 3 4 4 4 4 3 5 2
Government
Back-up
Power 4 2 2 4 2 3 4 4 4 3 5 4 5 2
New
Residential
Construction 3 3 1 4 1 4 5 5 5 2 4 4 4 4
Offshore
Brown Out 2 3 2 4 5 5 3 4 2 5 3 4 2 1
Offshore
Ecological 3 4 4 5 5 4 3 3 3 4 2 4 3 3
The Evaluation Criteria for the foregoing market analysis are defined
as follows: SPEED TO INITIAL PRODUCT LAUNCH- After 9 months initial development
for first 5 and 10 Kwh products, how long until reasonable initial penetration
of the market or establishing a beachhead; GROSS MARGIN- Gross margin on initial
product sale based upon competitive products. Does not include estimate of
trailing (recurring) revenue streams, which should be 5-8% of sales price in
most markets; MARKET SIZE- Comparative number of prospective, qualified
customers; AVAILABLE MARKET SHARE- Amount of room for competition given
incumbent status; DISTRIBUTION CHANNELS- Availability, penetration levels,
relationships, and other factors effecting ability to reach the market and the
speed with which this can be done; EASE OF PENETRATION- How established are
incumbents, how organized are distribution channels for new products, and
quality and reputation of potential distribution channels; MAINTENANCE AND COST
TO OPERATE- Customer expectations for care and maintenance and whether done
in-house or outsourced to services organizations; COST OF SALE, MARKETING
OVERHEAD- Advertising channels, direct sales and internal meetings, cost to
develop communications materials, publicity and promotion programs, trade shows
and conferences, personnel and support cost (i.e. research, estimating) of
closing sale; SERVICE- Technical support organization, large maintenance
contracts, nationwide service organizations, availability, cost, and quality;
SALES AND FINANCING STRUCTURE- Leasing plans, financing terms, tax credits,
federal credits; MANUFACTURING- Cost of meeting different standards,
certifications, and packaging requirements for the market; WARRANTY AND AFTER
MARKET- Extended warranty contracts for revenue stream, planned replacement and
maintenance for critical service applications; OPERATING EXPECTATIONS - Quality
19
control, life cycle, packaging, image requirements. Non demanding customers are
a "1" and very demanding customers are a "5" in above rating system; GRANT
MONEY- Ease of application and availability of funds.
Based upon the above market analysis, we have categorized our market
priorities as follows:
PHASE I - IMMEDIATE IMPLEMENTATION
1. COMMERCIAL BACK-UP POWER: Critical power to operate basic functions
of a facility in event of power outage. Sub-categories include
Healthcare/Medical, Food Service (refrigeration, etc.), Security, Banking,
Retail markets. The initial speed to this large, open market, distribution
channels, and ease of penetration make this a candidate for immediate
implementation despite the difficulties in sales and financing structure (costs
as high as 12% for leasing, vendor financing, etc.) and high operating
expectations of the customer base.
2. GREEN ENERGY (RESIDENTIAL AND COMMERCIAL): Concerned citizens and
businesses that want to stop pollution already pay 15-20% more per Kwh for their
power. Most major power companies support green energy programs either through
the public utility or private companies, E.G., PECO, Southern Power, TVA. This
is a small market that management believes can be quickly and relatively easily
captured due to an open market, strong distribution channels, and ease of
penetration. Additionally, almost all other considerations with the exception of
Service and Warranty are highly favorable.
PHASE II - SECONDARY IMPLEMENTATION
1. TECHNOLOGY BACK-UP POWER (EMERGENCY STANDBY POWER): We believe that
this is a very large market with relatively rapid speed-to-market opportunities.
However, it is not in Phase I due to estimated tight gross margins, strong
incumbent competition, issues with penetration, high marketing costs and high
user expectations. Due to its size and our belief that we can get to it quickly
through excellent distribution channels, this indicates it should receive a
higher priority than later phase markets. Target segments include specific
organizations that provide critical business operations such as routers,
servers, computer infrastructure that are generally outsourced to service groups
that provides emergency back-up systems on a monthly contract or long term
basis.
2. MARINE POWER SYSTEMS: Management believes that this is a smaller
market but has exceptional margins that we believe we can access reasonably
quickly, as certification through such organizations as the U.S. Coast Guard is
not often a lengthy process. Replacement of diesel and gas generators that are
drop-ins bought every day. Typically, most 32 foot + boats have a generator.
Another sub-category is electric generation to batteries to power electric
engines for boats, a large trend in the category. We believe that the U.S.
military is building many electric ships to avoid weight of diesel fuel and
utilize new lightweight batteries. Sail boats are also early adopters of new
alternative propulsion systems. The difficulty may be penetration, high
marketing and sales costs, and high user expectations take it out of a Phase I
candidate where we do not want to address these obstacles initially.
3. VEHICLE- PROPULSION: Management believes that this market has
exceptional obstacles but has the offset of a large amount of federal grant and
other subsidized financing available. For this reason alone, initiation of work
on this market can be begun in Phase II and may be able to be funded without
equity or debt cost. To drive actual vehicle wheels by electric battery that is
charged by the unit is possible now. We believe that many government funded
programs will require that federal employees drive these units as a priority.
Competition is fierce with Honda, Toyota, GM, Ford all working with PEM-based
fuel cells, and AEC-Astris' on-demand alkaline fuel cell model needs to be
presented and gain acceptance.
4. VEHICLE- ELECTRIC POWER/HYBRID: For the same reasons as Vehicle
Propulsion.
5. OFFSHORE EMERGENCY BACK-UP: Hurricanes, tornados, typhoons are a
regular fact of life in such markets that have regular power interruptions such
as Caribbean nations like Jamaica, Bahamas, Cuba, Mexico, the Philippines,
Taiwan, India, Bangladesh, Pakistan. The need for back up power is real in all
of these nations. Management believes this distribution via such organizations
as the Red Cross and other aid organizations is a possibility.
PHASE III - MID- & LONG-RANGE MARKETS
1. OFF THE GRID (RESIDENTIAL AND COMMERCIAL): This group is
characterized as "Alternative lifestyle, anti-establishment" that like new
solutions that are environmentally sound to avoid dealing with the U.S.
government or large utility companies. We believe that the Internet is a good
channel to reach these people. Generally they have good economic demographics.
Off the grid is not mainstream electricity users as reliability is the most
20
important concern to the mainstream and they will not switch off their power for
a new technology no matter how proven it is at this point. This is a relatively
small market with poor margins and the same high maintenance, sale, and
financing costs as residential back-up.
2. RESIDENTIAL BACK-UP POWER & Retro-Fit: Almost same market as "Off
The Grid", but also includes some new construction and developers who offer it
as a project feature in certain geographic markets. Typically geographically
limited to areas where power is problematical, such as Texas and Kansas and
other high-lightning strike areas. Most competitive products are sold through
Home Depot and Lowes. This is a smaller market with tighter margins (high degree
of discounting at retail), high maintenance, costs of sale, service, and
financing structures which is the reason we have reserved it for Phase III.
3. FIRST RESPONDER: Defined as emergency transportation vehicles (EMT,
fire and rescue vehicles) that see daily heavy use, where new equipment is often
ordered every three years. New rules of homeland security regulations require
firehouse, ambulance, medical, and rescue to have back-up power sources. We
believe that this market will take some time for product launch and is highly
competitive with market shares already established, difficulty of penetration,
and high user expectations, justifying a postponed approach until other markets
are well established.
4. EMERGENCY POWER: Ambulance, fire truck generators, portables for use
in hurricanes, floods, vehicle accidents, highway service emergency trucks.
These applications typically have low Kwh requirements, with similar competitive
and market conditions/issues to penetrate. This segment has well established
competition, poor distribution channels, and high user expectations.
PHASE IV - LONG-RANGE MARKETS
1. GOVERNMENT BACK-UP POWER: We believe that critical areas of need are
weapons systems, radar, communications, satellite, FAA/airports that generally
bid on an RFP basis but also generally serviced by a prime contractor pursuant
to long term contracts. Standard is basic operational functionality such as
healthcare, food services (refrigeration), etc. Penetration issues include:
tight market conditions, high maintenance, cost of sale, service expense and
rigorous manufacturing and user expectations make this a final phase market.
2. RESIDENTIAL USE: U.S. Census statistics show there are over 116.5
million residences listed across all 50 states and the potential for the HVAC
and furnace market is large and attractive, but segment issues include tighter
margins, tight market conditions, possibly longer time-to-market, difficult
penetration due to new standards and codes that are still being written in most
jurisdictions, possibly high marketing, maintenance, sales, and service costs
(unless a licensee relationship with a major established OEM/distributor is
negotiated), has resulted in this segment being moved to a later phase.
3. OFFSHORE ECOLOGICAL: Geographic concentrations of fossil fuel
burning such as Hong Kong, Vietnam, which have attendant health problems and are
supported in clean-up by World Bank and other international organizations. A
small market group, with very competitive conditions and weak, inefficient
distribution channels make the sales, marketing and warranty costs too high to
focus on in early Phases.
4. OFFSHORE BROWN OUT: Most third world countries that have brown outs,
such as India, Taiwan, Korea, Philippines, where most major business operations
have power back-ups. We believe that American interests in foreign countries
likely have back-up for alarm and security systems, which could make this an
attractive niche segment at a later phase. Competitive markets with difficult
penetration and poor distribution channels combined with high sales and
financing costs make this a Phase IV segment.
5. ELECTRIC POWER- HYBRID: Hybrid gas/electric cars being produced by
major manufacturers that can use hydrogen generator to feed batteries. This is
much longer time-to-market opportunity. Thus, we have moved it to a later phase
of development.
COMPETITION
Generally there are two main processes in which hydrogen is currently
produced in large quantities for either fuel cell use or industrial
applications: by extraction of hydrogen from hydrocarbons and by the
electrolysis of water. Fossil fuels can be reformed to produce pure hydrogen and
within this process natural gas is the most common fuel of choice. This process
also produces carbon dioxide emissions and requires excessive power to operate
the reformer. Hydrogen can be separated from oxygen in water using electrolysis.
This process requires high voltage electricity and is un-economical.
21
Electrolytically produced hydrogen costs around $30/mBtu, natural gas reformed
hydrogen about $3/mBtu, and gasoline reformed hydrogen about $9/mBtu.
We believe that the U.S. hydrogen industry currently produces 9 million
tons of hydrogen per year (enough to power 20-30 million cars or 5-8 million
homes) for use in chemicals production, petroleum refining, metals treating and
electrical applications. Steam methane reforming accounts for 95% of the
hydrogen produced in the U. S. Other methods of hydrogen production are
gasification of fossil fuels (e.g. coal), splitting water using electricity
(electrolysis), heat or light, and thermal or biological conversion of biomass.
We believe that researchers and companies understand the importance of
this fuel. There are fuel cell and vehicle producers, like Ballard and Ford,
teaming up with fuel producing companies like Exxon working cooperatively,
trying to make a viable, economically competitive hydrogen fuel.
The two major categories of hydrogen productions systems are fuel cell
manufacturing companies, which invariably integrate a fuel production process,
and manufacturers and distributors industrial gases, including hydrogen.
PROTON EXCHANGE MEMBRANE FUEL CELLS (PEM): Most hydrogen fuel cell
companies are concentrating on PEM (Proton Exchange Membrane) fuel cells
platforms and predominantly involved in the automotive sector. The advantages of
the PEM fuel cell include fast startup and load following, and scalability,
while disadvantages include that they require high purity H2 fuel, are poisoned
by carbon monoxide and sulfur, dependant on platinum (unstable pricing) and
requires large compression and storage. Applications include transportation,
uninterrupted power supply, and auxiliary power. Some of the major companies
involved with PEM fuel cells include Anuvu Fuel Cell Products, Avista Labs,
Ballard Power, Direct Methanol Fuel Cell Corp., Plug Power (including H Power,
acquired), Placan, Fuel Cell Energy, General Motors, Hitachi, Hydrogenics,
Millennium, Mitsubishi, Motorola, MTI MicroFuel Cells, Nuvera Fuel Cells, Proton
Energy Systems, and Stuart Energy.
DIRECT METHANOL FUEL CELLS (DMFC): The companies producing DMFCs
include those producing fuel cells that can be fueled directly by any alcohol.
The optimal application for DMFCs is in the field of personal electronics, e.g.
primary power or battery charging for cell phones, laptops, PDs, and MP players.
DMFCs has an advantage over batteries because they have higher energy density,
grid independence, and instant "recharging". DMFCs use liquid fuel but require
no reformer and operate near room temperature. Primary markets for DMFCs are
military (battlefield networking), consumer (grid independence), and industrial
(inventory tracking). The companies producing DMFCs include Direct Methanol Fuel
Cell Corp; Ballard Power (acquired rights from DTI Energy), Hitachi, Independent
Power Technologies, Jadoo Power Systems, Giner, Manhattan Scientifics,
Mechanical Technology, Inc. (parent of MTI Micro Fuel Cells), Medis
Technologies, Motorola, Neah Power Systems, NEC, Samsung, and Toshiba.
ALKALINE FUEL CELLS (AFC): The advantages include inexpensive
electrolytes and catalysts, fast start-up, low temperature operation, while
disadvantages include sensitivity to CO2. Applications include transportation,
portable, aerospace (used in US manned spacecraft). Competitors include Astris
Energi Inc., a Canadian company (Mississauga, Ontario) that since 1983 has been
pioneering the development of alkaline fuel cell electric generators and now has
three such power systems fully tested and ready for commercialization, Apollo
Energy Systems, Eneco, Independent Power Technologies, Medis Technologies, Inc.,
and UTC Fuel Cells, a United Technologies Company, maker of AFCs for NASA's
Apollo and Space Shuttle programs.
MOLTON CARBONATE FUEL CELLS (MCFC): The primary advantages of MCFCs are
that they operate with the highest efficiency. MCFCs run on natural gas and the
system's hot exhaust can be used for cogeneration. The major disadvantages of
MCFCs is that they are slow to warm up and load. MCFCs are primarily used for
baseload generation, commercial industrial uses, hotels, hospital, and
co-generation. The major companies in producing MCFCs are Ansaldo Fuel Cells,
CHUBU Electric, Fuel Cell Energy, Inc., and GenCell Hokkaido Electric.
SOLID OXIDE FUEL CELLS (SOFC): SOFCs run on natural gas and have a
higher efficiency than PEMs. They also produce hot exhaust which can be used for
cogeneration. Basically SOFCs have application in the areas of APUs,
residential, commercial, industrial, and cogeneration. The companies producing
SOFCs include Altair Nanotechnologies, CellTech Power, Acumetrrics Adaptive
Materials, Inc., Ceres Power, Chubu Electric Power (with Mitsubishi Heavy
Industries), Ceramic Fuel Cells, Delphi, EBZGmbH, Franklin Fuel Cells, Fuel Cell
Technologies, Fuel Cell energy, General Electric, Global Thermoelectric,
Honeywell, McDermott Technology, NexTech Materials, NAGK Insulators, Rolls
Royce, Siemens, Siemens-Westinghouse, Sulzer Hexis, TechSys Inc., and Ztek Corp.
22
PHOSPHORIC ACID FUEL CELLS (PAFC): The advantages of PAFC are that they
are readily available commercially. Their disadvantages are that they are less
efficient than MCFCs and SOFCs and require an external reformer. Mainly, PAFCs
are used in stationary operations. The two major companies in this area are UATC
Fuel Cells and Electrochem, Inc.-Toshiba.
REGENERATIVE FUEL CELLS: Regenerative Fuel Cells have a single stack so
they can run as both a fuel cell and an electrolyzer. The disadvantage of this
fuel cell is that there are none yet available in commercially significant power
ranges. Regenerative Fuel Cells are used in systems based on intermittent
renewable energy, arbitrage of peak and off-peak electricity prices, and self
fueling UPS systems.
Examples of industrial gas providers include Air Liquide
(www.airliquide.com), a global provider of industrial and medical gases. Their
core business is to supply oxygen, nitrogen, hydrogen and other gases and
services to most industries (for example: steel, oil refining, chemicals, glass,
electronics, healthcare, food processing, metallurgy, paper and aerospace). Air
Products' hydrogen strategy has focused on the supply of hydrogen for
demonstration and pilot projects to such organizations as Honda and Toyota. Air
Products built and operates an on-site hydrogen production facility, a fuel cell
power plant and a fueling station capable of dispensing hydrogen and hydrogen
blended fuels to a fleet of light duty vehicles in Las Vegas, Nevada. Praxair is
the largest industrial gases supplier in North and South America, is rapidly
growing in Asia, and has strong, well-established businesses in Southern Europe.
Their primary products are oxygen, nitrogen, argon, helium, hydrogen,
electronics gases and a wide range of specialty gases. Praxair was selected as
the exclusive hydrogen supplier for Coleman Powermate's new AIRGEN(TM) fuel cell
generator. The generator can be used by industrial customers as a back-up power
source to keep mission-critical computer and phone systems operating during
power outages.
LICENSES
AEC owns all its technology without any royalty obligations and relies
on no licensing agreements for its operations. We anticipate that we may enter
into cross licensing agreements with major distribution partners in the future
as part of the distribution of its products.
PATENT
A provisional patent has been filed for our core technology and we have
substantially documented the invention date. We have conducted a comprehensive
prior art search and are currently preparing the main patent application. We
intend to obtain patent protection in the countries that represent approximately
80% of global gross domestic product.
We additionally own patented technologies that enable electric utility
companies and large multi-national industrial companies to significantly
increase their power output. This is accomplished without increasing the amount
of fossil fuel that is used, which provides two additional benefits: less
dependency on imported fossil fuels and lower fossil fuel pollution levels.
AEC's patented technologies provide this increased power through reclaiming heat
energy that is typically lost to the environment when producing electric power
and also through reducing the cost and complexity of the equipment required in
typical utility operations. The Canadian patent number is LA2190675 and the US
patent numbers are 5,603,218 and 5,910,100. AEC has no current plans for the
development of this technology.
GOVERNMENT REGULATION
It is common for the government to set the standards of alternative
energy processes. Hydrogen has not come under those standards as yet. The only
regulations that currently apply are for the storage of Hydrogen gas, which our
process does not require. However, we believe that the flow, pressure build up,
and the fittings used in our applications, whether they are direct ignition or
fuel cell application, will eventually come under regulation.
TRADEMARKS
The Company currently owns no trademarks with respect to its products.
EMPLOYEES
We currently have 8 full time employees. In conjunction with the
production of prototype units we anticipate that we will have a total of 12 full
time employees at the end of 12 months. We are currently structured as follows,
with a majority of staff on contract (i.e. non-employee) status:
23
Chairman & CEO Blaine Froats
President & COO Corbee Dutchburn
Executive V.P. (Marketing) Lyle Goodis
Secretary & V.P. Operations Sean Froats
Treasurer Jack Wasserman
Accounting Jeffery Hayward
Communications Jason Froats
Investor Relations: Suzanne Brydon
Mechanical Engineer Andrew Watson
Chemist Tom Balanyk
Electrical Engineer Josef Bialorzeski
Lab Assistant Michael Drexler
Receptionist Leslie Whitlock
Secretary to Chairman Marilyn Froats
CONSULTANTS:
- ---------------------------------------------------- -----------------
Business Development (Government & Special Markets): Bill Varian
Technical and Marketing: Bart Siegel
Areas to staff up within the next 12-16 months will be:
Technical and Oak Ridge Labs and Battell to provide outsourced
Engineering: Engineering and product certification services.
CFO: A full time, experienced (i.e. with public companies)
CFO will be required.
Manufacturing: A Production Manager to oversee sub-contractors who
would be manufacturing Hydrogen units.
Sales: A senior Sales Director/Agents with existing
relationships.
Technical Marketing Later into Year 2, a staff person/resource to assist
& Sales Support: in coordination of all sales and marketing activities.
24
MANAGEMENT
As of March 11, 2004, the directors and executive officers which are
actually employed by AEC, their age, positions, the dates of their initial
election or appointment as directors or executive officers, and the expiration
of the terms are as follows:
NAME AGE POSITION
- ---- --- --------
Blaine Froats 65 Chairman of the Board of Directors, CEO
Sean Froats 32 Director, Vice President of Operations,
and Secretary
Jack Wasserman 54 Director and Treasurer
Corbee Dutchburn President
Lyle Goodis Executive Vice President
None of AEC's directors or executive officers is currently a director
of any company that files reports with the SEC, except as described below. None
of our directors have been involved in any bankruptcy or criminal proceeding
(excluding traffic an other minor offenses), nor has been enjoined from engaging
in any business.
AEC's directors are elected at the annual meeting of stockholders and
hold office until their successors are elected. AEC's officers are appointed by
the Board of Directors and serve at the pleasure of the Board and are subject to
employment agreements, if any, approved and ratified by the Board.
BLAINE FROATS has been the chairman of the board of directors and chief
executive officer of AEC, since May 2003. Mr. Froats was raised in London,
Ontario where he attended South Collegiate Institute. In 1958, he joined A. E.
Ames where he completed the Investment Dealers Association Securities Course in
two years, earning the fourth highest mark in Canada. After leaving A. E. Ames
in 1958, Mr. Froats joined the Royal Trust Company as a Personal Investment and
Pension Fund Officer. During his tenure with the Royal Trust Company, he
completed the Harvard University Certified Analyst Course and thereafter
obtained a Certified Financial Analyst degree. From 1964 to 1969, he worked for
Cochran Murray & Company (now known as Midland Walwyn) as an Institutional
Salesperson and then a Special Situation Analyst. He eventually joined the
Corporate Finance Department and worked closely with one of the firm's senior
partners. While with Cochran Murray & Company, he underwrote Magna Electronics
(now known as Magna International). In 1970, Mr. Froats formed his own
consulting firm. Mr. Froats became involved in plastic reclaiming and invented a
plastic/paper separator that was, subsequently, patented internationally. Since
1975 he has been the Chief Executive Officer of several publicly reporting
companies in both Canada and the United States, including Formulated Mouldings
(Canada) Inc., an Ontario company, Mainframe Fund Inc., an Ontario company, and
Nyderdown (Canada) Inc., an Ontario company. He is currently the Chief Executive
Officer and Chairman of Environmental Shelter, Inc., an Ontario company,
Environmental Fuel Technology, Inc., an Ontario company, and Environmental
Plastics Corporation, a Delaware corporation. In 1991, Mr. Froats founded
Environmental Products Group, Inc. ("EPG"), an affiliated Delaware corporation,
for which he co-invented a new plastic used in home moldings. Mr. Froats is
currently the Chairman of the Board of Directors of EPG, which in 1991-92 was
listed on the OTC Bulletin Board but is no longer a reporting company. Mr.
Blaine Froats is the father of Mr. Sean Froats, the Vice President of Operations
and a director of AEC.
SEAN FROATS has been a director, secretary and the vice president of
operations of AEC since May 2003. Since 1997, Mr. Froats has been a director and
the vice president of operations of EPG where he is responsible for all computer
related operations, film presentations, technical drawings, and the design of
EPG's logo, stationary, reports, graphics, and website. He invented EPG's
plastic shelter and co-invented EPG's home molding plastic. In 1991-92 EPG was
listed on the OTC Bulletin Board but is no longer a reporting company. Mr. Sean
Froats is the son of Mr. Blaine Froats, the chairman of the board of directors
of AEC.
JACK WASSERMAN has been a director and the treasurer of AEC since May
2003. Mr. Wasserman has been an auditor for over 25 years. He began his career
in 1974 as an auditor with Arthur Andersen and Company. Mr. Wasserman left
Arthur Andersen and Company in 1976 and for the next year was a senior external
auditor for Revenue Canada. From 1977 to 1979, he worked for Abrams, Caplan and
Zwieg as an Audit Manager. From 1977 to 1990, Mr. Wasserman was the Vice
President of Finance for Yorkville Limited, a manufacturer of musical
instruments and equipment. After leaving Yorkville Limited, he was hired as an
independent consultant by Curwood Packaging Inc. to restructure the company's
accounting department. From 1991 to 2000, Mr. Wasserman worked on the
development of several businesses into franchising opportunities, including
GamePower Inc., a video game operations company (1992-1994), Visual Adventures
Inc., a video arcade company (1994), World Tel Internet Inc., an Internet
Service Provider (1994-1995), and Yesic Communications Inc., an Internet Service
25
Provider (1995-2000). In addition to being a director of AEC, Mr. Wasserman is a
director, the president and chief executive officer of Consolidated Gulfside
Resources Limited, a Canadian public company listed on the Toronto Stock
Exchange. From 2000 until joining AEC, Mr. Wasserman was retired. Mr. Wasserman
received his Bachelor of Commerce degree from the University of Toronto,
Toronto, Ontario in 1972.
CORBEE DUTCHBURN M.Ch.E., C.E.T. is the President and C.O.O. of AEC,
joining in late October 2003, where he will help create and execute the
strategic plan for AEC and manage the operations of the organization. He has
worked in senior management positions with major manufacturing, engineering and
design organizations such as Scepter Canada and Teknion Corporation and Accord
Plastics Corp. Dutchburn's professional accreditations include being a Senior
Member with The Society of Manufacturing Engineers, a Member within The American
Society of Mechanical Engineers, a Member of the Ontario Association of
Certified Engineering Technicians and Technologists, a Senior Member with The
Society of Plastics Engineers including a position within the Board of Directors
and a Member within The Institute of Chartered Engineers of Canada.
LYLE GOODIS joined AEC as Executive V.P. (Marketing), in late October
2003. Goodis, together with Dutchburn, will be leading work on the strategic
marketing, communications, production planning and business development for
AEC's low cost, on-demand proprietary hydrogen technology. Goodis has over 22
years' experience in the development, management and execution of strategic,
innovative marketing and manufacturing initiatives with a wide variety of
national and international companies and products. He has worked in various
senior executive strategic planning and media positions at Canadian advertising
agencies, was Advertising Sales & Marketing Director at T.O. Magazine, was V.P.
Marketing for the North American re-launch of Indian Motorcycle Company in
1998-1999 and ran the successful strategic marketing communications group Lyle
Goodis and Associates, for over 15 years, helping build many businesses and new
product successes in the Industrial, Technology, Services and Consumer markets.
Goodis earned his Bachelor of Arts (Honours) graduating from University of
Toronto in 1981.has been Executive Vice President of AEC since October 2003.
KEY CONSULTANTS
The following lists the key consultants to AEC as of March 3, 2004:
NAME FIELD
- ----------------------- -----------------------------------------------------
Bart Siegel Technical and Marketing
Bill Varian Business Development (Government and Special Markets)
Ted Buel
BOARD OF DIRECTORS AND COMMITTEES
Our Board of Directors presently consists of three members: Blaine
Froats, Sean Froats, and Jack Wasserman. Our Bylaws generally provide for
majority approval of directors in order to adopt resolutions. The Board of
Directors may be expanded in the future. All executive officer compensation,
including payroll expenditures, salaries, stock options, stock incentives, and
bonuses, must be approved by the unanimous consent of the Board of Directors.
The entire Board of Directors acts as the Audit Committee and the Compensation
Committee.
On compensation matters, the Board considers and recommends payroll
expenditures, salaries, stock options, stock incentive and bonus proposals for
our employees. Acting in its audit committee function, the Board reviews, with
our independent accountants, our annual financial statements prior to
publication, and reviews the work of, and approves non-audit services performed
by, such independent accountants. The Board appoints the independent public
accountants for the ensuing year. The Board also reviews the effectiveness of
the financial and accounting functions and the organization, operation and
management of AEC.
SUBMISSION OF MATTERS TO A VOTE OF STOCK HOLDERS
There were no matters submitted to the Shareholders during the fourth
quarter of 2003. However, in May 2003 certain shareholders voted by written
consent to authorize the purchase of the AEC assets as described above, approved
a 2.2 for 1 reverse split, approved the increase in the number of authorized
shares to 150 million (post-split) and a name change to Alternative Energy Corp.
26
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal year ended December 31,
2003 and December 31, 2002 and 2001 certain information regarding the
compensation earned by AEC's Chief Executive Officer and each of AEC's most
highly compensated executive officers whose aggregate annual salary and bonus
for fiscal 2003 exceeds $100,000, with respect to services rendered by such
persons to AEC and its subsidiaries.
SUMMARY COMPENSATION TABLE
(a) (b) (c) (d) (e) (f) (g) (h) (i)
SECURITIES
NAME AND OTHER RESTRICTED UNDERLYING
PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP
POSITION YEAR (1) SALARY BONUS COMPENSATION- AWARD(S) SARS PAYOUTS ALL
- --------------------- -------- ----------- ------------ -------------- ----------- ------------- --------- ----------
Blaine Froats 2003 - - - - 2,000,000 - -
2002 - - - - - - -
2001 - - - - - - -
Sean Froats 2003 45,000 - - - 1,000,000 - -
2002 - - - - - - -
2001 - - - - - - -
Jack Wasserman 2003 - - - - 100,000 - -
2002 - - - - - - -
2001 - - - - - - -
Corbee Dutchburn
(2) 2003 - - - 325,000 - - -
2002 - - - - - - -
2001 - - - - - - -
Lyle Goodis (2) 2003 - - - 325,000 - - -
2002 - - - - - - -
2001 - - - - - - -
Geeta 2003 - - - - - - -
Naipaul- 2002 120,000 - - 150,000 - - -
Denton 2001 120,000 - - 100,000 - - -
President
Robert G. 2003 - - - - - - -
Jones 2002 - - - 835,886 - - -
2001 100,000 - - 550,000 62,500 - -
2000 120,000 - - 1,200,000 - - -
1999 120,000 - - 500,001 - - -
Gary W. 2003 - - - - - - -
Evans 2002 60,000 - - 400,000 - - -
Secretary 2001 120,000 - - 512,500 62,500 - -
2000 120,000 - - 1,200,000 - - -
1999 120,000 - - 500,001 - - -
Robert W. 2003 - - - - - - -
Wilder 2002 - - - 328,598 - - -
2001 50,000 - - 550,000 - - -
2000 120,000 - - 800,000 - - -
1999 120,000 - - 500,001 - - -
(1) As of May 2003, Blaine Froats, Sean Froats, Jack Wasserman, Corbee
Dutchburn and Lyle Goodis are only individuals identified in this table
that are still associated with AEC.
(2) Pursuant to agreements with the Company, each of Corbee Dutchburn and
Lyle Goodis were issued 225,000 shares of common stock. An additional
200,000 shares of common stock was issued to Velocity Product
Solutions, Inc. for services provided by Mr. Dutchburn and Mr. Goodis.
100,000 shares has been attributed to each of Mr. Dutchburn and Mr.
Goodis.
OPTION/SAR GRANTS
On May 22, 2003, AEC adopted a stock option plan, authorizing AEC to
grant options to purchase up to an aggregate of 7,500,000 shares of common
stock. This plan was recently amended to authorize the issuance of 15,000,000
shares of common stock.
27
On July 7, 2003 the Company granted 4,100,000 options at $0.10 expiring
June 1, 2006 to Blaine Froats (2,000,000), Sean Froats (1,000,000), Jack
Wasserman (100,000), Jeffrey Hayward (500,000), Suzanne Brydon (250,000), Jason
Froats (150,000) and Marilyn Froats (100,000). The Company has expensed the
difference between the fair market value of the shares on July 7, 2003 and the
option price. The option expense amount for 2003 totals $697,000 and 20,000
options were exercised in the year. $693,600 has been recorded to the stock
option liability account.
The following table summarizes information about options outstanding at
December 31, 2003:
RANGE OF REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICES OUTSTANDING LIFE
------------ -------------- -------------
$0.10 4,080,000 2.5 years
$0.80 196,385 1 year
$1.20 3,750 1 year
--------------
4,280,135
==============
In 2002, no options were issued by the Company.
For options issued in 2001, the new accounting policy of the Company
was to expense the stock options once granted at the fair market value price.
The policy has been retroactively restated to coincide with SFAS No. 123. The
change of the stock option policy in 2001 has increased both the consulting fee
expense by $153,180 and the stock option liability by $153,180.
The options included in stock option liability were issued as follows:
2001 $ 153,180
2003 693,600
------------
$ 846,780
============
The following grants of stock options, whether or not in tandem with
stock appreciation rights ("SARs") and freestanding SARs have been made to
officers and/or directors:
NUMBER OF
SECURITIES
NUMBER OF UNDERLYING
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED EXERCISE NUMBER OF
OPTIONS DURING LAST OR BASE OPTIONS EXPIRATION
NAME SARS GRANTED 12 MONTHS[1] PRICE ($/SH) EXERCISED DATE
- ------------------ ------------ ------------ ------------ --------- ----------
Blaine Froats 2,000,000 $0.10 NIL 07/07/2005
Jack Wasserman 100,000 $0.10 NIL 07/07/2005
Sean Froats 1,000,000 $0.10 NIL 07/07/2005
Robert Jones 62,500 $0.80 -0- 12/31/2004
Gary Evans 62,500 $0.80 -0- 12/31/2004
Other than as set forth above, we have no stock options or stock
appreciation rights to its officers or directors.
There are no compensation arrangements for employment, termination of
employment or change-in-control between the Company and the executive officers.
COMPENSATION OF DIRECTORS
AEC has not compensated any director for his services as a director
during 2003 except as set forth above.
EMPLOYMENT AGREEMENTS
There are no outstanding fees or expenses due directors or officers
effective December 31, 2003.
28
The Company previously entered into agreements with Velocity Product
Solutions, Inc. relating to the services of Corbee Dutchburn and Lyle Goodis on
September 25, 2003, October 30, 2003 and December 5, 2003. As a result of the
October 30, 2003 agreement, Mr. Dutchburn serves as the Company's president and
chief operating officer and Mr. Goodis serves as the Company's executive vice
president. Pursuant to the September 25, 2003 agreement, Velocity received
200,000 shares of the Company's common stock. Pursuant to the October 30, 2003
agreement, Mr. Dutchburn and Mr. Goodis were each issued 225,000 shares of the
Company's common stock valued at $1.48/share. Pursuant to the December 5, 2003
agreement, the services were to be provided for a three (3) month period for a
monthly fee of $22,225 per month beginning January 1, 2004. This agreement is
renewable on three (3) month intervals.
The Company entered into an employment agreement with Geeta
Naipaul-Denton, a former president of the Company, wherein the Company would pay
Ms. Naipaul-Denton $120,000 per year. The employment agreement had a three year
term. This agreement was terminated effective December 31, 2002.
The Company had entered into an employment agreement with Robert Jones,
a former president of the Company, wherein the Company was to pay Mr. Jones
$120,000. The employment agreement had a three year term. Mr. Jones resigned as
president effective October 11, 2001. This agreement was terminated effective
October 31, 2001.
The Company had entered into an employment agreement with Gary Evans
wherein the Company would pay Mr. Evans $120,000 per year as secretary of the
Company. The employment agreement has a three year term. This agreement was
terminated effective December 31, 2002.
AEC currently does not have any other existing employment agreements.
29
DESCRIPTION OF PROPERTY
AEC's administrative offices are located at 3325 North Service Road,
unit 105, Burlington, Ontario, Canada L7N 3G2 Phone: (905) 332-3110 Fax: (905)
332-2068 www.cleanwatts.com. AEC occupies 3,000 square feet at a rental rate of
$1,992,88 CAD per month ($1,517.11 USD per month). Our lease is renewed on a
bi-annual basis with the current period ending April 30, 2004.
We are considering opening a technical and sales satellite office in
the U.S. near Oak Ridge, Tennessee.
LEGAL PROCEEDINGS
On August 15, 2002 the Securities and Exchange Commission filed a civil
lawsuit against the Company, its former CEO and other individuals. SEC v. COI
Solutions, et al. Case No. 02-80766-CIV-Hurley. The SEC alleges in its complaint
that COI Solutions, while under prior management, engaged in a scheme to pay
illegal kickbacks to representatives of a European fund contrived by the FBI and
made false and misleading statements in filing on Form S-8. The SEC is seeking
injunctive relief enjoining any violations of the securities laws and is also
seeking civil penalties. Senior trial counsel has recommended to the Commission
that they settle with the Company and that they not impose any civil penalty. As
part of Counsel's recommendation the Company would neither admit nor deny any
liability. The Commission has not yet approved the recommendation.
30
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect of the
beneficial ownership as of March 11, 2004, for any person who is known to AEC to
be the beneficial owner of more than 5% of AEC's common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT AND
NATURE OF
NAME AND BENEFICIAL PERCENTAGE OF
TITLE OF CLASS ADDRESS OF BENEFICIAL OWNER OWNERSHIP POSITION CLASS(1)
- -------------- --------------------------- --------- -------- --------
Common AEC 1, Inc. 104,870,715(2) 80.24%
3325 North Service Road - Unit 105 (Direct)
Burlington, Ontario
Canada L7M 3G2
Common
Director,
Blaine Froats 104,870,715(2) President, CEO 80.54%
3325 North Service Road, Unit 105 (Indirect)
Burlington, Ontario 2,000,000(3)
Canada L7N 3G2 (Direct)
Total 106,870,715 80.54%
- ---------------
(1) Applicable percentage of ownership is based on 130,700,395 shares of
common stock outstanding as of March 11, 2004, for each stockholder.
Beneficial ownership is determined in accordance within the rules of
the Commission and generally includes voting of investment power with
respect to securities. Shares of common stock subject to securities
exercisable or convertible into shares of common stock that are
currently exercisable or exercisable within 60 days of March 11, 2004,
are deemed to be beneficially owned by the person holding such options
for the purpose of computing the percentage of ownership of such
persons, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) These shares are held by AEC1, Inc. Blaine Froats together with his
wife, Marilyn, and son, Sean, own a majority of the outstanding shares
of AEC1, Inc. and have the voting power over AEC1, Inc.'s shares of
AEC. 50,000,000 shares of AEC1, Inc. are titled in the name of First
Flotilla (BWI) Inc., which is owned by Blaine Froats and Sean Froats.
Blaine Froats also owns 705,000 shares of AEC1, Inc. in his own name.
(3) Mr. Froats owns options to purchase 2,000,000 shares of the Company's
common stock at $0.10 per share.
The following table sets forth information with respect of the
beneficial ownership as of March 11, 2004, for the officers and directors of
AEC.
SECURITY OWNERSHIP OF MANAGEMENT
- ----------------------------------------------------------------------------------------------------------------------------
AMOUNT AND
NATURE OF
NAME AND BENEFICIAL PERCENTAGE OF
TITLE OF CLASS ADDRESS OF BENEFICIAL OWNER OWNERSHIP POSITION CLASS(1)
- -------------- --------------------------- --------- -------- --------
Common Blaine Froats 104,870,715(2) Director, 80.54%
3325 North Service Road - Unit 105 (Indirect) President, CEO
Burlington, Ontario 2,000,000(3)
Canada L7M 3G2 (Direct)
Common Sean Froats 5,000,000(2)(4) Director, VP 4.56%
3325 North Service Road, Unit 105 (Indirect)
Burlington, Ontario, Canada L7N 3G2 1,000,000
(Direct)
Common Marilyn Froats 2,406,561(5) 1.92%
3325 North Service Road, Unit 105 (Direct)
Burlington, Ontario, Canada L7N 3G2 100,000(5)
(Direct)
Common Jack Wasserman 100,000(6) Director *
3325 North Service Road, Unit 105
Burlington, Ontario, Canada L7N 3G2
Common Corbee Dutchburn 309,000 President/COO *
3325 North Service Road, Unit 105 (Direct)
Burlington, Ontario, Canada L7N 3G2
Common Lyle Goodis 309,000 Executive VP *
3325 North Service Road, Unit 105 (Direct)
Burlington, Ontario, Canada L7N 3G2
All officers and directors 116,095,276 86.70%
as a group (5 persons)
31
- ---------------
(1) Applicable percentage of ownership is based on 130,700,395 shares of
common stock outstanding as of March 11, 2004, for each stockholder.
Beneficial ownership is determined in accordance within the rules of
the Commission and generally includes voting of investment power with
respect to securities. Shares of common stock subject to securities
exercisable or convertible into shares of common stock that are
currently exercisable or exercisable within 60 days of March 11, 2004,
are deemed to be beneficially owned by the person holding such options
for the purpose of computing the percentage of ownership of such
persons, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) These shares are held by AEC1, Inc. Blaine Froats together with his
wife, Marilyn, and son, Sean, own a majority of the outstanding shares
of AEC1, Inc. and have the voting power over AEC1, Inc.'s shares of
AEC. 50,000,000 shares of AEC1, Inc. are titled in the name of First
Flotilla (BWI) Inc., which is owned by Blaine Froats and Sean Froats.
Blaine Froats also owns 705,000 shares of AEC1, Inc. in his own name.
(3) Mr. Froats owns options to purchase 2,000,000 shares of the Company's
common stock at $0.10 per share. (4) Sean Froats is the son of Blaine
Froats and Marilyn Froats. Sean is the beneficial owner of 5,000,000
shares of the
Company's common stock through his ownership of 5,000,000 shares of
AEC1, Inc. common stock. Sean Froats is a director of AEC1, Inc. Sean
Froats also owns options to purchase 1,000,000 shares of the Company's
common stock at $0.10 per share.
(5) Marilyn Froats is married to Blaine Froats the Chairman of the Board of
Directors, and the mother of Sean Froats. Ms. Froats beneficially owns
2,406,561 shares of the Company's common stock which are tilted in the
name of AEC1, Inc. Ms. Froats owns options to purchase 100,000 shares
of the Company's common stock at $0.10 per share.
(6) Jack Wasserman owns options to purchase 100,000 shares of the Company's
common stock at $0.10 per share.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN
On May 22, 2003, AEC adopted a stock option plan, authorizing AEC to
grant options to purchase up to an aggregate of 7,500,000 shares of common
stock. This plan recently amended to authorize the issuance of 15,000,000
shares.
32
CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
During 2002 and 2003, we paid directors of the Company and their
related entity, management fees and expenses of $240,000 in 2003 and $336,326 in
2002.
As of December 31, 2003, we owed $180,362 to a director of AEC pursuant
to a non-interest bearing demand note.
The Company previously entered into agreements with Velocity Product
Solutions, Inc. relating to the services of Corbee Dutchburn and Lyle Goodis on
September 25, 2003, October 30, 2003 and December 5, 2003. As a result of the
October 30, 2003 agreement, Mr. Dutchburn serves as the Company's president and
chief operating officer and Mr. Goodis serves as the Company's executive vice
president. Pursuant to the September 25, 2003 agreement, Velocity received
200,000 shares of the Company's common stock. Pursuant to the October 30, 2003
agreement, Mr. Dutchburn and Mr. Goodis were each issued 225,000 shares of the
Company's common stock valued at $1.48/share. Pursuant to the December 5, 2003
agreement, the services were to be provided for a three (3) month period for a
monthly fee of $22,225 per month beginning January 1, 2004. This agreement is
renewable on three (3) month intervals.
In December 2002, we entered into an agreement with AEC I Inc.,
formerly known as, Alternate Energy Corp. to acquire their assets. AEC1, Inc. is
a company that is not in the industry that the Company was in. However, the
board of directors decided that the Company would not be able to execute its
e-health business plan. The agreement with AEC1, Inc. required the Company to
initiate a 2.2 for 1 reverse split. The Company then issued 104,870,715 new
shares to AEC1, Inc. and received the forgiveness of a loan to the Company in
the amount of $202,000 for the assets. The acquisition of the assets was
completed on May 23, 2003 and a new board of directors was elected. The Company
changed its name to Alternate Energy Corp.
On January 3, 1999, we entered into an employment agreement with Robert
Jones wherein we will pay Mr. Jones $120,000 per year as our Treasurer. He was
appointed President in February 2000 and resigned in October 2001. This
agreement was terminated effective October 31, 2001.
On January 3, 1999, we entered into an employment agreement with Gary
Evans wherein we will pay Mr. Evans $120,000 per year as our Secretary and
Treasurer. The employment agreement had a three year term. This agreement was
terminated effective June 30, 2002.
On October 11, 2001, we entered into an employment agreement with Geeta
Naipaul-Denton wherein the Company will pay Ms Naipaul-Denton $120,000 per year
as President of the Company. The employment agreement has a three year term.
33
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
Our shares currently trade on the Over-the-Counter Bulletin Board under
the symbol "ARGY." From January 1, 2002 to May 23, 2003 the Company's shares
traded on the Bulletin Board operated by the National Association of Securities
Dealers, Inc. under the trading symbol "COII." Prior to August 24, 2001 the
shares traded under the symbol "COSL". The symbol was changed in conjunction
with an 8 for 1 reverse split. On October 25, 1999, the Company's shares were
delisted from the Bulletin Board as a result of the Company's failure to file
reports with the Securities and Exchange Commission pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. On October 26, 1999, the Company's
shares began trading in the "Pink Sheets" owned by the National Quotation
Bureau. On August 1, 2000, the Company's shares traded on the Bulletin Board
operated by the National Association of Securities Dealers, Inc. under the
trading symbol "COSL." The highest and lowest bid prices for AEC's common stock
for each calendar quarter for 2003, 2002 and 2001 as reported by the National
Quotation Bureau, and represents inter-dealer quotations, without retail markup,
markdown or commission and may not be reflective of actual transactions.
Fiscal Quarter High Low
2003 Fourth Quarter $1.72 $0.64
Third Quarter $2.60 $0.20
Second Quarter (1) $0.55 $0.05
First Quarter $0.76 $0.30
2002 Fourth Quarter $0.90 $0.07
Third Quarter $1.00 $0.04
Second Quarter $2.10 $0.60
First Quarter $0.65 $0.21
2001 Fourth Quarter $0.75 $0.25
Third Quarter (2) $0.75 $0.50
Second Quarter $0.18 $0.04
First Quarter $0.22 $0.63
(1) During the Second quarter of 2003 the Company executed a 2.2 for 1
reverse stock split. The figures for the Second and subsequent quarters
reflect this split and have not been adjusted.
(2) During the third quarter of 2001 the Company executed an 8 for 1
reverse stock split. The figures for the third and fourth quarters
reflect this split and have not been adjusted.
At December 31, 2003, there were 125,746,895 common shares of the
Company issued and outstanding. As of March 11, 2004, there were 130,700,395
shares outstanding.
As of December 31, 2003 and March 11, 2004, there were 144 and 153
holders of record, respectively, including common shares held by brokerage
clearing houses, depositories or otherwise in unregistered form. The beneficial
owners of such shares are not known by the Company.
DIVIDENDS
We have not declared or paid cash dividends on its common stock since
its inception and does not anticipate paying such dividends in the foreseeable
future. The payment of dividends may be made at the discretion of the Board of
Directors and will depend upon, among other factors, on our operations, its
capital requirements, and its overall financial condition.
CHANGES IN SECURITIES
With respect to the sale of unregistered securities, all transactions
were exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, and Regulation D promulgated under the 1933 Act. In each instance, the
purchaser had access to sufficient information regarding AEC so as to make an
informed investment decision. More specifically, AEC had a reasonable basis to
believe that each purchaser was an "accredited investor" as defined in
Regulation D of the 1933 Act and otherwise had the requisite sophistication to
make an investment in AEC's securities.
34
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital consists of 150 million shares of common stock,
par value $0.001 per share and 0 shares of preferred stock. At March 11, 2004,
there were 130,700,395 outstanding shares of common stock and no outstanding
shares of preferred stock. Set forth below is a summary description of certain
provisions relating to our capital stock contained in its Articles of
Incorporation and By-Laws and under Nevada Statutes. The summary is qualified in
its entirety by reference to our Articles of Incorporation and By-Laws and
Nevada law.
COMMON STOCK
Each outstanding share of common stock has one vote on all matters
requiring a vote of the stockholders. There is no right to cumulative voting;
thus, the holder of fifty percent or more of the shares outstanding can, if they
choose to do so, elect all of the directors. In the event of a voluntary of
involuntary liquidation, all stockholders are entitled to a pro rata
distribution after payment of liabilities and after provision has been made for
each class of stock, if any, having preference over the common stock. The
holders of the common stock have no preemptive rights with respect to future
offerings of shares of common stock. Holders of common stock are entitled to
dividends if, as and when declared by the Board out of the funds legally
available therefore. It is our present intention to retain earnings, if any, for
use in its business. The payment of dividends on the common stock is, therefore,
unlikely in the foreseeable future.
PREFERRED STOCK
None.
WARRANTS
In January 2004 as part of a financing transaction, we issued warrants
to purchase a total of 2,750,000 shares of common stock at an exercise price of
$0.85 per share. The warrants have a three year term. In December 2003 as part
of a financing transaction, we issued warrants to purchase a total of 471,112
shares of common stock and an exercise price of $1.20 per share. The warrants
have a three year term.
We have issued warrants to consultants of the Company. HPC Capital
Management was issued warrants to purchase 165,000 shares of common stock at
$0.85 per share as part of the January 2004 financing transaction. Alpine
Capital was issued warrants to purchase a total of 286,000 shares of common
stock. Of this total, warrants to purchase 106,000 shares of common stock at
$1.20 per share were issued as part of the December 2003 financing transaction
and warrants to purchase 180,000 shares of common stock at $0.85 per share as
part of the January 2004 financing transaction. Taurus Global, LLC has been
issued warrants to purchase a total of 2,189,030 shares of common stock. Of this
total, warrants to purchase 1,973,030 shares of common stock have an exercise
price of $1.67 per share, warrants to purchase 144,000 have an exercise price of
$0.50 per share, and warrants to purchase 72,000 shares of common stock have an
exercise price of $0.85 per share.
OPTIONS
On May 22, 2003, we adopted a stock option plan, which allows us to
grant options to persons employed or associated with the Company, including
without limitation, any employee, director, general partner, officer, attorney,
accountant, consultant or advisor up to an aggregate of 7,500,000 Common shares.
The options have a term of expiration to be set by the Compensation Committee of
the Board of Directors but will not exceed ten (10) years after the grant date.
The exercise price for each option will be at the discretion of the Compensation
Committee. This plan was recently amended to authorize the issuance of
15,000,000 shares of common stock.
On July 7, 2003 we granted 4,100,000 options at $0.10 expiring June 1,
2006 to Blaine Froats (2,000,000), Sean Froats (1,000,000), Jack Wasserman
(100,000), Jeffrey Hayward (500,000), Suzanne Brydon (250,000), Jason Froats
(150,000) and Marilyn Froats (100,000). The Company has expensed the difference
between the fair market value of the shares on July 7, 2003 and the option
price. The option expense amount for 2003 totals $697,000 and 20,000 options
were exercised in the year. $693,600 has been recorded to the stock option
liability account.
35
The following table summarizes information about options outstanding at
December 31, 2003:
RANGE OF REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICES OUTSTANDING LIFE
------------ -------------- -------------
$0.10 4,080,000 2.5 years
$0.80 196,385 1 year
$1.20 3,750 1 year
------------
4,280,135
============
In 2002, no options were issued by the Company.
For options issued in 2001, the new accounting policy of the Company
was to expense the stock options once granted at the fair market value price.
The policy has been retroactively restated to coincide with SFAS No. 123. The
change of the stock option policy in 2001 has increased both the consulting fee
expense by $153,180 and the stock option liability by $153,180.
The options included in stock option liability were issued as follows:
2001 $ 153,180
2003 693,600
------------
$ 846,780
============
TRANSFER AGENT
AEC's transfer agent is Computershare Trust Company, Inc., 350 Indiana
Street, Suite 800, Golden, Colorado 80401. The telephone Number for
Computershare Trust Company is (303) 262-0600.
LIMITATION OF LIABILITY: INDEMNIFICATION
Our Articles of Incorporation include an indemnification provision
under which we have agreed to indemnify directors and officers of AEC from and
against certain claims arising from or related to future acts or omissions as a
director or officer of AEC. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of AEC pursuant to the foregoing, or otherwise, AEC has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION
AUTHORIZED AND UNISSUED STOCK
The authorized but unissued shares of our common are available for
future issuance without our stockholders' approval. These additional shares may
be utilized for a variety of corporate purposes including but not limited to
future public or direct offerings to raise additional capital, corporate
acquisitions and employee incentive plans. The issuance of such shares may also
be used to deter a potential takeover of AEC that may otherwise be beneficial to
stockholders by diluting the shares held by a potential suitor or issuing shares
to a stockholder that will vote in accordance with AEC's Board of Directors'
desires. A takeover may be beneficial to stockholders because, among other
reasons, a potential suitor may offer stockholders a premium for their shares of
stock compared to the then-existing market price.
The existence of authorized but unissued and unreserved shares of
preferred stock may enable the Board of Directors to issue shares to persons
friendly to current management which would render more difficult or discourage
an attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise, and thereby protect the continuity of our management.
36
EXPERTS
The consolidated financial statements for the years ended December 31,
2003 and December 31, 2002 included in this prospectus, and incorporated by
reference in the Registration Statement, have been audited by Danziger &
Hochman, independent auditors, as stated in their report appearing with the
financial statements herein and incorporated by reference in the Registration
Statement, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing. Danziger & Hochman does
not have a direct or indirect interest in the Company, and was not on a
contingency basis.
LEGAL MATTERS
Jonathan D. Leinwand, P.A., Miami, Florida, will pass upon the validity
of the shares of common stock offered hereby for us. Jonathan D. Leinwand, P.A.
does not have a direct or incorrect interest in the Company and was not hired a
contingency basis.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all the information set forth in
the registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the exhibits for a complete
statement of their terms and conditions. The registration statement and other
information may be read and copied at the Commission's Public Reference Room at
450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission.
37
ALTERNATE ENERGY CORP.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
-------
Independent Auditor's Report F-2
Balance Sheet as of December 31, 2003 F-3
Statement of Operations for the Years Ended December 31, 2003,
December 31, 2002 and December 31, 2001 F-4
Statement of Stockholders' Equity for the Years Ended December 31, 2003
and December 31, 2002 F-5
Statement of Cash Flows for the Years Ended December 31, 2003 and
December 31, 2002 F-6
Notes to Consolidated Financial Statements F-7
F-1
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF:
ALTERNATE ENERGY CORP.
We have audited the accompanying balance sheet of ALTERNATE ENERGY CORP. as at
December 31, 2003 and 2002 and the statements of income, shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2003 and 2002
and the results of its operations and their cash flows for each of the years in
the three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
NORTH YORK, ONTARIO
February 12, 2004 Chartered Accountants
F-2
ALTERNATE ENERGY CORP.
STATEMENT I
BALANCE SHEET
AS AT DECEMBER 31, 2003
RESTATED
(SEE NOTE 3)
2003 2002
------------- -------------
ASSETS
Current
Cash $ 411,727 $ --
Deferred consulting costs (note 2) 3,122,456 --
Prepaid expenses and sundry assets 38,801 --
------------- -------------
3,572,984 --
Other
Technology, licences and patents 1,969,236 --
------------- -------------
$ 5,542,220 $ NIL
============= =============
LIABILITIES
Current
Accounts payable and accrued liabilities $ 263,954 $ 202,000
Stock option liability (note 3) 846,780 153,180
Due to director (note 4) 180,362 --
------------- -------------
1,291,096 355,180
------------- -------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 5) 125,747 13,181
ADDITIONAL PAID IN CAPITAL 18,696,548 10,503,691
(DEFICIT) - Statement III (14,571,171) (10,872,052)
------------- -------------
4,251,124 (355,180)
------------- -------------
$ 5,542,220 $ NIL
============= =============
F-3
{SEE ACCOMPANYING NOTES.}
ALTERNATE ENERGY CORP.
STATEMENT II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
RESTATED
(SEE NOTE 3)
2003 2002 2001
------------- ------------- -------------
REVENUE $ -- $ -- $ --
------------- ------------- -------------
EXPENSES
Administrative 76,973 71,995 471,382
Consulting fees 2,857,703 721,098 805,266
Management fees (note 8) 240,000 239,201 390,000
Professional fees 29,443 18,075 57,048
Stock option benefit (note 3) 697,000 -- 153,180
Amortization of goodwill -- -- 41,623
------------- ------------- -------------
(LOSS) BEFORE THE UNDERNOTED (3,901,119) (1,050,369) (1,918,499)
Recovery of loan (202,000) -- --
Minority interest -- -- 17,879
(Loss) on investments -- (1,059,197) --
------------- ------------- -------------
NET (LOSS) FOR THE YEAR $ (3,699,119) $ (2,109,566) $ (1,900,620)
============= ============= =============
NET (LOSS) PER SHARE $ (.08) $ (.32) $ (1.11)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 45,798,538 6,521,203 1,706,140
============= ============= =============
F-4
{SEE ACCOMPANYING NOTES.}
ALTERNATE ENERGY CORP.
STATEMENT III
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003
ADDITIONAL TOTAL
COMMON STOCK PAID IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIENCY DEFICIENCY
------------- ------------- ------------- ------------- -------------
DECEMBER 31, 2000 8,373,542 $ 8,373 $ 7,140,763 $ (6,861,866) $ 287,270
- -------------------------------- ------------- ------------- ------------- ------------- -------------
Issue of shares for services 495,000 495 52,605 -- 53,100
Issue of shares for investment 3,000,000 3,000 225,000 -- 228,000
Reverse stock split (10,388,032) (10,387) 10,387 -- --
------------- ------------- ------------- ------------- -------------
1,480,510 1,481 7,428,755 (6,861,866) 568,370
Issue of shares for services
to Directors 1,900,000 1,900 1,233,100 -- 1,235,000
Stock options -- -- 231,008 -- 231,008
Net (loss) 2001 -- -- -- (1,900,620) (1,900,620)
------------- ------------- ------------- ------------- -------------
DECEMBER 31, 2001 3,380,510 3,381 8,892,863 (8,762,486) (133,758)
- -------------------------------- ------------- ------------- ------------- ------------- -------------
Issue of shares for services 556,500 557 227,613 -- 228,170
Issue of shares for cash 3,855,000 3,855 381,645 -- 385,500
Issue of shares for services
to directors 3,892,174 3,892 717,934 -- 721,826
Issue of shares to creditors 1,496,112 1,496 283,636 -- 285,132
Net (loss) 2002 -- -- -- (2,109,566) (2,109,566)
------------- ------------- ------------- ------------- -------------
DECEMBER 31, 2002 13,180,296 13,181 10,503,691 (10,872,052) (355,180)
- -------------------------------- ============= ============= ============= ============= =============
Reverse stock split (7,189,116) (7,189) 7,189 -- --
Issue of shares for licence
and patents 104,870,715 104,870 (42,007) -- 62,863
Issue of shares for service 9,005,000 9,005 5,689,555 -- 5,698,560
Issue of shares to creditors 300,000 300 209,700 -- 210,000
Issue of shares for stock
options 20,000 20 1,980 -- 2,000
Issue of shares for placement 1,060,000 1,060 530,940 -- 532,000
Issue of shares for patents 4,500,000 4,500 1,795,500 -- 1,800,000
Net (loss) 2003 -- -- -- (3,699,119) (3,699,119)
------------- ------------- ------------- ------------- -------------
DECEMBER 31, 2003 125,746,895 $ 125,747 $ 18,696,548 ($14,571,171) $ 4,251,124
- -------------------------------- ============= ============= ============= ============= =============
F-5
{SEE ACCOMPANYING NOTES.}
ALTERNATE ENERGY CORP.
STATEMENT IV
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the year - Statement II $(3,699,119) $(2,109,566)
Adjustments to Net Loss to Reconcile to
Net Cash from Operations
Services for stock 7,773,423 1,610,828
Minority interest -- (18,381)
Investment write-off -- 1
Write-off of goodwill -- 182,187
Amortization -- --
------------ ------------
4,074,304 (334,931)
------------ ------------
Changes in non-cash working capital components
Prepaid expenses and deferred development costs (38,801) 1,079,286
Deferred consulting costs (3,122,456) --
Accounts payable and accrued liabilities 61,954 (607,866)
Stock option liability 693,600 --
------------ ------------
(2,405,703) 471,420
------------ ------------
Net cash provided by (used in) operating activities 1,668,601 136,489
------------ ------------
FINANCING ACTIVITIES
Issue of common shares 532,000 9,800
Advances from directors 180,362 (151,574)
------------ ------------
712,362 (141,774)
------------ ------------
INVESTING ACTIVITIES
Purchase of intangible assets (1,969,236) --
------------ ------------
INCREASE (DECREASE) IN CASH DURING YEAR 411,727 (5,285)
CASH, BEGINNING OF YEAR -- 5,285
------------ ------------
CASH, END OF YEAR $ 411,727 $ NIL
============ ============
F-6
{SEE ACCOMPANYING NOTES.}
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. NATURE OF OPERATIONS
--------------------
NATURE OF OPERATIONS
COI was incorporated in Nevada on August 1, 1997. The Company purchased
technology, licences and patents from AEC I, Inc (formerly Alternate
Energy Corp.) on May 22, 2003 for 104,870,715 restricted shares of the
Company. The issuance of the shares of the corporation from treasury
made AEC,I the majority shareholder. However, AEC,I will not be merged
or consolidated with Alternate Energy Corp.
On May 22, 2003, the Company changed its name to Alternate Energy Corp.
and commenced active business operations on June 1, 2003. The Company
has been working on a strategy to raise capital in order to continue
its efforts to complete certification of the Company's Hydrogen
Production System as well as to develop its Alpha products.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
ACCOUNTING PRINCIPLES
The Company's accounting and reporting policies conform to generally
accepted accounting principles and industry practice in the United
States. The financial statements are prepared in United States dollars.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's estimate of the fair value of cash, receivables, payables
and accruals approximates the carrying value.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, cash and cash
equivalents include cash on hand, balances with banks and highly liquid
temporary money market instruments with original maturities of three
months or less.
DEFERRED CONSULTING COSTS
Shares have been issued to service providers and consultants over the
term of contracts ranging from 1 to 3 years. Shares have been issued at
the fair market value price at date of contract signing and the expense
will be amortized over the term of the contract.
F-7
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
TECHNOLOGY PATENTS AND LICENCES
On May 22, 2003, the Company adopted SFAS No 142, "Goodwill and Other
Intangible Assets." Under the new statement, the Company no longer
amortizes intangible assets with indefinite lives, but instead tests
for impairment on at least an annual basis.
IMPAIRMENT OF INTANGIBLE ASSETS WITH INDEFINITE LIVES
In accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets," which was adopted in its entirety on May 22, 2003, the Company
evaluates the carrying value of other intangible assets annually as of
December 31 and between annual evaluations if events occur or
circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying amount. Such
circumstances could include, but are not limited to, (1) a significant
adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether the other intangible asset is
impaired, the Company compares the fair value of the reporting unit to
which the other intangible asset is assigned to its carrying amount. If
the carrying amount of a reporting unit exceeds its fair value, then
the amount of the impairment loss must be measured. The impairment loss
would be calculated by comparing the implied fair value of reporting
unit to its carrying amount. In calculating the implied fair value of
the other intangible assets, the fair value of the reporting unit is
allocated to all of the other assets and liabilities of that unit based
on their fair values. The excess of the fair value of a reporting unit
over the amount assigned to its other assets and liabilities is the
implied fair value of its intangibles. The initial evaluation of the
intangible assets completed as of October 1, 2003 in accordance with
SFAS No. 142 resulted in no impairment losses. Additionally, the
Company performed its periodic review of its intangible assets for
impairment as of December 31, 2003, and did not identify any asset
impairment as a result of the review.
INCOME TAXES
The Company accounts for its income taxes under the liability method
specified by Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. Deferred tax assets and liabilities
are determined based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Deferred
tax expense is the result of changes in deferred tax assets and
liabilities.
F-8
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments
by owners or distributions to owners. Among other disclosures, SFAS No.
130 requires that all items that are required to be recognized under
the current accounting standards as a component of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is
displayed in the statement of shareholder's equity and in the balance
sheet as a component of shareholder's equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the year. Actual results could
differ from those estimates.
STOCK OPTION PLANS
The Company applies the fair value based method of accounting
prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION in
accounting for its stock options granted to both employees and
non-employees. As such, compensation expense is recorded on the date of
grant based on the fair market value of the stock and expensed in the
period which the option was granted.
F-9
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
3. STOCK OPTIONS
-------------
On May 22, 2003, the Company adopted a stock option plan accounted for
under SFAS No. 123 and related interpretations. The plan allows the
Company to grant options to persons employed or associated with the
Company, including without limitation, any employee, director, general
partner, officer, attorney, accountant, consultant or advisor up to an
aggregate of 5,000,000 Common shares. The options have a term of
expiration to be set by the Compensation Committee of the Board of
Directors but will not exceed ten (10) years after the grant date. The
exercise price for each option will be at the discretion of the
Compensation Committee.
On July 7, 2003 the Company granted 4,100,000 options at $0.10 expiring
June 1, 2006 and expensed the difference between the fair market value
of the shares on July 7, 2003 and the option price. The option expense
amount for 2003 totals $697,000 and 20,000 options were exercised in
the year. $693,600 has been recorded to the stock option liability
account.
The following table summarizes information about options outstanding at
December 31, 2003:
RANGE OF REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICES OUTSTANDING LIFE
------------ -------------- -------------
$0.10 4,080,000 2.5 years
$0.80 196,385 1 year
$1.20 3,750 1 year
------------
4,280,135
============
In 2002, no options were issued by the Company.
For options issued in 2001, the new accounting policy of the Company
was to expense the stock options once granted at the fair market value
price. The policy has been retroactively restated to coincide with SFAS
No. 123. The change of the stock option policy in 2001 has increased
both the consulting fee expense by $153,180 and the stock option
liability by $153,180.
The options included in stock option liability were issued as follows:
2001 $ 153,180
2003 693,600
-----------
$ 846,780
===========
F-10
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
4. DUE TO DIRECTOR
---------------
The amount due to one of the directors is non-interest bearing, due on
demand and has no fixed repayment terms.
5. CAPITAL STOCK
-------------
AUTHORIZED
150,000,000 Common shares with a par value of $0.001
ISSUED 2003 2002
----------- -----------
125,746,895 Common shares (2002 - 13,180,296) $ 125,747 $ 13,181
During May 2003, there was a 2.2:1 reverse stock split. The number of
shares was reduced from 13,180,296 to 5,991,180.
6. BASIC LOSS PER SHARE
--------------------
Basic net loss per share figures are calculated using the weighted
average number of common shares outstanding computed on a daily basis.
7. INCOME TAXES
------------
Under SFAS No. 109, Accounting for Income Taxes, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates.
Deferred tax assets have been valued at zero for 2003 and 2002.
F-11
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
8. RELATED PARTY TRANSACTIONS
--------------------------
During the year the Company had the following related party
transactions:
2003 2002
----------- -----------
Management fees and expenses paid to directors
of the company and their related company $ 40,000 $ 336,326
=========== ===========
9. WARRANTS
--------
Warrants issued in the year and outstanding at December 31, 2003 total
818,606. The expiration date of the warrants is December 2006 and their
strike price ranges from $1.20 to $1.67.
10. CONTINGENT LIABILITY
--------------------
The Company has been sued by the Securities and Exchange Commission. On
August 15, 2002 the Securities and Exchange Commission filed a civil
lawsuit against the Company, its former CEO and other individuals. The
SEC alleges in its complaint that COI Solutions, while under prior
management, engaged in a scheme to pay illegal kickbacks to
representatives of a European fund contrived by the FBI and made false
and misleading statements in filing on Form S-8. The SEC is seeking
injunctive relief enjoining any violations of the securities laws and
is also seeking civil penalties. Senior trial counsel for the
Securities and Exchange Commission has recommended to the Commission
that they settle with the Company and that they not impose any civil
penalty. As part of Counsel's recommendation the Company would neither
admit nor deny any liability. The Commission has not yet approved the
recommendation.
F-12
ALTERNATE ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2003
11. SUBSEQUENT EVENT
----------------
Subsequent to year end, Alternate Energy Corp. has received proceeds of
funding in the amount of $2,750,000 via a private placement of the
Company's common stock with institutional investors. The proceeds are
expected to be used for funding interim working capital requirements,
marketing and early stage business development programs, completion of
certification of the Company's Hydrogen Production System, as well as
developing final engineering specifications for the Company's Alpha
product for distribution to accounts.
The financing includes the issuance of 5.5 million of restricted shares
at $0.50 per share and 3.547 million warrants exercisable over a 3-year
period to purchase the Company's common stock at a range of $0.50-$1.67
per share. The Company shall have the option of calling any unexercised
warrants once the registration statement is effective and the Company's
common stock price exceeds $2 per share for a period of 30 trading
days.
F-13
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER
PERSON TO PROVIDE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
ABOUT ALTERNATE ENERGY CORP., INC. EXCEPT THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT
RELY ON ANY ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE.
-----------------------
This prospectus does not constitute an offer to sell, or a ----------------------
solicitation of an offer to buy any securities:
PROSPECTUS
[ ] except the common stock offered by this prospectus;
---------------------
[ ] in any jurisdiction in which the offer or
solicitation is not authorized;
[ ] in any jurisdiction where the dealer or other
salesperson is not qualified to make the offer or 12,421,142 SHARES OF COMMON STOCK
solicitation;
[ ] to any person to whom it is unlawful to make the
offer or solicitation; or ALTERNATE ENERGY CORP.
[ ] to any person who is not a United States resident or
who is outside the jurisdiction of the United States.
The delivery of this prospectus or any accompanying sale does not imply that:
MARCH ___, 2004
[ ] there have been no changes in the affairs of
Alternate Energy Corp., Inc. after the date of this
prospectus; or
[ ] the information contained in this prospectus is
correct after the date of this prospectus.
-----------------------
Until ___ ___, 2004, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation include an indemnification provision
under which we have agreed to indemnify directors and officers of AEC from and
against certain claims arising from or related to future acts or omissions as a
director or officer of AEC. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of AEC pursuant to the foregoing, or otherwise, AEC has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. AEC will pay all expenses in connection with this offering.
Securities and Exchange Commission Registration Fee $ 1,211.80
Printing and Engraving Expenses $ 2,500.00
Accounting Fees and Expenses $ 20,000.00
Legal Fees and Expenses $ 50,000.00
Miscellaneous $ 1,288.20
TOTAL $ 75,000.00
RECENT SALES OF UNREGISTERED SECURITIES
In January 2004, we entered into a Securities Purchase Agreement with
Palisades Master Fund LP, Crescent International Ltd., Alpha Capital AG, Bristol
Investment Fund, Ltd., Ellis International Limited, Inc., Vertical Ventures,
LLC, Platinum Partners, Abraham Schwartz, Colbart Birnet, Chana Braun, Ronald
Nash, Marketwise Trading, West End Convertible Fund, and Zeena Kaila pursuant to
which AEC sold a total of 5,500,000 shares of common stock at a price of $0.50
per share and warrants to purchase a total of 2,750,000 shares of common stock
at an exercise price of $0.85 per share. The warrants have a three year term. We
received gross proceeds of $2,750,000 from this transaction.
In December 2003, we entered into a Securities Purchase Agreement with
LRG Holdings Inc., Professional Traders Fund LLC, Generation Capital Associates,
First Mirage Inc., Truk Opportunity Fund LLC, pursuant to which AEC sold a total
of 1,060,000 shares of common stock at a price of $0.50 per share and warrants
to purchase a total of 471,112 shares of common stock and an exercise price of
$1.20 per share. The warrants have a three year term. We received gross proceeds
of $530,000 from this transaction.
In December 2003, we entered into a Securities Purchase Agreement with
LRG Holdings Inc., Professional Traders Fund LLC, Generation Capital Associates,
First Mirage Inc., Truk Opportunity Fund LLC, pursuant to which AEC sold a total
of 1,060,000 shares of common stock at a price of $0.50 per share and warrants
to purchase a total of 471,112 shares of common stock and an exercise price of
$1.20 per share. The warrants have a three year term. We received gross proceeds
of $350,000 from this transaction.
As part of the January 2004 and the December 2003 financings, we issued
warrants to consultants of the Company. HPC Capital Management was issued
warrants to purchase 165,000 shares of common stock at $0.85 per share as part
of the January 2004 financing transaction. Alpine Capital was issued warrants to
purchase a total of 281,000 shares of common stock. Of this total, warrants to
purchase 106,000 shares of common stock at $1.20 per share were issued as part
of the December 2003 financing transaction and warrants to purchase 180,000
shares of common stock at $0.85 per share as part of the January 2004 financing
transaction. Taurus Global, LLC has been issued warrants to purchase a total of
2,189,030 shares of common stock. Of this total, warrants to purchase 1,973,030
shares of common stock have an exercise price of $1.67 per share, warrants to
purchase 144,000 have an exercise price of $0.50 per share, and warrants to
purchase 72,000 shares of common stock have an exercise price of $0.85 per
share.
II-1
On May 22, 2003, the Registrant acquired all the assets of AEC I Inc.,
formerly known as Alternate Energy Corp., and changed its name to Alternate
Energy Corp. The assets were acquired in exchange for 104 million shares of the
Registrant's common stock and the forgiveness of a loan to the Registrant in the
amount of $202,000.
On December 2, 2002, 1,496,112 common shares were issued at $0.190582
per share as settlement for $285,132 owed to investors and creditors of the
Company, $1,496 being the par value, was credited to share capital and $283,636
was credited to additional paid in capital.
On November 14, 2002, 44,000 common shares were issued at $0.13 per
share as settlement for services rendered to the Company, $44 being the par
value, was credited to share capital and $5,676 was credited to additional paid
in capital.
On July 7, 2002, 3,855,000 Common shares were issued at $0.10 per share
for a cash consideration of $385,500 pursuant to an exemption from registration.
$3,855 being the par value, was credited to share capital and $381,645 was
credited to additional paid in capital.
II-2
EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM SB-2.
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ------------------------------------------------------ --------------------------------------------
3.1 Initial Articles of Incorporation, as filed August 1, Incorporated by reference to Exhibit 3.1 to
1997 Form 10-SB12G filed with the SEC on November
10, 1999
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to
Form 10-SB12G filed with the SEC on November
10, 1999
3.3 Articles of Amendment to the Articles of Incorporated by reference to Exhibit 3.3 to
Incorporation, as filed on August 23, 1997 Form 10-SB12G filed with the SEC on November
10, 1999
3.4 Articles of Amendment to the Articles of Incorporated by reference to Exhibit 3.4 to
Incorporation, as filed on November 20, 1998 Form 10-SB12G filed with the SEC on November
10, 1999
3.5 Articles of Amendment to the Articles of Amendment, as Incorporated by reference to Exhibit 3.5 to
filed on May 16, 2003 Form 10-KSB filed with the SEC on March 16,
2004
5.1 Opinion on Legality Provided herewith.
10.1 Securities Purchase Agreement Incorporated by reference to Exhibit 10.1 to
Form 10-KSB filed with the SEC on March 16,
2004
10.2 Registration Rights Agreement Incorporated by reference to Exhibit 10.2 to
Form 10-KSB filed with the SEC on March 16,
2004
10.3 Form of Warrant Incorporated by reference to Exhibit 10.3 to
Form 10-KSB filed with the SEC on March 16,
2004
10.4 Securities Purchase Agreement Incorporated by reference to Exhibit 10.4 to
Form 10-KSB filed with the SEC on March 16,
2004
10.5 Form of Warrant Incorporated by reference to Exhibit 10.5 to
Form 10-KSB filed with the SEC on March 16,
2004
10.6 Addendum to Securities Purchase Agreement Incorporated by reference to Exhibit 10.6 to
Form 10-KSB filed with the SEC on March 16,
2004
10.7 Addendum to Registration Rights Agreement Incorporated by reference to Exhibit 10.7 to
Form 10-KSB filed with the SEC on March 16,
2004
10.8 Letter of Engagement between the Company and Velocity Incorporated by reference to Exhibit 10.8 to
Product Solutions, Inc. dated September 25, 2003 Form 10-KSB filed with the SEC on March 16,
2004
10.9 Letter of Engagement between the Company and Velocity Incorporated by reference to Exhibit 10.9 to
Product Solutions, Inc. dated October 30, 2003 Form 10-KSB filed with the SEC on March 16,
2004
II-3
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ------------------------------------------------------ --------------------------------------------
10.10 Letter of Engagement between the Company and Velocity Incorporated by reference to Exhibit 10.10 to
Product Solutions, Inc. dated December 5, 2003 Form 10-KSB filed with the SEC on March 16,
2004
10.11 Asset Purchase Agreement between the Company and AEC1, Incorporated by reference to Exhibit 10.6 to
Inc. formerly known as Alternate Energy Corp. Form 8-K filed with the SEC on June 5, 2003
14 Code of Ethics Incorporated by reference to Exhibit 14 to
Form 10-KSB filed with the SEC on March 16,
2004
23.2 Consent of Auditor Provided herewith.
99.5 1999 Non-Qualified Stock Option Plan Incorporated by reference to Exhibit 3.1 to
Form 10-SB12G filed with the SEC on November
10, 1999
99.6 1999 Qualified Stock Option Plan Incorporated by reference to Exhibit 3.1 to
Form 10-SB12G filed with the SEC on November
10, 1999
99.7 2003 Stock Benefit Plan Incorporated by reference to Exhibit to Form
S-8 filed with the SEC on July 23, 2003
(b) REPORTS ON FORM 8-K.
For the fiscal year ended December 31, 2003, AEC filed the following
reports on Form 8-K.
On April 24, 2003, the Company filed a report on Form 8-K relating to a
change in the Company's auditors from Marvin B. Seidman, CPA to Danziger &
Hochman.
On June 5, 2003, the Company filed a report on Form 8-K relating to the
issuance of 104 million shares of common stock to AEC1, Inc. in exchange for the
assets of AEC1, Inc. A corresponding amendment to the Form 8-K was filed on
August 8, 2003 containing the financial statements relating to the transaction.
II-4
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Sections
10(a)(3) of the Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) Include any additional or changed material
information on the plan of distribution;
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on March 18, 2004.
ALTERNATE ENERGY CORP.
By: /S/ BLAINE FROATS
-------------------------------
Blaine Froats
Chief Financial Officer,
President and Director
Pursuant to the requirements of the Securities Act of 1933 this
Registration Statement has been duly signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/S/ BLAINE FROATS Date: March 18, 2004
- ------------------------------------------
Blaine Froats
Director
/S/ SEAN FROATS Date: March 18, 2004
- ------------------------------------------
Sean Froats
Director
/S/ JACK WASSERMAN Date: March 18, 2004
- ------------------------------------------
Jack Wasserman
Director
II-6