Registration No. 333-124222
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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ALTERNATE ENERGY CORP.
(Name of small business issuer in its charter)
Nevada 2813 86-0884116
(State or Jurisdiction (Primary Standard (IRS Employer
of Organization) Industrial Code) Identification No.)
3325 North Service Road, Unit 105
Burlington, Ontario, Canada L7N3G2
(905) 332-3110
(Address and telephone number of principal executive offices
and principal place of business)
Blaine Froats
Chief Executive Officer
3325 North Service Road, Unit 105
Burlington, Ontario, Canada L7N3G2
(905) 332-3110
(Name, address and telephone number of agent for service)
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Copy to:
Robert B. Murphy, Esq. Edward M. Grushko
Pepper Hamilton LLP Grushko & Mittman, P.C.
600 Fourteenth Street, N.W. 551 Fifth Avenue, Suite 1601
Washington, D.C. 20005-2004 New York, New York 10176
(202) 220-1200 (212) 697-9500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 of 1933, as amended (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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
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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Title of Each Class of Proposed Maximum Amount Proposed Maximum Proposed Maximum Amount of
Securities to be to be Registered Offering Price per Share Aggregate Registration Fee
Registered Offering Price
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Common Stock, par value 20,000,000 $0.15 $3,000,000 $192.60
$0.001 per share
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Common Stock, par value 21,600,000 $0.40 $8,640,000 $208.01
$0.001 per share
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Common Stock, par value 6,666,666 $0.276 $1,839,999.82 $64.20
$0.001 per share
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Common Stock, par value 1,200,000 $1.00 $1,200,000 $11.56
$0.001 per share
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TOTAL 49,466,667 $14,679,999.82 $476.37*
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* Previously Paid.
(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 closing price as of January 17, 2005.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended (the
"Securities Act"), the shares of common stock offered hereby also include such
presently indeterminate number of shares of common stock as shall be issued by
us to the selling stockholders upon adjustment under anti-dilution provisions
covering the additional issuance of sharesRamp resulting from stock splits,
stock dividends or similar transactions.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act, based on the higher of (a) the
exercise price of the warrants or (b) the offering price of securities of the
same class included in this Registration Statement.
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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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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The information in this prospectus is not complete and may be changed. We 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 sell these securities and is not an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY __, 2006
PROSPECTUS
ALTERNATE ENERGY CORP.
Common Stock
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This prospectus relates to the resale of up to 49,466,667 shares of our
common stock by certain persons who are, or are beneficially deemed to be,
stockholders of Alternate Energy Corp ("AEC"). Please refer to "Selling
Stockholders" beginning on page ___. We are not selling any shares of common
stock in this offering. We may receive proceeds from the exercise of warrants to
purchase 11,237,640 shares of common stock. All costs associated with this
registration will be borne by us.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"ARGY." On January ____, 2006, the last reported sale price of our common stock
was $____ per share.
The terms of the subscription agreement with the Investors calls for the
registration of the shares underlying the convertible notes and warrants plus an
additional number of shares equal to 100% of the underlying shares to ensure
that a sufficient number of shares are available for conversion under all
contingencies.
Investing in our Common Stock involves risks. We urge you to read
carefully the "Risk Factors" beginning on page ___ before making your investment
decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful and complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _________ ___ , 2006
TABLE OF CONTENTS
BUSINESS ......................................................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATION ........................................................15
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.....................21
MANAGEMENT....................................................................23
EXECUTIVE COMPENSATION........................................................24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................28
SELLING STOCKHOLDERS..........................................................29
USE OF PROCEEDS...............................................................32
PLAN OF DISTRIBUTION..........................................................33
DESCRIPTION OF SECURITIES.....................................................35
CONTROLS AND PROCEDURES.......................................................37
INTEREST OF NAMED EXPERTS AND COUNSEL.........................................38
WHERE YOU CAN GET MORE INFORMATION............................................39
ALTERNATE ENERGY CORP. INDEX TO THE FINANCIAL STATEMENTS......................40
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
business information and the financial statements and related notes that appear
elsewhere in this prospectus. Because it is a summary, it does not contain all
of the information you should consider before making an investment. The market
and industry data we use in this prospectus are based on independent industry
publications and other publicly available information.
Our Company
Alternate Energy Corp. is an energy company committed to delivering
innovative, practical, and environmentally responsible fuel and power solutions
to consumer, commercial, and government markets. Our main technology is focused
on the production of on-demand hydrogen. Hydrogen has numerous applications
including as a fuel and as in the food industry. Our hydrogen production process
is designed to overcome two major industry obstacles - affordability and safety.
The hydrogen production system leverages a patent pending chemical process that
yields fuel-cell quality hydrogen from fresh or salt water, with no known
harmful by-products. Since our 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.
Recently, we have been focused on possible relationships with makers of
hydrogenated products as well as oil refineries, both of which could benefit
substantially from on-site hydrogen production. In addition, as a result of the
patent pending modifications we have made in our hydrogen production process, a
potentially valuable by-product with applications in the healthcare and natural
food markets is produced.
The Sale
On March 2, 2005, we entered into a private placement with certain
accredited investors whereby these investors have purchased $1,500,000 in
convertible notes, with Class A Warrants to purchase a number of shares equal to
the number of shares to which the Notes are convertible, at a price of $0.40 per
share expiring in 3 years, Class B Warrants to purchase up to an additional $1.5
million in our common shares at $0.276, and Class C Warrants for the purchase of
400,000 shares at $0.40 per share and 600,000 shares at $1.00 per share,
exercisable for 3 years from the date of the closing. The Notes are convertible
into shares of our common stock at 70% of the average closing bid price for the
5 days preceding the notice to convert with a ceiling of $.35 per share. The
note carries an interest rate of 6%, payable quarterly in arrears in either our
common stock or cash, at our discretion.
We have received $500,000 in proceeds from the investors and will receive
an additional $1,000,000 upon the effectiveness of the registration statement,
of which the prospectus forms a part, covering the resale of all the shares of
common stock issuable under the notes and the warrants.
Risk Factors
These securities involve a high degree of risk, and may be subject to
immediate and substantial dilution. Please refer to the "Risk Factors" section
for further detail.
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Summary Financial Data
FOR THE YEAR ENDED FOR THE YEARENDED
DECEMBER 31, DECEMBER 31,
2004 2003
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STATEMENT OF OPERATION DATA:
Revenues $ -- $ --
Administrative expenses 428,674 76,973
Consulting fees 4,467,672 2,857,703
Management fees -- 240,000
Professional fees 379,367 29,443
Research & Development 30,567 --
Stock option benefit -- 697,000
Amortization 41,840 --
Recovery of loan -- -202,000
Loss on
investments -- --
Net Profit (loss) (5,348,120) (3,699,119)
Net Profit (loss) per share (0.04) (0.08)
Weighted average number of common shares outstanding 128,185,299 45,798,538
DECEMBER 31, DECEMBER 31,
2004 2003
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BALANCE SHEET DATA:
Cash 418,253 $ 411,727
Deferred consulting costs 373,333 3,122,456
Prepared expenses and sundry assets 232,979 38,801
Marketable securities 360,000 --
Property and equipment 313,317 --
Technology, licenses and patents 2,124,373 1,969,236
Total assets 3,882,255 5,542,220
Accounts payable and accrued liabilities 36,384 263,954
Note due to related party 350,381 180,362
Total liabilities 386,765 444,316
Capital stock 104,815 125,747
Additional paid-in capital 23,168,880 19,543,328
Deficit (19,919,291) (14,571,171)
Total liabilities and stockholders' deficit 3,822,255 5,542,220
How To Contact Us
Our executive offices are located at 3325 North Services Road, Unit 105,
Burlington, Ontario, Canada L7N3G2. Our telephone number is (905) 332-3110, and
our website is http://www.cleanwatts.com. Information on our website is not
intended to be incorporated into this prospectus.
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RISK FACTORS
You should consider the following risk factors in addition to the other
information in this prospectus before investing in the Shares. An investment in
our Common Stock involves a high degree of risk. You should carefully consider
the following risk factors, other information included in this prospectus and
information in our periodic reports filed with the SEC. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially and adversely affected and you may lose some or all of your
investment.
Risks Related to Our Business
We have a history of operating losses and cannot guarantee we will generate
revenue in the future. Any failure on our part to achieve revenue-producing
status may cause us to cease operations.
We are a development stage company and have lost money since our
formation. For the year ending December 31, 2004 we lost $5,348,120, and for the
year ended December 31, 2003 we lost $3,699,199. Our accumulated deficit was
$19,919,291 at December 31, 2004. Future losses will occur until we reach
revenue-producing status. No assurances can be given that we will be successful
in generating revenue.
We may need to raise additional capital or debt funding to continue as a going
concern or we will need to cease operations.
Unless we can get beyond the development stage with the existing sources
of funds that we have available, we will require additional capital to sustain
operations and remain a going concern. Additionally, we may need access to
additional capital or additional debt financing to develop our products. To the
extent we have a working capital deficit and cannot offset the deficit from
sales, we may have to raise capital to repay the deficit and provide more
working capital to attain revenues. We cannot assure you that financing 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.
This could be materially harmful to our business and cause us to cease
operations.
The loss of service of key management could have a negative impact on our
performance, and may require us to cease operations.
Our success largely depends on the efforts and abilities of key
executives, including Blaine Froats, our chairman of the board and chief
executive officer. We do not have an employment agreement with Mr. Froats and do
not maintain key man life insurance on him. The loss of the services of Mr.
Froats could materially harm our business because of the cost and time necessary
to locate and train a replacement, or possibly cause us to cease operations.
We may not be able to effectively protect our intellectual property rights,
which form the foundation of our business.
We regard certain aspects of our products, processes, services, and
technology as proprietary. We have taken steps to protect them by filing patent
applications, placing 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.
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As such, 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 are successful. This could adversely affect our
overall financial condition, or operational status.
Other parties may assert that our technology infringes on their intellectual
property rights, which could divert management time and resources, possibly
force us to redesign our technology, or cease operations.
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. We cannot assure you that third parties will not assert
infringement claims against us for any patents granted to 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. Since our technology forms the
backbone of our business, any infringement claim or other litigation against or
by us could require us to cease 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. Any accidents involving our
products or other hydrogen-based products could materially impede 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 obtain insurance coverage on acceptable terms. In
addition, we may be held responsible for damages beyond the scope of insurance
coverage, which could severely impact our available resources or cause us to
cease operations.
We may not be able to provide competitive pricing in the world-wide hydrogen
market, making it difficult to sustain operations.
The world-wide hydrogen market is very competitive, with a low profit
margin per unit. While we will attempt to control our costs through strategic
placement of our production facilities and the sale of a marketable by-product,
we cannot guarantee these measures will be enough to allow us to enter into or
gain necessary market-share. If we are unable to provide hydrogen at competitive
prices, it could have a material adverse effect on us and our operations.
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Risks Associated with an Investment in Our Securities
We have not paid and do not inted to pay dividends.
We have not paid any dividends on our common stock, and we do not intend
to pay cash dividends in the foreseeable future.
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. An absence of
an active trading market could adversely affect our shareholders' ability to
sell our common stock in short time periods, or possible at all. 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.
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.
The anticipation of significant sales of our common stock by the selling
shareholders could result in short selling by third parties, which could cause
our stock prices to decline.
As selling stockholders convert notes or exercise warrants and sell
material amounts of our common stock, there is the possibility that this could
cause downward pressure on the market price, which could further encourage short
sales by selling stockholders or others. While we are unaware of any
short-selling to date, if there is not a corresponding demand when these stocks
are sold, then our stock price will likely decline.
Our common stock is subject to the SEC's "penny stock" rules which may make it
more difficult to sell.
The Securities and Exchange Commission (the "SEC") rules require brokers
to provide information to purchasers of securities traded at less than $5.00 per
share and not traded on a national securities exchange or quoted on the nasdaq
Stock Market. These disclosure requirements may have the effect of reducing
trading activity in our common stock and making it more difficult for investors
to sell. The rules require a broker to deliver a risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker must also give bid and offer quotations and
broker and salesperson compensation information to the customer orally or in
writing before or with the confirmation. The SEC rules also require a broker to
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction before completion of the transaction.
Investors must contact a broker-dealer to trade OTC Bulletin Board securities.
As a result, you may not be able to buy or sell our securities at the times that
you may wish.
Even though our securities are quoted on the OTC Bulletin Board, the OTC
Bulletin Board may not permit our investors to sell securities when and in the
manner that they wish.
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Because there are no automated systems for negotiating trades on the OTC
Bulletin Board, they are conducted via telephone. In times of heavy market
volume, the limitations of this process may result in a significant increase in
the time it takes to execute investor orders. Therefore, when investors place
market orders - an order to buy or sell a specific number of shares at the
current market price - it is possible for the price of a stock to go up or down
significantly during the lapse of time between placing a market order and its
execution.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements are principally contained in the section entitled "Description of
Business." These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to
differ, perhaps materially, from any future results, performance or achievements
expressed or implied by the forward-looking statements. Forward-looking
statements include, but are not limited to, statements about:
Our product development efforts;
The commercialization of our products;
Anticipated operating losses and capital expenditures;
Our estimates regarding our needs for additional financing;
Our estimates for future revenues and profitability; and
Sources of revenues and anticipated revenues, including
contributions from corporate collaborations, license agreements and
other collaborative efforts for the development and
commercialization of our product candidates, and the continued
viability and duration of those agreements and efforts.
In some cases, you can identify forward-looking statements by terms such
as "may," "will," "should," "could," "would," "expect," "plan," "anticipate,"
"believe," "estimate," "project," "predict," "intend," "potential" and similar
expressions intended to identify forward-looking statements. These statements
reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. Also,
these forward-looking statements represent our estimates and assumptions only as
of the date of this resale.
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BUSINESS
Our principal executive offices are located at 3325 North Services Road,
Unit 105, Burlington, Ontario, Canada L7N3G2. Our phone number is (905)
332-3110, and our website address is http://www.cleanwatts.com. We are an SEC
reporting company, and our filings can be reviewed on the their website at
http://www.sec.gov.
Principal Services Provided And Business Model.
Alternate Energy Corp., formerly known as COI, was incorporated in the
State of Nevada on August 1, 1997 and commenced active business operations on
June 1, 2003. We are considered to be a development stage company under current
accounting standards.
Since 2003, we have had the objective of producing a revolutionary, clean,
on -demand hydrogen technology that would have global, multiple market
applications on both a small and large scale. Our technology refines the
production of hydrogen and resultant gaseous formation without the need for
external energy input at time of production.
In May 2004 we entered into a value added reseller agreement with Astris
Energi in relation to their AFC Power Generator products. This relationship
allows us to utilize Astris' alkaline fuel cell for demonstration and sales
purposes, while allowing Astris access to our sales and distribution prospects.
Additionally, it allows us to demonstrate and make available a combined fuel
cell power pack for sale to corporate, industrial, and energy utility customers.
In Fall 2004, we took delivery of the first Powerstack 250 E8 2.4 kw
alkaline fuel cell from Astris. This has become the basis of one of our
demonstration units. These demonstration units will power an internal combustion
engine and Astris Energi's model E8 2.4 kW Alkaline Fuel Cell for a number of
potential commercial customers. Our first alpha-stage unit, the H2 1500-A1, was
recently demonstrated before two separate multinational engine companies in the
U.S. This mobile "road show" was set up on-site with each organization to review
our small scale, on-demand hydrogen production technology and discuss business
opportunities.
As a result of working closely with Experchem Laboratories of Toronto,
Canada, our method of producing hydrogen has benefited from significant
enhancements. The modifications and improvements to our hydrogen production
process have resulted in a more efficient production process, an increased
production of hydrogen, and the ability to produce what we believe to be a
saleable, in-demand by-product. This by-product may provide us with a source of
future revenue, which could partially offset the cost of our hydrogen production
and accelerate our entry into the $3 billion (USD) bulk hydrogen market.
We believe that the by-product can be used by the pharmaceutical, food,
and fertilizer industries worldwide. The by-product is produced in a liquid form
and is later dried into a powder, which can be blown into plastic containers,
sealed and shipped. For every 0.0893 Kg of hydrogen produced, 8.5 Kg of the
by-product is produced. Throughout the entire process, everything is either sold
or used again.
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While we continue to explore business opportunities related to the
small-scale, on-demand production of hydrogen, we are increasingly exploring the
possibility of large-scale production, primarily in conjunction with industries
that could substantially benefit from an on-site hydrogen production facility.
Such arrangements would be beneficial to prospective clients as it would
eliminate the need to have hydrogen shipped, which would, in some cases,
dramatically decrease the overall cost. From our prespective, large-scale
production would help give us stability in the marketplace, as well as allow us
to maximize the collection, processing, and distribution of the saleable
by-product. This helps to increase the potential for revenue beyond that of the
sale of the hydrogen alone.
In November 2005 we made a formal application for a provisional patent on
our enhanced production technology, including the modifications which produce
the by-product. We have also filed a patent application with the U.S. Patent and
Trademark Office in connection with our earlier proprietary process of producing
pure hydrogen. A provisional patent application establishes an official United
States patent application filing date for an invention and permits one year's
authorization to use a "Patent Pending" notice in connection with the invention
and to assess the invention's commercial potential before committing to the
higher cost of filing and prosecuting a non-provisional application for patent.
Description of property
We own no real property. Our administrative offices are located at 3325
North Services Road, Unit 105, Burlington, Ontario, Canada L7N3G2. We occupy
3,000 square feet at a rental rate of $1,912 USD per month. Our lease is renewed
on a bi-annual basis with the current period ending April 30, 2006.
Employees And Labor Relations
We operate with eleven consulting employees, of which four are off-site.
Competition
The worldwide bulk hydrogen market amounts to 45 billion Kilograms per
year. This amounts to approximately $3.37 billion in sales in Canadian funds.
The majority of the sales are generated from the following industries:
o The petroleum industry, for the removal of sulphur,
o The food industry, for the hydrogenation of oils,
o Chemical production, for the hydrogenation of non-edible oils for
soaps, insulation and plastics,
o Pharmaceutical productions, primarily for cosmetics, adhesives,
surfactants, and vitamins,
o Ammonia production,
o Glass industry, to eliminate oxygen,
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o Machine/metal construction, in heat treatment of various metals,
o Semiconductors, to protect agains impurities,
o Iron and steel industry, for heat treatment atmosphere, and
o Aerospace industry, to fuel spacecraft and power life-support
systems.
Generally, the main process by which hydrogen is currently produced in
large quantities for either fuel cell use or industrial bulk gas applications is
by extraction of hydrogen from hydrocarbons. 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.
The two main categories of hydrogen production systems are fuel cell
manufacturing companies, which in some cases integrate a fuel production
process, and manufacturers and distributors of industrial gases, including
hydrogen.
Fuel Cell Industry
There are numerous varieties of fuel cells, each with its own unique
attributes and applications. Some of the more common examples are described
below:
PROTON EXCHANGE MEMBRANE FUEL CELLS (PEM): Most hydrogen fuel cell
companies are concentrating on PEM fuel cell platforms and are predominantly
involved in the automotive sector. The advantages of the PEM fuel cell include
fast startup and load following, and scalability. The disadvantages include that
they require high purity Hydrogen fuel, are poisoned by carbon monoxide and
sulfur, they are dependant on platinum (unstable pricing), and require 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
Stuard 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, PDAs, and MP3
players. DMFCs have 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.
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ALKALINE FUEL CELLS (AFC): The advantages include inexpensive electrolytes
and catalysts, fast start-up, low temperature operation, while disadvantages
include sensitivity to carbon dioxide. Applications include transportation
portable, and aerospace (used in US manned spacecraft). Competitors include
Astris Energi, Inc., a Canadian company 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
cogeneration. 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. SOFCs have application in the areas of APUs, residential,
commercial, industrial, and cogeneration. The companies producing SOFCs include
Altair Nanotechnologies, CellTech Power, Acumetrics 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 Thermoelecritc, Honeywell, McDermott
Technology, NexTech Materials, NAGK Insulators, Rolls Royce, Siemens,
Siemens-Westinghouse, Sulzer Hexis, TechSys Inc., and Ztek Corp.
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.
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.
Industrial Gas
Examples of industrial gas providers include Air Liquide
(www.airliquide.com), a global provider of industrial and medical gasses. Their
core business is to supply oxygen, nitrogen, hydrogen, and other gases and
services to most industries. 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 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.
-12-
Currently, hydrogen is produced by steam reformation, electrolysis of
water, and other lesser methods. The major players worldwide are: Air Liquide,
The BOC Group, Air Products, and Praxair.
As we are a relatively small company compared to the leaders in the
hydrogen production market, we will rely on the saleable by-product of our
patent-pending process to subsidize the entire process, which will allow us to
remain competitive in the world-wide hydrogen market. Additionally, we are
looking to develop relationships that would be conducive to the on-site
production of hydrogen, thus eliminating one of the industry's largest hurdles,
which is the safe and efficient transport it its condensed state. By reducing
the shipment cost and by selling the by-product, we feel we can provide
competitive prices for large-scale uses.
Legal proceedings
On October 22, 2004 we sued Russell Rothman in the Ontario Superior Court
of Justice (Case No. 04-CV-277760CM2). We are seeking the recission of
agreements between us and Rothman, return of shares paid to him, and return of
money paid. We had entered into an agreement with Rothman for the purchase of
certain technology related to the production of hydrogen gas, for which he
represented he owned all right title. Rothman has counterclaimed against us for
breach of contract in the amount of $2 billion and is asking for punitive
damages in the amount of $10 million. On December 9, 2005, the court ordered
that Rothman's pleadings be struck and that he issue new pleadings by January 9,
2006 and appear in court on February 9, 2006. Rothman was ordered to pay the
Plaintiff the sum of $1,800 forthwith. We believed that the counterclaim was and
is completely without merit.
In 2002, the SEC brought suit against COI Solutions Inc., our predessor
company, and one of its former CEOs, Robert Wilder. Subsequent to our
acquisition of the assets of Alternate Energy Corporation in 2003 and complete
management change, the SEC agreed to settle the litigation. We neither admitted
nor denied the allegations of the SEC's complaint as part of the settlement. The
settlement was entered by the District Court for the Southern District of
Florida and included an injunction enjoining the company, its officers, or
directors from violating securities laws in the future.
On February 17, 2005, the Court entered judgments of permanent injunction
and other relief against defendants COI Solutions, Inc. and Mel Levine, a COI
fundraiser, from violating Section 10(b) of the Securities Exchange Act of 1934,
and Rule 10b-5 promulgated thereunder. In addition to injunctive relief, the
judgment against Levin provides for the imposition of a civil penalty.
-13-
On March 30, 2005, the United States District Court for the Southern
District of Florida entered a default judgment of permanent injunction against
Robert Wilder. The Court found that Wilder violated Section 10(b) of the
Securities Exchange Act of 1934, and Rule 10b-5, thereunder. In addition to
injunctive relief, the judgment provided for the imposition of a civil penalty
to be paid by Mr. Wilder, which was set in the amount of $110,000 on June 30,
2005.
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATION
The following discussion is intended to assist in understanding the
financial condition and results of operations of Alternate Energy Corp. You
should read the following discussion along with our financial statements and
related notes included in this prospectus. The following discussion contains
forward-looking statements that are subject to risks, uncertainties, and
assumptions. Our actual results, performance, and achievements in 2005 and
beyond may differ materially from those expressed in, or implied by, these
forward looking statements.
Summary Of Financial Results
For the fiscal quarter ended September 30, 2005, we had no revenue. During
this period we have been involved in the development of our hydrogen production
system along with our sales and marketing strategies.
Expenses: We had total expenses of $376,534 and $1,413,750 in the fiscal
quarter ended September 30, 2005 and September 30, 2004, respectively. Our
expenses for the fiscal quarter ended September 30, 2005 consisted of $60,452 in
administrative expenses, $244,011 in consulting fees, $48,176 in professional
fees and $23,896 in amortization. During the fiscal quarter ended June 30, 2005,
our expenses decreased significantly comparative to the fiscal quarter ended
September 30, 2004, mostly due to consulting fees, which were $1,191,622 in the
2004 period. The decrease is attributed to the utilization of core consultants
relative to the focus on research and development pertaining to our hydrogen
production system, our demonstration units and our marketing and operation
strategy. There were also shares issued to select consultants to the company
reducing the total fees due.
There was a decrease of $63,397 in administrative expenses for the period
ended September 30, 2005 compared to the same period in 2004. The reason for
this decrease can be attributed to shares of the company that were issued
relating to R&D, the utilization of core consultants as well as the sub leasing
of our Tennessee facility, all of which have lowered administrative costs by
more than half of the administrative expenses incurred comparative to the period
ending September 30, 2004.
Professional fees were $48,176 for the fiscal quarter ended September 30,
2005 compared to $98,279 for the same period in 2004. The prior years
professional fees were higher due to private placements and financing completed,
along with the legal fees associated with this.
Over the next 12 months, we anticipate that our expenses will not increase
substantially over our expenses in fiscal year 2004. We will continue as planned
in the goals set for the continued development, sales, and marketing of our
hydrogen production system. However, since we are a development-stage company
and have no revenue, it will be necessary for us to raise additional capital
within the next 12 months in order to continue operations.
Net Loss: We had a net loss of $376,534 for the fiscal quarter ended
September 30, 2005, compared with a net loss of $1,413,750 for the fiscal
quarter ended September 30, 2004. The decrease of $1,037,216 in the net loss for
the 2005 fiscal quarter compared to the 2004 fiscal quarter relates to the
overall reduction of professional, consulting and administrative fees in the
2005 period. Management believes that, for the fiscal year ending December 31,
2005, we will only be able to reduce our net loss if we can create and sustain
significant revenues from our hydrogen production system.
-15-
Liquidity And Capital Resources
Our 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. We incurred a net loss of $375,534
and $1,413,750 for the quarters ended September 30, 2005 and September 30, 2004,
respectively, and have an accumulated deficit of $21,645,303 at September 30,
2005. We had $103,703 in cash on hand as of September 30, 2005. 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 our ability to obtain revenue-producing status.
However, no assurances can be given that we will be successful in these
activities. Should any of these events not occur, the accompanying financial
statements will be materially affected, and we may need to cease operations.
Net cash used in operating activities was $671,537 for the three month
period ended September 30, 2005. In the 2005 period, the Company issued
1,892,357shares of common stock. Net cash obtained from financing activities was
$0 for the three month period ended September 30, 2005, compared with $0 for the
three month period ended September 30, 2004.
On March 2, 2005, we entered into a private placement with certain
accredited investors whereby these investors have purchased $1,500,000 in
convertible notes, with Class A Warrants to purchase a number of shares equal to
the number of shares to which the Notes are convertible at a price of $.40 per
share expiring in 3 years and with Class B Warrants to purchase up to an
additional $1.5 million in the Company's common shares at $0.276. The Class C
Warrants allow for the purchase of 400,000 shares at $.40 per share and 400,000
shares at $1.00 per share, exercisable for 3 years from the date of the closing.
The Notes are convertible into shares of the Company at 70% of the average
closing bid price for the 5 days preceding the notice to convert with a ceiling
of $.35 per share. The note carries an interest rate of 6%, payable quarterly in
arrears in either our stock or cash, at our discretion.
We have received $500,000 in cash from the investors and will receive an
additional $1,000,000 upon its registration statement filed with the SEC being
declared effective.
In November 2004, we cancelled 30,000,000 shares that were returned to us
by AEC1 as part of an agreement that we divest certain non-core technology.
Under the terms of the agreement to return certain patents and technology to
its' original owner, the Company transferred these patents and technology to
it's' parent company. In consideration for this transfer of the patents and
technology, the Company received 30 million of its' own shares from the parent
company which were subsequently cancelled.
Though these technologies possessed market potential, our final analysis
concluded that their development required an extremely high outlay of capital
and would produce only marginal profitability. AEC management therefore decided
to divest and focus squarely on its hydrogen production units.
-16-
On November the 1st, 2004 AEC through its Toronto lawyer agreed to release
the previous in order to facilitate and reacquire 30 million shares of Alternate
Energy Corp. from AEC 1.
We held 1,000,000 shares of Astris Energi Inc. (ASRNF) as of December 31,
2004. These shares were purchased for the sum of $300,000 USD at the value of
$0.30USD/Share and adjusted as per market value for that period. The ownership
interest was 2.65% .There were no shares sold during the period ending June 30,
2005.
We sold 182,800 shares of the securities at intervals between September
1st, 2005 and September 29th, 2005 incurring a loss. As of Sept 30, 2005 we
owned 817,200 shares of Astris Energi Inc. (ASRNF) giving us an ownership
interest of 2.17%. Market value of the marketable securities had been determined
by the closing price of said securities at the period ending September 30, 2005
and adjusted accordingly.
Due to lack of revenue, we currently do not internally generate cash
sufficient to pay all of our incurred expenses and other liabilities. As a
result, we are dependent on investor capital and loans to meet our expenses and
obligations. Although investor funds have allowed us to meet our obligations in
the recent past, there can be no assurances that our present methods of
generating cash flow will be sufficient to meet future obligations. We may also
seek alternative sources of financing, including from more conventional sources
such as bank loans and credit lines. Further, the availability of any future
financing may not be on satisfactory terms.
Plan Of Operation
Having developed a hydrogen producing system that has a resulting valuable
and readily saleable by-product, the company will now attempt to enter into an
agreement with a producer of hydrogenated oils. We will attempt to secure a
5-year contract to supply them wil hydrogen at a fixed price, which will likely
save them considerable expense. We intend to design and build a plant, on their
site, that will produce the amount of hydrogen required by the contract. We will
retain all rights to the by-product.
We will contract with an engineering firm to design the entire plant as
well as provide a turn-key operation. We believe that the financing of the plant
and equipment, together with the releated capital requirements, can be found on
a project financing basis. Therefore, we do not expect to have to provide this
funding.
It is estimated that it will take several months to negotiate and secure a
contract from a hydrogenated oil company. Once this occurs, an engineering firm
will be secured and the work of designing the equipment and plant will commence.
We feel that if will take the balance of this year for them to complete a
turn-key plant. Revenues should commence in the following year.
We will commence the development of the already partially developed
by-product number two this year. This should take approximately two months to
develop with the assistance of Experchem. Additionally, we will further attempt
to find a suitable partner from either the oil or hydrogen gas industry during
this period of time.
-17-
We are on schedule with our product development timetable to take
advantage of several opportunities with targeted organizations. Over the next 12
months, we will be showcasing our hydrogen production technology to a list of
prospective commercial customers, potential licensees, select government and
institutional contacts and other interested commercial parties. These groups
have been pre-qualified as having a demonstrated need for clean, alternative
power.
We have and will also continue to refine our hydrogen production process.
Due to the strict purity and volume requirements of a fuel cell, our technical
team has worked and continues to work in conjunction with a number of recognized
independent laboratories to ensure that outputs meet acceptable levels. As
necessary, we are ready to engage the services of an engineering firm to begin
the technical design work on a facility suitable to the requirements of our
hydrogen producing process.
In order to accomplish and continue with these steps, management estimates
that we will require half a million dollars towards the end of fiscal year ended
2005 and several million dollars towards the end of fiscal year ended 2006. As
we do not have any current revenue, such funds will come from loans from
officers and private placements of our common stock.
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 3 months to 1 year.
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.
All Deferred assets are recorded at fair market value at the time of share
issuance and are systematically reduced based on the terms of each agreement.
Each party providing services had either positive working references or had
previously provided services to the company and had performed their duties as
per their contractual terms. The following is a chart of the current deferred
costs as of the period ending September 30, 2005, with accompanying notes.
-18-
DEFERRED CONSULTING
DATE NAME DESCRIPTION # of SHARES
4-May-05 Corbee Dutchburn up to Aug 31, 2005 300,000
4-May-05 Lyle Goodis up to Aug 31, 2005 300,000
16-May-05 Rick Jabra 16 May 2005 to 16 May 2006 100,000
20-Jul-05 Jason Froats July 18,2005 to July 18, 2006 365,000
19-Oct-05 Patrick Keenan 19th Oct to Dec 19, 2005 50,000
8-Oct-05 Mike Hewitt 8th Oct to Dec 8, 2005 100,000
a) Corbee Dutchburn and Lyle Goodis are partners in a company called Velocity
Solutions Inc. They were hired to work in a multitude of areas involving
the management, marketing, product development and operations of the
corporation.
b) Rick Jabra was hired for services to the company including miscellaneous
corporate planning, acquisitions and merger negotiations
c) Jason Froats the son of Blaine Froats was hired to be the investor
relations representative as well as for communication management.
d) Patrick Keenan was hired for services to the company including public
relations.
e) Mike Hewitt was hired for services to the company including product
development and R&D.
Impairment Of Intangible Assets With Indefinite Lives: On May 22, 2003, we
adopted SFAS No 142, "Goodwill and Other Intangible Assets." Under the new
statement, we no longer amortize intangible assets with indefinite lives, but
instead test for impairment on at least an annual basis. In accordance with SFAS
No. 142, we evaluate 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,
we compare 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 our other assets and liabilities is the implied fair value of our
intangibles. The initial evaluation of the intangible assets was completed as of
October 1, 2003 in accordance with SFAS No. 142 resulted in no impairment
losses. Additionally, we performed our periodic review of our intangible assets
for impairment as of December 31, 2004, and did not identify any asset
impairment.
-19-
Our technology and patents have indefinite useful lives. we bought the
technologies as present and future technology. Also the technologies are
recorded at historical costs. There was no legal, regulatory, contractual,
competitive, economic, or other limiting factors to the useful life of the
assets.
Technology was purchased in December 2002, the Company (formally COI)
entered into an agreement with Alternate Energy Corp. (AEC) to acquire the
technology. The Company issued shares to AEC for the assets.
In November 2005 we made a formal application for a provisional patent on
our enhanced production technology, including the modifications which produce
the by-product. We have also filed a patent application with the U.S. Patent and
Trademark Office in connection with our earlier proprietary process of producing
pure hydrogen.
Stock Option Plans: We apply the fair value based method of accounting
prescribed by SFAS No. 123, "Accounting For Stock-Based Compensation," in
accounting for our 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.
Marketable Securities: Marketable securities are classified as current,
are available for sale and are stated at fair market value. The net excess of
fair market value over cost is included in Accumulated Other Comprehensive
Income (Loss) on the Balance Sheet.
-20-
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Our shares currently trade on the Over-the-Counter Bulletin Board under
the symbol "ARGY." Listed below are the highest and lowest bid price for our
common stock for each calendar quarter for 2005 and 2004 as reported on the
OTCBB, and represents inter-dealer quotations, without retail markup, markdown,
or commission and may not be reflective of actual transactions.
Fiscal Quarter High Low
-------------- ---- ---
2006 First Quarter (as of Jan. 3, 2006) $0.092 $0.085
2005 Fourth Quarter $0.25 $0.09
2005 Third Quarter $0.34 $0.20
2005 Second Quarter $0.37 $0.23
2005 First Quarter $0.43 $0.295
2004 Fourth Quarter $0.60 $0.31
2004 Third Quarter $0.505 $0.31
2004 Second Quarter $0.69 $0.43
2004 First Quarter $1.07 $0.565
At December 1, 2005, there were 105,644,941 common shares of our stock
issued and outstanding. There were approximately 160 holders of record,
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 our common stock since our
inception, and do 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, our operations, our capital
requirements, and our overall financial condition.
Changes In Securities
On March 2, 2005, we entered into a private placement with certain
accredited investors whereby these investors have purchased $1,500,000 in
convertible notes, with Class A Warrants to purchase a number of shares equal to
the number of shares to which the Notes are convertible, at a price of $0.40 per
share expiring in 3 years and with Class B Warrants to purchase up to an
additional $1.5 million in our common shares at $0.276. Additionally, Class C
Warrants have been issued. The warrant allows for the purchase of 400,000 shares
at $0.40 per share and 600,000 shares at $1.00 per share, exercisable for 3
years from the date of the closing. The notes are convertible into shares of our
common stock at 70% of the average closing bid price for the 5 days preceding
the notice to convert with a ceiling of $0.35 per share. The note carries an
interest rate of 6%, payable quarterly in arrears in either cash or our stock,
at our discretion.
-21-
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 thereunder. In each instance, the purchaser
had sufficient information regarding Alternate Energy Corp. so as to make an
informed investment decision. More specifically, we had a reasonable basis to
believe that each purchaser was an `accredited investor' as defined in
Regulation D, and otherwise had the requisite sophistication to make an
investment in our securities.
-22-
MANAGEMENT
Set forth below are the names, ages and principal positions of our
directors and executive officers, including certain biographical information.
Name Position Age
- ---- -------- ---
Blaine Froats Chief Executive Officer and 68
Chairman of the Board of Directors
Sean Froats Director, Vice President of Operations 35
Jack Wasserman Director and Treasurer 57
Blaine Froats. Mr. Blaine Froats has been the chairman of the board of
directors and chief executive officer of since May 2003. 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. Mr. Blaine
Froats is the father of Mr. Sean Froats, our vice president of operations and
director.
Sean Froats. Mr. Sean Froats has been a director, secretary, and the vice
president of our operations 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 EPT's logo, stationary, reports, graphics, and website. He invented
EPG's plastic shelter and co-invented EPG's home molding plastic. Mr. Sean
Froats is the son of Mr. Blaine Froats, our chairman of the board of directors.
Jack Wasserman. Mr. Jack Wasserman has been a director and the treasurer
of AEC since May 2003. Mr. Wasserman has been an auditor for over 25 years. 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.
-23-
EXECUTIVE COMPENSATION
The following table sets forth the aggregate remuneration of each of the
three highest paid persons who are officers or directors during the last fiscal
year. There are no compensation arrangements for employment, termination of
employment, or change-in-control between us and the executive officers.
Securities
Capacities in which Aggregate Underlying
Name of Individual Remuneration was Received Remuneration Options/SARS
- ------------------ ------------------------- ------------ ------------
Blaine Froats Chief Executive Officer and $137,000 3,750,000
Chairman of the Board of Directors
Sean Froats Director, Vice President of Operations $119,000 2,750,000
Jack Wasserman Director and Treasurer $ 0 200,000
Option/SAR Grants
On October 15, 2004, we granted 5,050,000 options at $0.34 expiring
September 2007. No expense was recorded since the fair market value at the
option grand day equaled the option price of $0.34.
550,000 options were exercised in the year ended December 31, 2004, and
200,135 options expired during the year. There were 75,000 options exercised
during the second quarter ending March 31, 2005, and no options exercised during
the second quarter, ending June 30, 2005. During 2004, 50,000 were exercised by
Suzanne Brydon, one of our employees, 250,000 were exercised by Blaine Froats,
and 250,000 were exercised by Sean Froats. In 2005, 75,000 were exercised by
SuzanneBrydon.
The following table summarizes information about options outstanding at
December 31, 2004:
Range of Exercise Prices Number Outstanding Remaining Contractual Life
$0.10 3,530,000 0.5 years
$0.34 5,050,000 1.875 years
=========
8,580,000
For options issued in 2001, the our new accounting policy 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. In 2002, we did not issue
any options, and in 2004, no expense was recorded for the issuance of options as
they were granted at fair market value.
-24-
The options included in stock option liability were issued as follows:
2001 $153,180
2003 $693,600
========
$846,780
The following grants of stock options, whether or not in tandem with stock
appreciation rights ("SARS") and freestanding SARs have been made to officers
and/or directors. Other than as set forth below, we have no stock options or
stock appreciation rights to our officers or directors:
Number of
Number of Securities
Securities Underlying
Underlying Options/SARS Exercise or Number of
Options SARS granted During Last Base Price Options
Name Granted 12 Months ($/SH) Exercised Expiration Date
- ---------------------------------------------------------------------------------------------------------------
1,750,000 $0.10 250,000 7/7/2006
Blaine Froats 2,000,000 $0.34 NIL 10/15/2007
- ---------------------------------------------------------------------------------------------------------------
100,000 $0.10 NIL 7/7/2006
Jack Wasserman 100,000 $0.34 NIL 10/15/2007
- ---------------------------------------------------------------------------------------------------------------
750,000 $0.10 250,000 7/7/2006
Sean Froats 2,000,000 $0.34 NIL 10/15/2007
- ---------------------------------------------------------------------------------------------------------------
Employment Agreements
There are no compensation arrangements for employment, termination of
employment, or change-in-control between us and the executive officers.
-25-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the record ownership of
our common stock by our (i) directors and executive officers, (ii) all of the
officers and directors as a group and (iii) each person who owns more than 5% or
more of our common stock. The persons named in this table possess the sole
voting and investment power with respect to the shares of common stock shown
unless otherwise indicated.
Name of Owner Address of Owner Shares Owned % of Class (1)
- ------------- ---------------- ------------ --------------
AEC 1, Inc. 3325 North Service Rd. 74,870,712(2) 70.9%
Unit 105
Burlington, Ontario
Canada L7M 3G2
Blaine Froats 3325 North Service Rd. 83,127,276(3) 78.7%
Unit 105
Burlington, Ontario
Canada L7M 3G2
Sean Froats 3325 North Service Rd. 2,750,000(4) 2.6%
Unit 105
Burlington, Ontario
Canada L7M 3G2
Jack Wasserman 3325 North Service Rd. 200,000(6) <1%
Unit 105
Burlington, Ontario
Canada L7M 3G2
Total 86,077,276 81.5%
(1) Applicable percentage of ownership is based on 105,644,941 shares of common
stock outstanding as of December 1, 2005, for each stockholder.
(2) 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 Alternate Energy Corp. 20,000,000 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) Includes 74,870,715 shares which are held by AEC1, Inc. Mr. Froats owns
options to purchase 2,000,000 shares of our common stock at $0.10 per share.
This number also include 2,406,561 of our shares owned by Marilyn Froats, and
her options to purchase 100,000 shares at $0.10/share, for which Blaine Froats
has disclaimed beneficial ownership.
-26-
(4) Sean Froats is the son of Blaine Froats and Marilyn Froats. He owns options
to purchase 750,000 shares of our common stock at $0.10 per share and 2,000,000
shares at $0.34 per share.
(5) Jack Wasserman owns options to purchase 100,000 shares our common stock at
$0.10 per share and 100,000 shares at $0.34 per share.
-27-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year we had the following related party transactions:
a) Management fees and expenses paid to our directors and their related
companies:
2004 2005
---- ----
$0 $240,000
b) On May 22,2003, we issued 104,870,715 shares of common stock to AEC1,
Inc. in exchange for technology, products, and licenses. In November 2004, we
cancelled 30,000,000 shares that were returned to us by AEC1 as part of an
agreement to divest ourselves of certain non-core technology.
As of December 31,2004, we owed $350,381 to one of our directors, Blaine
Froats, pursuant to a non-interest bearing demand note. An agreement was put in
writing and executed on January 1, 2005 between us and Blain Froats. The loan
total does not represent a one-time lump sum but rather a multitude of
transactions between 2003 and the present.
-28-
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. A description of each selling stockholder's relationship to us and
how each selling shareholder acquired the shares to be sold in this resale is
detailed in the information immediately following this table. Beneficial
ownership is determined in accordance with the rules of the Commission and
generally includes voting and investment power with respect to securities. We
have been told by the selling stockholders that it is their intent to sell all
of their securities as described in this prosepectus.
Percentage of
Shares outstanding shares
beneficially owned beneficially owned Shares to be sold in
Selling Stockholder before resale before resale (1) the resale
- --------------------------------------------------------------------------------------------------------------
Design Investments Ltd. 4,786,667 (2) 4.41% 4,786,667 (2)
9 Tambark Circuit
Werrington Downs, NSW 2747
Australia
- --------------------------------------------------------------------------------------------------------------
Professional Traders Fund LLC 2,393,333 (3) 2.21% 2,393,333 (3)
1400 Old Country Road, #206
Westbury, NY 11590
- --------------------------------------------------------------------------------------------------------------
Harborview Master Fund LP 4,786,667 (4) 4.41% 4,786,667 (4)
PO Box 972
Road Town, Tortola BVI
- --------------------------------------------------------------------------------------------------------------
Double U Master Fund LP 4,786,667 (5) 4.41% 4,786,667 (5)
c/o Navigator Management Ltd.
PO Box 972
Road Town, Tortola BVI
- --------------------------------------------------------------------------------------------------------------
Platinum Partners Value 7,180,000 (6) 6.62% 7,180,000 (6)
Arbitrage Fund LP
152 W 57th ST.
New York, NY 11019
- --------------------------------------------------------------------------------------------------------------
Westor Capital 800,000 (7) * 800,000 (7)
(f/k/a/ Westor Online)
258 Genesee Street, Suite 601
Utica, NY 13502
- --------------------------------------------------------------------------------------------------------------
* indicates ownership of less than 1%.
(1) Applicable percentage of ownership is based on 108,422,498 shares of
common stock outstanding as of December 31, 2005, together with
securities exercisable or convertible into shares of common stock within
60 days of December 31, 2005, for each stockholder.
-29-
(2) Includes 2,000,000 shares issuable upon the exercise of Class A
Warrants, 666,667 shares underlying the Class B Warrants, and 120,000
shares underlying the Class C Warrants.
(3) Includes 1,000,000 shares issuable upon the exercise of Class A
Warrants, 333,333 shares underlying the Class B Warrants, and 60,000
shares underlying the Class C Warrants. Mr. Haim Rolinitsky has sole
voting power and investment power over all such shares.
(4) Includes 2,000,000 shares issuable upon the exercise of Class A
Warrants, 666,667 shares underlying the Class B Warrants, and 120,000
shares underlying the Class C Warrants. Harborview Master Fund L.P. is a
master fund in a master-feeder structure whose general partner is
Harborview Advisors LLC. Richard Rosenblum and David Stefansky are the
managers of Harborview Advisors LLC and have ultimate responsibility for
trading with respect to Harborview Master Fund L.P. Messrs. Rosenblum and
Stefansky disclaim beneficial ownership of the shares being registered
hereunder.
(5) Includes 2,000,000 shares issuable upon the exercise of Class A
Warrants, 666,667 shares underlying the Class B Warrants, and 120,000
shares underlying the Class C Warrants. Mr. Carl Jacobson has sole voting
power and investment power over all such shares.
(6) Includes 3,000,000 shares issuable upon the exercise of Class A
Warrants, 1,000,000 shares underlying the Class B Warrants, and 180,000
shares underlying the Class C Warrants. Mr. Mark Nordlicht has sole
voting power and investment power over all such shares. Mr. Mark
Nordlicht disclaims beneficial ownership of the shares being registered
hereunder.
(7) Includes 800,000 shares issuable upon the exercise of Class A
Warrants. Mr. Richard Bach has sole voting power and investment power
over all such shares.
The total number of shares listed in the table above represents 100% of
the number of shares that will be issued upon the conversion of an outstanding
convertible note and accompying Class A, B, and C warrants, issued and sold as
part of our private placement completed in March 2005. As per the terms of that
agreement, an amount equal to 200% of this total will be registered under this
prospectus The convertible note and warrant terms are as follows:
-30-
These investors purchased $1,500,000 in convertible notes, with Class A
Warrants to purchase a number of shares equal to the number of shares to which
the Notes are convertible, at a price of 0.40 per share expiring in 3 years and
with Class B Warrants to purchase up to an additional $1.5 million in the
Company's common shares at a price of $0.276 per share. Class C Warrants have
also been issued. The warrant allows for the purchase of 400,000 shares at $0.40
per share and 600,000 shares at $1.00 per share, exercisable for 3 years from
the dtate of the closing. The notes are convertible into shares of the Company
at 70% of the average closing bid price for the 5 days preceding the notice to
convert with a ceiling of $0.35 per share. The note carries an interest rate of
6%. Interest is payable quarterly in arrears in either cash or stock of the
company, at the Company's discretion.
None of the selling stockholders have held a position or office, or had
any other material relationship with us.
-31-
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. 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.
The table below depicts the warrants, exercise price, number of shares,
and proceeds, if exercised:
Warrants Exercise Price Number of Shares Proceeds
- ----------------------------------------------------------------------------------------------------
Class A $0.40 4,285,714 to 10,000,000 $1,714,285 to $4,000,000
- ----------------------------------------------------------------------------------------------------
Class B $0.276 5,434,783 $1,500,000
- ----------------------------------------------------------------------------------------------------
$0.40 400,000 $160,000
Class C
$1.00 600,000 $600,000
- ----------------------------------------------------------------------------------------------------
Total 10,720,497 to 16,434,783 $3,970,258 to $6,260,000
- ----------------------------------------------------------------------------------------------------
-32-
PLAN OF DISTRIBUTION
The following discussion addresses the material terms of the plan of
distribution of the resale contemplated by this Prospectus.
The selling stockholders of the our common stock and any of their pledges,
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, to the extent permitted by law;
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.
On or prior to the effectiveness of the registration statement to which
this prospectus is a part, we will advise the selling security holder that it
and any securities broker-dealers or others who may be deemed to be statutory
underwriters will be governed by the prospectus delivery requirements under the
Securities Act. The selling stockholders have informed us that they do not have
any agreement or understanding, directly or indirectly, with any person to
distribute the common stock.
-33-
Broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any borker-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.
We are required to pay certain fees and expenses incurred by us incident
to the registration of the shares. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages, and liabilities, including
liabilities under the Securities Act. Additionally, as per the terms of the
Subscription Agreement, we have agreed to reimburse each subscriber two percent
(2%) of their purchase price on each closing date as reimbursement for each
Subscriber's due diligence expenses.
-34-
DESCRIPTION OF SECURITIES
Capital Stock
General. Our authorized capital consists of 250 million shares of common
stock, par value $0.001 per share. At December 1, 2005, there were 105,644,941
outstanding shares of common stock. Set forth below is a summary description of
certain provisions relating to our capital stock contained in our Articles of
Incorporation, By-Laws, and under Nevada Statutes. The summary is qualified in
its entirety by reference to our Articles of Incorporation, By-Laws, and Nevada
Statutes.
Voting Rights. Each share of our Common Stock entitles its holder to one
vote per share on all matters requiring the 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 or involuntary liquidation, all stockholders are
entitled to a pro rata distribution after payment of liabilities. Holders of
common stock are entitled to dividends if declared by the Board out of funds
legally available therefore. It is our present intention to retain earnings, if
any, for use by the business. The payment of dividends on the common stock is,
therefore, unlikely in the foreseeable future.
Preemptive Rights. Our Articles of Incorporation do not provide for
preemptive rights.
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 at an exercise price of $1.20 per share. The warrants
have a three year term.
We have issued warrants to consultants, including: 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 a total of 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.
On March 2, 2005, we entered into a private placement with certain
accredited investors whereby these investors purchased $1,500,000 in convertible
notes, with Class A Warrants to purchase a number of shares equal to the number
of shares to which the Notes are convertible, at a price of 0.40 per share
expiring in 3 years and with Class B Warrants to purchase up to an additional
$1.5 million in common stock at a price of $0.276 per share. Class C Warrants
have also been issued. The warrant allows for the purchase of 400,000 shares at
$0.40 per share and 600,000 shares at $1.00 per share, exercisable for 3 years
from the date of the closing.
-35-
The notes are convertible into shares of our common stock at 70% of the
average closing bid price for the 5 days preceding the notice to convert with a
ceiling of $0.35 per share. The note carries an interest rate of 6%. Interest is
payable quarterly in arrears in either cash or stock, at our discretion.
Transfer Agent
Our transfer agent is Computershare Trust Company, Inc., PO Box 1596,
Denver, Colorado 80201-1596. The telephone number for Computershare is (303)
262-0600.
Limitation of Liability: Indemnification
Our Articles of Incorporation include an indemnification provision under
which we have agreed to indemnify our directors and officers from and against
certain claims arising from or related to future acts or omissions as one of our
directors or officers. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers, and controlling
persons pursuant to the foregoing, or otherwise, we have been advised that in
the opinion of the SEC, such indemnification is aginst public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Authorized and unissued stock; Anti-takeover provisions
The authorized but unissued shares of our common stock 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 us 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 our 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 by 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-
CONTROLS AND PROCEDURES
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 funcitions and the organization, operation, and
management.
We recently carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures. Our disclosure controls
and procedures are designed to provide a reasonable level of assurance of
achieving our disclosure control objectives. We have concluded that they are, in
fact, effective at this reasonable assurance level. In addition, we reviewed our
internal controls, and there have been no significant changes over the past 12
months.
-37-
INTEREST OF NAMED EXPERTS AND COUNSEL
The legality of the securities being issued pursuant to this Prospectus
has been passed upon for Alternate Energy Corp. by the law firm of Pepper
Hamilton LLP.
The consolidated financial statements included in this registration
statement have been audited by Danziger & Hochman, independent auditors, as
stated in their report appearing with the financial statements herein. They 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 Alternate Energy Corp., and was not on a contingency basis.
-38-
WHERE YOU CAN GET MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"). We file annual, quarterly and special
reports, proxy statements, and other information with the SEC's principal office
in Washington, DC. Our SEC filings are available to the public from the SEC's
website at http://www.sec.gov.
Additionally, at your request we will provide you, without charge, a copy
of any exhibits to our registration statement reference in this prospectus. If
you want more information, write or call us at:
Alternate Energy Corp.
3325 North Service Road, Unit 105
Burlington, Ontario, Canada L7N3G2
(905) 332-3110
-39-
INDEX TO THE FINANCIAL STATEMENTS
Page No.
Consolidated Balance Sheet as of September 30, 2005 (unaudited)..............F-1
Consolidated Statements of Operations for the three and nine
months ended September 30, 2005 and 2004 (unaudited).........................F-2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and 2004 (unaudited)......................................F-3
Notes to Interim Unaudited Consolidated Financial Statements..........F-4 to F-5
Independent Auditors' Report.................................................F-6
Consolidated Balance Sheets as of December 31, 2004 and 2003.................F-7
Consolidated Statements of Operations for the years ended
December 31, 2004 and 2003...................................................F-8
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 2004 and 2003...................................F-9
Consolidated Statements of Cash Flows for the years ended
December 31, 2004 and 2003..................................................F-10
Notes to Consolidated Financial Statements..........................F-11 to F-20
-40-
Alternate Energy Corp.
Condensed Balance Sheet
Unaudited
Sept, 30 December, 31
2005 2004
- ---------------------------------------------------------------------------------------------------
ASSETS
Current
Cash 103,703 418,253
Deferred consulting costs 165,149 373,333
Prepaid expense and sundry assets 219,101 232,979
Marketable security 155,268 360,000
Other
Property & equipment 311,574 313,317
Technology & patent assets 2,124,373 2,124,373
----------------- -------------------
$ 3,079,167 $ 3,822,255
================= ===================
LIABILITIES
Current
Accounts payable & accrued liabilities 117,159 36,384
Loans payable 500,000 0
Due to director 397,973 350,381
----------------- -------------------
$ 1,015,132 $ 386,765
================= ===================
SHAREHOLDERS' EQUITY
Capital stock 107,940 104,815
Additional paid in capital 23,719,542 23,168,880
Accumulated other comprehensive income (118,142) 81,086
Deficit (21,645,303) (19,919,291)
----------------- -------------------
2,064,036 3,435,490
----------------- -------------------
----------------- -------------------
$ 3,079,167 $ 3,822,255
================= ===================
See accompanying notes to the financial statements.
F-1
Alternate Energy Corp.
Condensed Statement of Operations
Unaudited
Three Months Three Months Nine Months Nine Months
Ending Sept 30 Ending Sept 30 Ending Sept 30 Ending Sept 30
----------------- ----------------- ----------------- -----------------
2005 2004 2005 2004
----------------- ----------------- ----------------- -----------------
REVENUE $ -- $ -- $ -- $ --
----------------- ----------------- ----------------- -----------------
EXPENSES
Stock option benefit 0 0 0 0
Management fees 0 0 0 92,197
Professional fees 48,176 98,279 226,125 448,043
Consulting 244,011 1,191,622 1,122,315 4,200,290
Administration 60,452 123,849 315,563 561,535
Amortization 23,896 0 62,009 0
----------------- ----------------- ----------------- -----------------
$ 376,534 $ 1,413,750 $ 1,726,012 $ 5,302,065
----------------- ----------------- ----------------- -----------------
NET EARNINGS (loss) $ (376,534) $ (1,413,750) $ (1,726,012) $ (5,302,065)
----------------- ----------------- ----------------- -----------------
BASIC NET LOSS PER SHARE (0.00) (0.01) (0.02) (0.04)
WEIGHTED BASIC AVERAGE SHARES 106,974,398 131,829,941 106,102,170 131,000,000
================= ================= ================= =================
See accompanying notes to the financial statements
F-2
Alternate Energy Corp.
Condensed Statement of Cash Flows
Unaudited
Nine Months Ending September 30 2005 2004
- -------------------------------------------------------------------------------------------------------------
Cash flows from (applied to)
OPERATING ACTIVITIES
Net earnings (loss) $(1,726,012) $(1,413,750)
Services for stock $ 843,314 $ 512,000
Amortization $ 62,009 $ --
Stock option issued $ 54,500
Accounts payable & accrued liabilities $ 80,775 $ (420,498)
Prepaid expense $ 13,878 $ 498,680
----------- -----------
$ (671,537) $ (823,568)
=========== ===========
FINANCING ACTIVITIES
Share subscription -- --
Advances from director $ 47,592 $ --
Loan Payable $ 500,000 $ 99,915
Changes in accumulated and other comprehensive
income $ (165,903) $ 101,012
----------- -----------
$ 381,689 $ 200,927
=========== ===========
INVESTING ACTIVITIES
Sale of Marketable securities $ 39,050 $ --
Purchase of intangible assets $ (63,752) $ (329,829)
----------- -----------
$ (24,702) $ (329,829)
NET INCREASE (decrease) IN CASH DURING YEAR $ (314,550) $ (952,470)
----------- -----------
CASH, BEGINNING OF PERIOD $ 418,253 $ 1,730,029
----------- -----------
CASH, END OF PERIOD $ 103,703 $ 777,559
----------- -----------
- ------------------------------------------------------------------------------------------------------------
NON-CASH ITEMS
Deferred consulting 208,184
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to the financial statements
F-3
ALTERNATE ENERGY CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited) September 30, 2005 [GRAPHIC OMITTED]
1. GENERAL
The unaudited condensed statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of operations for
interim statements are not necessarily indicative of results to be achieved for
full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying financial statements and related footnotes
have been condensed and do not contain certain information that will be included
in THE COMPANY'S annual financial statements and footnotes thereto. For further
information, refer to the financial statements and related footnotes for the
year ended December 31, 2004 included in THE COMPANY'S Annual Report on Form
10-KSB.
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.
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of future tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
LOSS PER SHARE
THE COMPANY reports earnings per share in accordance with the provisions of SFAS
No. 128, EARNING PER SHARE. SFAS No 128 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shares by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if the
securities or other CONTRACTS to issue stock were exercised and converted to
common stock.
F-4
The number of common shares without par value outstanding on September 30, 2005
was 107,278,998 shares.
There were stock options outstanding at September 30, 2005 to purchase 8,730,000
of common stock, December 31, 2004 - 8,580,000. There were no stock options
exercised for the period ending September 30, 2005.
Basic weighted average shares outstanding September 30, 2005 were 106,974,398,
December 31, 2004 - 128,185,299.
2. CAPITAL STOCK
There were 609,200 common stock issued during this period.
F-5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of:
ALTERNATE ENERGY CORP.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of ALTERNATE ENERGY
CORP. as at December 31, 2004 and 2003 and the consolidated statements of
operations, shareholders' equity and cash flows for each of the years then ended
and the period May 22, 2003 (date of inception of development stage company)
through December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2004
and 2003 and the results of its operations and their cash flows for each of the
years then ended and the period May 22, 2003 (date of inception of development
stage company) through December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
Per Note 12, the prior year financial statements have been restated with no
effect to net income.
Toronto, Ontario s\ Danziger & Hochman January 24, 2005 Chartered Accountants
F-6
ALTERNATE ENERGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
As at December 31, 2004 STATEMENT I
RESTATED(SEE NOTE 12)
2004 2003
ASSETS
CURRENT
Cash $ 418,253 $ 411,727
Deferred consulting costs 373,333 3,122,456
Prepaid expenses and sundry assets 232,979 38,801
Marketable securities 360,000 --
1,384,565 3,572,984
OTHER
Property and equipment (note 3) 313,317 --
Patents and technology 2,124,373 1,969,236
$ 3,822,255 $ 5,542,220
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 36,384 $ 263,954
Due to director (note 4) 350,381 180,362
386,765 444,316
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 5) 104,815 125,747
ADDITIONAL PAID IN CAPITAL 23,168,880 19,543,328
ACCUMULATED OTHER COMPREHENSIVE INCOME 81,086 --
(DEFICIT) ACCUMULATED DURING
DEVELOPMENT STAGE Statement III (19,919,291) (14,571,171)
3,435,490 5,097,904
$ 3,822,255 $ 5,542,220
Commitments and contingent liability - note 13
F-7
ALTERNATE ENERGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
STATEMENT II
INCEPTION
2004 2003 TO DATE
REVENUE $ -- $ -- $ --
EXPENSES
Administrative 428,674 76,973 505,647
Consulting fees 4,467,672 2,857,703 7,325,375
Management fees (note 10) -- 240,000 240,000
Professional fees 379,367 29,443 408,810
Research and development 30,567 -- 30,567
Stock option benefit -- 697,000 697,000
Amortization 41,840 -- 41,840
(LOSS) BEFORE THE UNDERNOTED (5,348,120) (3,901,119) (9,249,239)
Recovery of loan -- (202,000) --
(Loss) on investments -- -- (202,000)
NET (LOSS) FOR THE YEAR $ (5,348,120) $ (3,699,119) $ (9,047,239)
NET (LOSS) PER SHARE $ (.04) $ (.08)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 128,185,299 45,798,538
F-8
ALTERNATE ENERGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 2004
STATEMENT III
ALTERNATE ENERGY CORP.
( A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31,
2004 STATEMENT III
ACCUMULTED DEFICIT
COMMON ADDITIONAL OTHER ACCUMULATED
COMMON STOCK PAID-IN COMPREHENSIVE DURING TOTAL
STOCK AMOUNT CAPITAL INCOME DEVELOPMENT EQUITY
SHARES (NOTE 9) (NOTE 9) (LOSS) STAGE DEFICIENCY
DECEMBER 31, 2001 3,380,510 $ 3,381 $ 9,046,043 $ 0 $ (8,762,486) $ 286,938
Issue of shares for services 556,500 557 227,613 0 0 228,170
Issue of shares for cash 3,855,000 3,855 381,645 0 0 385,500
Issue of shares for services
to directors 3,892,174 3,892 717,934 0 0 721,826
Issue of shares to creditors 1,496,112 1,496 283,636 0 0 285,132
Net (loss) 2002 0 0 0 0 (2,109,566) (2,109,566)
DECEMBER 31, 2002 13,180,296 13,181 10,656,871 0 (10,872,052) (202,000)
Reverse stock split (7,189,116) (7,189) 7,189 0 0
Issue of shares for licence
and patents 104,870,715 104,870 (42,007) 0 0 62,863
Issue of shares for service 9,005,000 9,005 5,689,555 0 0 5,698,560
Issue of shares to creditors 300,000 300 209,700 0 0 210,000
Stock options issued 0 0 693,600 0 0 693,600
Issue of shares for stock
options 20,000 20 1,980 0 0 2,000
Issue of shares for cash 1,060,000 1,060 530,940 0 0 532,000
Issue of shares for patents 4,500,000 4,500 1,795,500 0 0 1,800,000
Net (loss) 2003 0 0 0 0 (3,699,119) (3,699,119)
DECEMBER 31, 2003 125,746,895 125,747 19,543,328 0 (14,571,171) 5,097,904
Issue of shares for cash 5,500,000 5,500 2,744,500 0 0 2,750,000
Issue of shares for patents 500,000 500 169,500 0 0 170,000
Issue of shares for services 2,418,046 2,418 820,282 0 0 822,700
Issue of shares for warrants 200,000 200 0 0 0 200
Issue of shares for stock
F-9
ALTERNATE ENERGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2004
STATEMENT IV
2003
RESTATED INCEPTION
2004 (NOTE 13) TO DATE
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the year Statement II $(5,348,120) $(3,699,119) $(9,047,239)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Services for stock 961,750 5,910,560 6,872,310
Write-off of patents 41,085 0 41,085
Stock option liability expense (153,180) 693,600 540,420
Amortization 41,840 0 41,840
CHANGES IN OPERATING ASSETS AND LIABILITIES
Comprehensive income (81,086) 0 (81,086)
Prepaid expenses and deferred development costs (194,178) (38,801) (232,979)
Deferred consulting costs 2,749,123 (3,122,456) (373,333)
Accounts payable and accrued liabilities (227,570) 61,954 (165,616)
Net cash (used in) operating activities (2,210,336) (194,262) (2,404,598)
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of common shares for cash 2,750,000 532,000 3,282,000
Advances from director 170,019 180,362 350,381
Net cash used in financing activities 2,920,019 712,362 3,632,381
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (355,157) 0 (355,157)
Purchase of patents and technology (48,000) (106,373) (154,373)
Investment in marketable securities (300,000) 0 (300,000)
Net cash (used) in investing activities (703,157) (106,373) (809,530)
NET INCREASE IN CASH DURING YEAR 6,526 411,727 418,253
CASH, BEGINNING OF YEAR 411,727
0 0
CASH, END OF YEAR $ 418,253 $ 411,727 $ 418,253
NON-CASH ACTIVITIES
Common shares issued for services 961,750 5,910,560 6,872,310
Common shares issued for patents and technology (net) 107,137 1,862,863 1,970,000
F-10
ALTERNATE ENERGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
1. BACKGROUND INFORMATION
1. Nature of Operations
Alternate Energy Corp., formerly known as COI, was incorporated in the State of
Nevada on August 1, 1997. The Company commenced active business operations on
June 1, 2003 and is considered to be a development stage company under SFAS 7.
The Company has been working on a strategy to raise capital in order to continue
its efforts to complete certification of its Hydrogen Production System as well
as to develop its Alpha products.
On February 4, 2004, the Company incorporated a wholly-owned subsidiary, 2040412
Ontario Inc. in the Province of Ontario, Canada. The subsidiary holds title to
certain property and equipment reflected in the accounts of the Company.
BASIS OF PRESENTATION
These consolidated financial statements present the accounts of Alternate Energy
Corp. and its wholly-owned subsidiary, 2040412 Ontario Inc. The consolidated
entities will hereinafter be referred to as the Company. All significant
intercompany accounts and transactions have been eliminated.
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, prepaid expenses, marketable
securities, accounts payable and accruals and due to director approximates the
carrying value.
DEFERRED CONSULTING COSTS
Shares have been issued to service providers and consultants over the terms of
their contracts which range from six months to one year. Shares have been issued
at the fair market value price at date of contract signing and the expense is
amortized monthly over the term of the contract.
F-11
FOREIGN CURRENCY TRANSLATION
The Company considers the functional currency of its operations to be the local
currency and, accordingly, their financial information is translated into U.S.
dollars using exchange rates in effect at year end for assets and liabilities
and average exchange rates during each reporting year for the results of
operations. Adjustments resulting from translation of foreign accounts are
included as a component of other comprehensive income (loss) within
stockholders' equity. Transaction gains and losses in 2004 have been reflected
as comprehensive income. In 2003 these amounts were not material.
MARKETABLE SECURITIES
Marketable securities are classified as current, are available for sale and are
stated at fair market value. The net excess of fair market value over cost is
included in Accumulated Other Comprehensive Income (Loss) on the Balance Sheet.
PATENTS AND TECHNOLOGY
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. When
evaluating whether or not the asset is impaired, the Company compares the fair
value of the reporting unit to which the 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 the reporting unit to its
carrying amount. The initial evaluation of the Company's patents and technology,
completed as of October 1, 2003 in accordance with SFAS No. 142 resulted in no
impairment losses. To date, there has been no impairment of patents and
technology.
The changes in the carrying amount of patents and technology for the two years
ended December 31, 2004 are as follows:
Balance, May 22, 2003 $ 0
Patents and technology acquired during the year 1,969,236
------------
Balance, December 31, 2003 1,969,236
Patents and technology acquired during the year 218,000
Patents and technology disposed of during the year (note 10) (62,863)
------------
Balance, December 31, 2004 $ 2,124,373
------------
F-12
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.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation of property and equipment is provided annually on a declining basis
over the estimated useful life of the asset, except for current year additions
on which 1/2 of the rates are applicable. The declining balance rates are as
follows:
Automobile 30% declining balance
Computer hardware 30% declining balance
Computer software 100% declining balance
Equipment 20% declining balance
Telephone 30% declining balance
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.
F-13
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 the grant, which vests immediately based on
the fair market value of the stock and is expensed in the period in which the
option was granted.
The Company uses the Black Scholes option model as prescribed by SFAS 123. The
following table illustrates the assumptions used for the model.
2004 2003
---- ----
Risk free interest rates .02 .02
Expected dividend yield 0 0
Expected life 3 years 3 years
Expected volatility 64% 56%
Weighted average grant date fair value of options
granted during the period $ 0.34 $ 0.27
Weighted average remaining contractual life of
options outstanding 2.31 2.5
See note 6 for further stock option details.
3. PROPERTY AND EQUIPMENT
ACCUMULATED
COST AMORTIZATION 2004
-------- ------------ --------
Automobile $ 34,521 5,178 29,343
Computer hardware 24,668 3,700 20,968
Computer software 8,077 4,038 4,039
Equipment 285,244 28,524 256,720
Telephone 2,647 400 2,247
-------- ------------ --------
$355,157 $ 41,840 $313,317
-------- ------------ --------
F-14
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
250,000,000 Common shares with a par
value of $0.001
ISSUED 2004 2003
-------- --------
104,814,941 Common shares (2003 125,746,895) $104,815 $125,747
-------- --------
On August 16, 2004, the Company amended its' Articles of Incorporation and
increased the number of authorized common shares to 250,000,000 from
150,000,000.
6. STOCK OPTIONS
On May 22, 2003, the Company adopted a stock option plan that is accounted for
based on 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
and the options vest immediately. The exercise price for each option is chosen
at the discretion of the Compensation Committee. On February 24, the Company
increased the number of shares to be issued under the plan to 15,000,000.
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 totalled
$697,000 and 20,000 of these options were exercised in the year.
F-15
On October 15, 2004, the Company granted 5,050,000 options at $0.34 expiring
September 2007. No expense was recorded since the fair market value at the
option grant day equalled the option price of $0.34. 550,000 options were
exercised in the year and 200,135 options expired during the year. The following
table summarizes information regarding options outstanding at December 31, 2004.
RANGE OF EXERCISE PRICES NUMBER OUTSTANDING REMAINING CONTRACTUAL
LIFE
$0.10 3,530,000 1.5 years
$0.34 5,050,000 2.875 years
---------
8,580,000
7. 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.
8. INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with SFAS No. 109, Accounting for Income Taxes. Under the liability method, a
deferred tax asset or liability is determined based on the difference between
the financial statement and tax basis of assets and liabilities, as measured by
the enacted tax rates assumed to be in effect when these differences are
expected to reverse.
The approximate income tax effect of the temporary differences comprising the
net deferred tax asset is approximately as follows:
2004 2003
------------ ------------
Non-capital losses carried forward $ 10,013,288 $ 4,665,186
------------ ------------
Enacted tax rate 30%
Deferred tax assets 3,003,986 1,399,550
Less: Valuation allowance (3,003,986) (1,399,550)
------------ ------------
Net future tax assets $ 0 $ 0
------------ ------------
F-17
8. INCOME TAXES (continued)
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of future tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Management has provided
for a valuation allowance on all of its' losses as there is no assurance that
future tax benefits will be realized.
9. PRIOR YEAR AMOUNTS INCLUDED IN THE DEVELOPMENT STAGE COMPANY
On May 22, 2003, the Company was redefined as a development stage company in
accordance with SFAS 7 and its requirements. The equity accounts at May 22, 2003
were as follows:
Capital stock $ 13,181
Additional paid-in capital 10,503,691
Deficit 10,872,052
These amounts are included in the equity accounts during the t 6 18 12 entire
development stage of the Company. All amounts recorded in the "inception to
date" category as comparative amounts have been accumulated since May 22, 2003.
10. RELATED PARTY TRANSACTIONS
During the year the Company had the following related party transactions:
2004 2003
---- --------
a) Management fees and expenses paid to directors
of the company and their related company $ 0 $240,000
---- --------
F-18
b) Under the terms of an agreement to return certain patents and technology to
its' original owner, the Company transferred these patents and technology to
its' parent company. In consideration for this transfer of the patents and
technology, the Company received 30 million of its' own shares from the parent
company which were subsequently cancelled.
11. WARRANTS
During the year 5,613,586 warrants were issued and the total warrants
outstanding at December 31, 2004 were 6,232,192 (December 31, 2003 818,606). The
expiration date of the warrants is between December 2006 and January 2007 and
the strike price ranges from $0.85 to $1.67.
12. RESTATEMENT AND CORRECTION OF AN ERROR IN A PRIOR PERIOD
Stock options outstanding that were recorded in 2001 and 2003 in the amounts of
153,180 and 693,600 were incorrectly recorded as liabilities. The stock option
account has now been recorded as equity. There was no effect to net income for
the 2001 and 2003 years.
The Company has restated the statement of operations and cash flows following
SFAS7 Accounting and Reporting by Development Stage Companies. There was no
effect to net income resulting from this restatement. The Company has restated
the statement of cash flows following SFAS95 Statement of Cash Flow. There was
no effect to net income resulting from this restatement.
13. COMMITMENTS AND CONTINGENT LIABILITY
COMMITMENTS
The Company has entered into operating leases for its premises. Minimum lease
payments under the terms of the lease are as follows:
2005 $48,375
2006 14,250
-------
$62,625
-------
F-19
CONTINGENT LIABILITY
Alternate Energy Corp. has commenced an action against an individual for
fundamental breach of an agreement. If successful, the agreement will be
terminated and the individual will be required to repay cash and stock to the
Company. The Company has obtained an interim injunction against the individual
freezing the bulk of his assets.
The defendant has filed a counterclaim against Alternate Energy Corp. for breach
of contract in the amount of $2 billion and is asking for punitive damages in
the amount of $10 million. The Company believes that the counterclaim is without
merit. Accordingly, on April 1, 2005 the Company is scheduled to appear in
Court, at which time the Company's solicitors will move for an order to
determine that the counterclaim is groundless and for it to be dismissed.
F-20
[OUTSIDE BACK COVER]
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THOSE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
F-21
PART II
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant 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
registrant 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 Securities Act and will be governed by the final adjudication
of such issue.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of the securities offered by this
prospectus. We are responsible for the payment of all expenses set forth below.
Registration fee $ 2,078.22
Blue Sky filing fees and expenses $1,000
Printing and engraving expenses $2,500
Legal fees and expenses $30,000
Accounting fees and expenses $5,000
Miscellaneous $2,000
----------
Total $42,578.22
-63-
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
On March 2, 2005, we entered into a private placement with certain
accredited investors whereby these investors purchased $1,500,000 in convertible
notes, with Class A Warrants to purchase a number of shares equal to the number
of shares to which the Notes are convertible, at a price of 0.40 per share
expiring in 3 years and with Class B Warrants to purchase up to an additional
$1.5 million of our common stock at a price of $0.276 per share. Class C
Warrants have also been issued. The warrant allows for the purchase of 400,000
shares at $0.40 per share and 600,000 shares at $1.00 per share, exercisable for
3 years from the dtate of the closing.
The notes are convertible into shares of our common stock at 70% of the
average closing bid price for the 5 days preceding the notice to convert with a
ceiling of $0.35 per share. The note carries an interest rate of 6%. Interest is
payable quarterly in arrears in either cash or stock, at our discretion.
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 we 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., and Truk Opportunity Fund LLC, pursuant to which we 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 at 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.
As part of the January 2004 and the December 2003 financings, we issued
warrants to consultants, including: 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 shares 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.
All of these offerings were exempt from registration pursuant to
Section 4(2) of the Securities Act. There was no general solicitation of
investors, the investors were provided with our financial reports as filed with
the Commission, and the investors had access to our officers, directors, and the
management to ask questions.
-64-
On May 22,2003, we acquired all the assets of AEC 1 Inc., formerly
known as Alternate Energy Corporation, and changed its name to Alternate Energy
Corp. The assets were acquired in exchange for 04 million shares of our common
stock and the forgiveness of a loan in the amount of $202,000.
-65-
ITEM 28: EXHIBITS
Exhibit
No. Description Location
- ------- ----------- --------
3.1 Initial Articles of Incorporation, as filed Incorporated by reference to Exhibit 3.1 to Form
August 1, 1997 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 Form
Incorporation, as filed on August 23, 1997 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 Form
Incorporation, as filed on November 20, 1998 10-SB12G filed with the SEC on November 10, 1999
3.5 Articles of Amendment to the Articles of Incorporated by reference to Exhibit 3.5 to Form
Amendment, as filed on May 16, 2003 10-KSB filed March 16, 2004
5.1 Legality Opinion Filed herewith
10.1 Securities Purchase Agreement Incorporated by reference to Exhibit 10.1 to Form
10-KSB filed March 16, 2004
10.2 Registration Rights Agreement Incorporated by reference to Exhibit 10.2 to Form
10-KSB filed March 16, 2004
10.3 Form of Warrant Incorporated by reference to Exhibit 10.3 to Form
10-KSB filed March 16, 2004
10.4 Securities Purchase Agreement Incorporated by reference to Exhibit 10.4 to Form
10-KSB filed March 16, 2004
10.5 Form of Warrant Incorporated by reference to Exhibit 10.5 to Form
10-KSB filed March 16, 2004
10.6 Addendum to Securities Purchase Agreement Incorporated by reference to Exhibit 10.6 to Form
10-KSB filed March 16, 2004
10.7 Addendum to Registration Rights Agreement Incorporated by reference to Exhibit 10.7 to Form
10-KSB filed March 16, 2004
10.8 Letter of Engagement between the Company and Incorporated by reference to Exhibit 10.8 to Form
Velocity Product Solutions, Inc. dated September 10-KSB filed March 16, 2004
25, 2003
10.9 Letter of Engagement between the Company and Incorporated by reference to Exhibit 10.9 to Form
Velocity Product Solutions, Inc. dated October 10-KSB filed March 16, 2004
30, 2003
10.10 Letter of Engagement between the Company and Incorporated by reference to Exhibit 10.10 to Form
Velocity Product Solutions, Inc. dated December 10-KSB filed March 16, 2004
5, 2003
10.11 Asset Purchase Agreement between the Company and Incorporated by reference to Exhibit 10.6 to Form 8-K
AEC1, Inc. formerly known as Alternate Energy filed with the SEC on June 5, 2003
Corp.
-66-
10.12 Security Agreement between the Company and Filed herewith
Blaine Froats, dated January 1,2005
10.13 Funds Escrow Agreement Incorporated by reference to Exhibit 10.10 to Form
SB-2/A filed September 14, 2004
14 Code of Ethics Incorporated by reference to Exhibit 14 to Form 10-KSB
filed March 16, 2004
23.1 Auditor's Consent Letter Filed 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
-67-
ITEM 29: UNDERTAKINGS
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(A) To include any prospectus required by section 10(a)(3) of
the Securities Act.
(B) To 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) 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% change in the maximum
aggregate offering price set forth in the "calculation of registration
fee" table in the effective registration statement; and
(C) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement
(2) That, for the purpose of determining any liability under the
Securities 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 initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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 registrant 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 Securities Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, 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 the
registration statement to be signed on it's behalf by the undersigned, in the
city of Burlington, Ontario, Canada, on January 18, 2006.
ALTERNATE ENERGY CORP.
(REGISTRANT)
/s/ Blaine Froats
-----------------------------------
Blaine Froats,
Chief Financial Officer
President and Director
In accordance with the requirements of the Securities Act of 1933, as
amended, this statement was signed by the following persons in the capacities
and on the dates stated:
ALTERNATE ENERGY CORP.
(REGISTRANT)
/s/ Blaine Froats
-----------------------------------
Blaine Froats,
Director
/s/ Sean Froats
-----------------------------------
Sean Froats
Director
/s/ Jack Wasserman
-----------------------------------
Jack Wasserman
Director
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Exhibit
No. Description Location
- ------- ----------- --------
3.1 Initial Articles of Incorporation, as filed Incorporated by reference to Exhibit 3.1 to Form
August 1, 1997 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 Form
Incorporation, as filed on August 23, 1997 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 Form
Incorporation, as filed on November 20, 1998 10-SB12G filed with the SEC on November 10, 1999
3.5 Articles of Amendment to the Articles of Incorporated by reference to Exhibit 3.5 to Form
Amendment, as filed on May 16, 2003 10-KSB filed March 16, 2004
5.1 Legality Opinion Filed herewith
10.1 Securities Purchase Agreement Incorporated by reference to Exhibit 10.1 to Form
10-KSB filed March 16, 2004
10.2 Registration Rights Agreement Incorporated by reference to Exhibit 10.2 to Form
10-KSB filed March 16, 2004
10.3 Form of Warrant Incorporated by reference to Exhibit 10.3 to Form
10-KSB filed March 16, 2004
10.4 Securities Purchase Agreement Incorporated by reference to Exhibit 10.4 to Form
10-KSB filed March 16, 2004
10.5 Form of Warrant Incorporated by reference to Exhibit 10.5 to Form
10-KSB filed March 16, 2004
10.6 Addendum to Securities Purchase Agreement Incorporated by reference to Exhibit 10.6 to Form
10-KSB filed March 16, 2004
10.7 Addendum to Registration Rights Agreement Incorporated by reference to Exhibit 10.7 to Form
10-KSB filed March 16, 2004
10.8 Letter of Engagement between the Company and Incorporated by reference to Exhibit 10.8 to Form
Velocity Product Solutions, Inc. dated September 10-KSB filed March 16, 2004
25, 2003
10.9 Letter of Engagement between the Company and Incorporated by reference to Exhibit 10.9 to Form
Velocity Product Solutions, Inc. dated October 10-KSB filed March 16, 2004
30, 2003
10.10 Letter of Engagement between the Company and Incorporated by reference to Exhibit 10.10 to Form
Velocity Product Solutions, Inc. dated December 10-KSB filed March 16, 2004
5, 2003
10.11 Asset Purchase Agreement between the Company and Incorporated by reference to Exhibit 10.6 to Form 8-K
AEC1, Inc. formerly known as Alternate Energy filed with the SEC on June 5, 2003
Corp.
10.12 Security Agreement between the Company and Blaine Filed herewith
Froats, dated January 1,2005
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10.13 Funds Escrow Agreement Incorporated by reference to Exhibit 10.10 to Form
SB-2/A filed September 14,2004
14 Code of Ethics Incorporated by reference to Exhibit 14 to Form 10-KSB
filed March 16, 2004
23.1 Auditor's Consent Letter Filed 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
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