As filed with the Securities and Exchange Commission on April 21, 2006
Registration No. 333-_____
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
NEWGEN TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Nevada 4925 33-0840184
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
6000 Fairview Road, 12th Floor
Charlotte, North Carolina 28210
(704) 552-3590
(Address and telephone number of principal executive offices
and principal place of business)
Bruce Wunner, Chief Executive Officer
NewGen Technologies, Inc.
6000 Fairview Road, 12th Floor
Charlotte, North Carolina 28210
(704) 552-3590
(Name, address and telephone number of agent for service)
Copies to:
Thomas A. Rose, Esq.
Yoel Goldfeder, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any 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, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
1
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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. _________
2
CALCULATION OF REGISTRATION FEE
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Title of each class of Number of Proposed Proposed maximum Amount of
securities to be registered Shares to be maximum aggregate offering price registration fee
registered(1) offering
price per
share
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Common Stock, $0.001 par 27,173,913(2) $1.59(3) $43,206,521.74 $4,623.10
value issuable upon
conversion of Convertible
Debentures
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Common Stock, $0.001 par
value issuable upon exercise 5,625,000 $1.00(4) $5,625,000.00 $601.88
of warrants
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Common Stock, $0.001 par
value issuable upon exercise 2,155,000 $0.001(4) $2,155.00 $0.23
of warrants
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Common Stock, $0.001 par
value issuable upon exercise 100,000 $5.00(4) $500,000.00 $53.50
of warrants
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Common Stock, $0.001 par
value issuable upon exercise 140,000 $1.50(4) $210,000.00 $22.47
of warrants
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Common Stock, $0.001 par 20,124,588 $1.59(3) $31,998,094.00 $3,423.80
value
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
Total 55,318,501 $81,541,770.74 $8,724.98
- ------------------------------- -------------------- ---------------- --------------------------- --------------------
(1) Includes shares of our common stock, par value $0.001 per share, which
may be offered pursuant to this registration statement, which shares
are issuable upon conversion of convertible debentures held by the
selling stockholders. In addition to the shares set forth in the table,
the amount to be registered includes an indeterminate number of shares
issuable upon conversion of the convertible debentures, as such number
may be adjusted as a result of stock splits, stock dividends and
similar transactions in accordance with Rule 416. The number of shares
of common stock registered hereunder represents a good faith estimate
by us of the number of shares of common stock issuable upon conversion
of the convertible debentures and upon exercise of the warrants. For
purposes of estimating the number of shares of common stock to be
included in this registration statement, we calculated a good faith
estimate of the number of shares of our common stock that we believe
will be issuable upon conversion of the convertible debentures and upon
exercise of the warrants to account for market fluctuations, and
antidilution and price protection adjustments, respectively. Should the
conversion ratio result in our having insufficient shares, we will not
rely upon Rule 416, but will file a new registration statement to cover
the resale of such additional shares should that become necessary. In
addition, should a decrease in the exercise price as a result of an
issuance or sale of shares below the then current market price result
in our having insufficient shares, we will not rely upon Rule 416, but
will file a new registration statement to cover the resale of such
additional shares should that become necessary.
(2) Includes a good faith estimate of the shares underlying the convertible
debenture to account for market fluctuations.
(3) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-The-Counter Bulletin Board on April 17, 2006, which was $1.59 per
share.
(4) Calculated in accordance with Rule 457(g)(1) under the Securities Act
of 1933.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement is filed with the Securities and Exchange Commission and becomes
effective. This Prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the sale is not
permitted.
3
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 21, 2006
NEWGEN TECHNOLOGIES, INC.
55,318,501 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up
to 55,318,501 shares of our common stock, including up to 27,173,913 shares of
common stock underlying a convertible debenture in the principal amount of
$5,000,000, up to 5,625,000 shares issuable upon the exercise of common stock
purchase warrants with an exercise price of $1.00 per share, 2,155,000 shares
issuable upon the exercise of common stock purchase warrants with an exercise
price of $0.001 per share, 100,000 shares issuable upon the exercise of common
stock purchase warrants with an exercise price of $5.00 per share and 140,000
shares issuable upon the exercise of common stock purchase warrants with an
exercise price of $1.50 per share. The $5,000,000 convertible debenture is
convertible into our common stock at the lower of $1.00 or 80% of the lowest
closing bid price for the common stock for the 5 trading days before but not
including the conversion date.
The selling stockholders may sell common stock from time to time in the
principal market on which the stock is traded at the prevailing market price or
in negotiated transactions. The selling stockholders may be deemed underwriters
of the shares of common stock, which they are offering. We are not selling any
shares of common stock in this offering and therefore will not receive any
proceeds from this offering, except for proceeds from warrants that are
exercised.
Our common stock is listed on the Over-The-Counter Bulletin Board under
the symbol "NWGN." The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on April 19, 2006, was $1.39.
Investing in these securities involves significant risks. See "Risk
Factors" beginning on page 8.
No other underwriter or person has been engaged to facilitate the sale
of shares of common stock in this offering. None of the proceeds from the sale
of stock by the selling stockholders will be placed in escrow, trust or any
similar account.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make 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 or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ________, 2006.
4
Table Of Contents
Prospectus Summary........................................................... 6
Risk Factors................................................................. 8
Use Of Proceeds............................................................. 17
Market For Common Equity And Related Stockholder Matters.................... 17
Equity Compensation Plan Information ........................................18
Management's Discussion and Analysis or Plan of Operation...................18
Business.................................................................... 24
Facilities.................................................................. 28
Employees................................................................... 28
Legal Proceedings........................................................... 28
Management.................................................................. 28
Certain Relationships And Related Transactions.............................. 30
Security Ownership Of Certain Beneficial Owners And Management.............. 31
Description Of Securities To Be Registered.................................. 32
Indemnification For Securities Act Liabilities.............................. 32
Plan Of Distribution........................................................ 32
Penny Stock................................................................. 34
Selling Stockholders........................................................ 34
Legal Matters............................................................... 38
Experts..................................................................... 38
Available Information....................................................... 38
5
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements. As used throughout this prospectus, the terms "NewGen," "NWGN," the
"Company," "we," "us," and "our" refer to NewGen Technologies, Inc.
NEWGEN TECHNOLOGIES, INC.
We were incorporated under the laws of the State of Nevada on January
29, 1997. On July 29, 2005, we entered into a Share Exchange Agreement with
Refuel America, Inc., a Delaware corporation and the shareholders of Refuel
America, Inc., which closed on August 2, 2005. Pursuant to the Agreement, we
acquired all of the outstanding equity stock of Refuel America, Inc. from the
shareholders of Refuel America, Inc. On August 10, 2005 we changed our name to
NewGen Technologies, Inc.
Subsequent to the acquisition of Refuel America, Inc., we developed for
commercial use various intellectual property to be utilized in the production of
traditional and alternative fuels, which are intended to increase an
automobile's miles per gallon while providing cleaner fuel emissions by changing
the property of fuel to allow more complete combustion. In addition, through the
development of various joint ventures, we will produce alternative fuels and
blend with traditional fuels for distribution.
For the period from June 1, 2005, our inception, through December 31,
2005, we had no revenue and a net loss of $4,264,080. As a result of this loss
and our working capital deficiency of $1,331,322, in their report on our
financial statements, our auditors expressed substantial doubt about our ability
to continue as a going concern.
Our executive offices are located at 6000 Fairview Road, 12th Floor,
Charlotte, North Carolina 28210, and our telephone number is (704) 552-3590. We
are a Nevada corporation.
The Offering
Common stock outstanding before the offering...................... 38,611,224 shares
Common stock offered by selling stockholders...................... Up to 55,318,501 shares, including the following:
o up to 27,173,913 shares of common stock underlying
convertible debentures in the principal amount of
$5,000,000 (includes a good faith estimate of the
shares underlying the callable secured convertible
notes to account for market fluctuations,
antidilution and price protection adjustments),
o up to 5,625,000 shares of common stock issuable
upon the exercise of common stock purchase
warrants at an exercise price of $1.00 per share
(includes a good faith estimate of the shares
underlying the warrants to account for market
fluctuations, antidilution and price protection
adjustments),
o 2,155,000 shares of common stock issuable upon the
exercise of common stock purchase warrants at an
exercise price of $0.001 per share,
o 100,000 shares of common stock issuable upon the
exercise of common stock purchase warrants at an
exercise price of $5.00 per share,
o 140,000 shares of common stock issuable upon the
exercise of common stock purchase warrants at an
exercise price of $1.50 per share,
o 20,124,588 shares of common stock which are
presently outstanding.
Common stock to be outstanding after the offering................. Up to 73,805,137 shares
6
Use of proceeds................................................... We will not receive any proceeds from the sale of the common
stock hereunder. However, we will receive the sale price of
any common stock we sell to the selling stockholder upon
exercise of the warrants. We expect to use the proceeds
received from the exercise of the warrants, if any, for
general working capital purposes. See "Use of Proceeds" for
a complete description. OTCBB Symbol
................................................................... NWGN
The above information regarding common stock to be outstanding after
the offering is based on 38,611,224 shares of common stock outstanding as of
April 17, 2006 and assumes the subsequent conversion of our issued secured
convertible notes and exercise of warrants by our selling stockholders.
7
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
Risks Related to Our Financial Results
We Are a Development Stage Company with Little Experience in the Operation of
its Business. There is a Risk that Our Business May Fail.
To date, we have been involved primarily in product development in
developing sources of supply for product components and developing joint
ventures for production of alternative fuels. We have only a limited operating
history and no experience in producing and bringing to market its products. We
may experience in the future many of the problems, delays and expenses
encountered by any early stage business, many of which are beyond its control.
These problems include, but are not limited to:
o substantial delays and expenses related to testing, development, and
production of our products,
o unanticipated difficulties relating to the production and marketing
of a new product in the marketplace,
o competition from larger and more established companies
o lack of market acceptance of our new products and technologies.
We have only a limited operating history upon which to base any
projection of the likelihood it will prove successful, and thus we cannot assure
that it will achieve profitable operations or even generate any operating
revenues.
In addition, our technology is a new approach to reducing harmful
emissions from certain internal combustion engines and the unproven aspects of
its technology may never prove commercially viable. There is the potential that
we may not be able to produce on a sustainable basis the preliminary performance
results achieved in certain of its research efforts. It is also possible that
our products will not meet certain regulatory requirements and we may not be
able to manufacture or successfully market its products at a reasonable cost.
We May Need to Raise Capital to Fund our Operations, and our Failure to Obtain
Funding When Needed may Force us to Delay, Reduce or Eliminate our Product
Development Efforts.
If in the future, if we are not capable of generating sufficient
revenues from operations and our capital resources are insufficient to meet
future requirements, we may have to raise funds to continue the
commercialization, marketing and sale of our technologies and products.
We cannot be certain that funding will be available on acceptable
terms, or at all. To the extent that we raise additional funds by issuing equity
securities, our stockholders may experience significant dilution. Any debt
financing, if available, may involve restrictive covenants that impact our
ability to conduct our business. If we are unable to raise additional capital if
required or on acceptable terms, it may have to significantly delay, scale back
or discontinue the development and/or commercialization of one or more of its
product candidates, restrict its operations or obtain funds by entering into
agreements on unattractive terms.
Our Independent Auditors Have Expressed Doubt About Our Ability to Continue as a
Going Concern, Which May Hinder Our Ability to Obtain Future Financing.
In their report dated April 12, 2006, our independent auditors stated that
our consolidated financial statements for the period from June 1, 2005
(inception) through December 31, 2005, were prepared assuming that we would
continue as a going concern. The independent auditors noted that we have
suffered significant losses from operations and have a cash flow deficiency from
operations as well as a working capital deficiency. As a result of the going
concern qualification, we may find it much more difficult to obtain financing in
the future, if required. Further, any financing we do obtain may be on less
favorable terms.
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Risks Related To Our Business
Our Commercial Success Will Depend in Part on Our Ability to Obtain and Maintain
Patent Protection.
Our success will depend in part on our ability to maintain and/or obtain
and enforce patent protection for our technologies and to preserve its trade
secrets, and to operate without infringing upon the proprietary rights of third
parties. We have obtained rights to three patent applications filed in Great
Britain, and may, in the future, seek rights from third parties to other patent
applications or patented technology. There can be no assurance that patents will
issue from the patent applications filed or that the scope of any claims granted
in any patent will provide us with proprietary protection or a competitive
advantage.
We cannot be certain that the creators of our technology were the first
inventors of inventions covered by its patent applications or that they were the
first to file. Accordingly, there can be no assurance that patents will be valid
or will afford us with protection against competitors with similar technology.
The failure to maintain and/or obtain patent protection on the technologies
underlying our proposed products may have a material adverse effect on our
competitive position and business prospects.
It is also possible that our technologies may infringe on patents or other
rights owned by others. We may have to alter our products or processes, pay
licensing fees, defend an infringement action or challenge the validity of the
patents in court, or cease activities altogether because of patent rights of
third parties, thereby causing additional unexpected costs and delays to us.
There can be no assurance that a license will be available to us, if at all,
upon terms and conditions acceptable to us or that we will prevail in any patent
litigation. Patent litigation is costly and time consuming, and there can be no
assurance that we will have sufficient resources to pursue such litigation. If
we do not obtain a license under such patents, are found liable for infringement
or are not able to have such patents declared invalid, we may be liable for
significant money damages and may encounter significant delays in bringing
products and services to market. There can be no assurance that we have
identified United States and foreign patents that pose a risk of infringement.
We May Experience Difficulties in the Introduction of New Products that Could
Result in Us Having to Incur Significant Unexpected Expenses or Delay the Launch
of New Products.
Our technologies and products are in various stages of development. These
development stage products may not be completed in time to allow production or
marketing due to the inherent risks of new product and technology development,
limitations on financing, competition, obsolescence, loss of key personnel and
other factors. Unanticipated technical obstacles can arise at any time and
result in lengthy and costly delays or in a determination that further
development is not feasible. Therefore, there can be no assurance of timely
completion and introduction of improved products on a cost-effective basis, or
that such products, if introduced, will achieve market acceptance such that they
will sustain us to achieve profitable operations.
We currently do not have any mechanism for the distribution of our
alternative fuel products. We have acquired three fuel terminals located in the
Southeast region of the Unites States. Although we have entered into an
agreement to retain an experienced management company to operate and manage the
terminals, we have no experience in the operation of a distribution center or if
we are unable to develop a sufficient method for the distribution of our
alternative fuel products we will be unable to develop the commercial use of our
intellectual property.
We Will Require Additional Financing in Order to Construct Bio-Diesel Production
Plants
We will need funding of approximately $200 million in order to construct
several bio-diesel production facilities. Accordingly we will be required to
obtain additional private or public financing including debt or equity financing
and there can be no assurance that such financing will be available as needed,
or, if available, on terms favorable to us. Any additional equity financing may
be dilutive to stockholders and such additional equity securities may have
rights, preferences or privileges that are senior to those of our existing
common stock.
9
We are Dependent on Third Parties for the Manufacturing of Certain of our
Products and any Conflicts with These Third Parties May Prevent it from
Commercializing its Products.
We do not control these third parties, nor are we able to control the
amount of time and effort they put forth on our behalf. It is possible that any
of these third parties may not perform as expected, and that they may breach or
terminate their agreements with us before completing their work. It is also
possible that they may choose to provide services to a competitor. Any failure
of a third party to provide us with the services for which it has contracted
could prevent us from commercializing our products or delay market introduction.
We Have Entered into Several Joint Venture Agreements to Build and Operate
Biodiesel Plants, But We Have No Experience in the Construction or Operation of
Such Facilities, Therefore There is a Risk that these Joint Ventures May Not be
Successful and We Will Dependent on Third Parties for Supply of Biodiesel.
We have entered into several joint venture agreements to build and operate
biodiesel plants around the United States and in Europe. Although we plan on
hiring experienced engineers to assist in the development of these facility we
do not have experience in the construction industry or experience in the
production of biodiesel fuel. Accordingly, we will be dependent on the
experience of our joint venture partners and employees with respect to these
projects. If these joint ventures are not successful we will then be required to
locate alternative means to produce our biodiesel products.
We are Dependent on Supplies of Gasoline and Diesel to Produce our Products.
The production of our products is dependent on a sufficient supply of
gasoline and diesel. If we are unable to obtain a sufficient fuel supply it
could prevent us from commercializing our blended products or we would have to
market 100% biodiesel and additive only.
We are Dependent Upon Key Personnel.
Our success is heavily dependent on the continued active participation of
certain of our current executive officers, including S. Bruce Wunner and Ian
Williamson. Loss of the services of one or both of these officers could have a
material adverse effect upon our business, financial condition or results of
operations. Neither of these individuals currently have any plans to retire or
leave in the near future. We do not maintain any key life insurance policies for
any of its executive officers or other personnel. The loss of any of our senior
management could significantly impact our business until adequate replacements
can be identified and put in place.
There is a Risk that Products Developed by Competitors Will Reduce Our Profits
or Force Us Out of Business.
We may face competition from companies that are developing products
similar to those we are developing. The petroleum/fossil fuels industry has
spawned a large number of efforts to create technologies that help reduce or
eliminate harmful emissions from the burning of fuels. These companies may have
significantly greater marketing, financial and managerial resources than us. We
cannot assure investors that our competitors will not succeed in developing and
distributing products that will render our products obsolete or noncompetitive.
Generally, such competition could potentially force us out of business.
Our Products Can Only Be Applied to a Limited Range of Uses With the Resulting
Concentration Possibly Limiting our Potential Growth.
Our products are being developed with a limited set of functional uses
relating primarily to internal combustion engines. Significant efforts by others
exist to find alternatives to internal combustion engines. In addition, the
regulatory environment is becoming increasingly restrictive with regard to the
performance of internal combustion engines and the harmful emissions they
produce. If alternatives to internal combustion engines become commercially
viable, it is possible that the potential market for our products could be
reduced, if not eliminated.
10
We May Be Subject to Government Approvals and Regulations that Reduce our
Ability to Commercialize our Products, Increase our Costs of Operations and
Decrease our Ability To Generate Income.
We are subject to United States and international laws and regulations
regarding the development, production, transportation and sale of the products
it sells. There is no single regulatory authority to which we must apply for
certification or approval to sell its products in the United States or outside
its borders.
There can be no assurance that we will obtain regulatory approvals and
certifications for our products. Even if we are granted such regulatory
approvals and certifications, it may be subject to limitations imposed on the
use of our products. In the future, we may be required to comply with certain
restrictive regulations, or potential future regulations, rules, or directives.
We cannot guarantee that restrictive regulations will not, in the future, be
imposed. Such potential regulatory conditions or compliance with such
regulations may increase our cost of operations or decrease our ability to
generate income.
We Create Products That May Have Harmful Effects on the Environment If Not
Stored and Handled Properly Prior to Use, Which Could Result in Significant
Liability and Compliance Expense.
The re-processing of refined fossil fuels involves the controlled use of
materials that are hazardous to the environment. We cannot eliminate the risk of
accidental contamination or discharge and any resulting problems that occur.
Federal, state and local laws and regulations govern the use, manufacture,
storage, handling and disposal of these materials. We may be named a defendant
in any suit that arises from the improper handling, storage or disposal of these
products. We could be subject to civil damages in the event of an improper or
unauthorized release of, or exposure of individuals to, hazardous materials.
Claimants may sue us for injury or contamination that results from use by third
parties of alternative fuel products, and our liability may exceed our total
assets. Compliance with environmental laws and regulations may be expensive, and
current or future environmental regulations may impair our research, development
and production efforts.
We May Have Difficulties Managing Growth Which Could Lead to Higher Losses.
While we have not yet achieved any revenues through the sale or licensing
of our products, should certain events occur, we might be in a position to
rapidly commercialize our products. Rapid growth would strain our human and
capital resources, potentially leading to higher operating losses. Our ability
to manage operations and control growth will be dependent upon our ability to
raise and spend capital to improve its operational, financial and management
controls, reporting systems and procedures, and to attract and retain adequate
numbers of qualified employees. Should we be unable to successfully create
improvements to its internal procedures and controls in an efficient and timely
manner, then management may receive inadequate information necessary to manage
our operations, possibly causing additional expenditures and inefficient use of
existing human and capital resources.
Risks Related to Construction of the Biodiesel Plants
Dependence on Key Suppliers, Whose Failure to Perform, Could Hamper our Ability
to Operate Profitably or Decrease the Value of the Company.
We will be highly dependent upon engineering firms, equipment
manufacturers, general contractors and our joint venture partners to design and
build the biodiesel plants. We have not yet entered into contracts for certain
design and construction services. If we do not execute a definitive binding
design-build contract, or if our contractor terminates its relationship with us
after it initiates construction, there is no assurance that we will be able to
obtain a replacement general contractor. We expect that we will also be highly
dependent upon the equipment manufacture's experience and ability to train
personnel in operating the plant. If the completed plant does not operate to the
level anticipated by us in our business plan, we will attempt to adequately
address such deficiency. There is no assurance that we will be able to address
such deficiency in an acceptable manner. Failure to do so could decrease our
production of biodiesel, which could damage our ability to generate revenues. We
will be highly dependent upon our joint ventures to manage our plants, procure
our inputs and market our products. If our joint ventures do not perform their
obligations as agreed, we may be unable to generate revenues as anticipated.
11
We May Need to Increase Cost Estimates for Construction of the Biodiesel Plants.
It is possible that the cost of construction could increase significantly
requiring more capital to complete the project. Therefore, there is no assurance
that the final cost of the plants will not be materially higher than
anticipated. There may be design changes or cost overruns associated with the
construction of the plants. Shortages of steel, wood, or other materials
necessary to construction could affect the final completion date of the project.
Any significant increase in the estimated construction cost of the plants could
delay our ability to generate revenues or reduce the amount of revenues
estimated. The plant's revenue may not be sufficient to support the increased
expenses attributable to increased construction costs.
Production Technology Changes Could Adversely Impact our Ability to Operate at A
Profit or Compete in the Biodiesel Industry
Advances and changes in the technology of biodiesel production are
expected to occur. Such advances and changes may make our biodiesel production
technology less desirable or obsolete. Our plants are single purpose entities
and have no use other than the production of biodiesel and associated products.
Plant costs are primarily attributable to the cost of production technology,
which may be impractical or impossible to update. Obsolescence of technologies
currently utilized in the production of biodiesel could adversely impact our
ability to generate revenues and/or operate at a profit.
Delays or Unanticipated Costs in Providing Rail Infrastructure to Serve the
Transportation Needs of the Facility Could Significantly Impact our Ability to
Operate the Plant and Reduce the Value of Your Investment.
A rail spur may need to be built in order to access rail service from the
biodiesel plants. We have not negotiated for the construction of rail sidings,
rail ladder tracks or other rail construction. Increased costs for rail access
or a delay in obtaining rail access could significantly impact our ability to
operate the plants since we expect to ship most of our biodiesel by rail. If we
are unable to access rail service, we will have to truck all of our biodiesel.
As a result, this may increase costs and impact our ability to operate at a
profit.
Unknown Environmental Problems Could be Expensive and Time Consuming to Correct,
and Could Delay the Plants Construction and Delay our Ability to Generate
Revenue.
Two locations in Fairfield, Iowa and Sandersville, Georgia have been
identified as sites for construction of the first two biodiesel plants. While we
have no reason to believe that there is a risk of environmental problems, there
can be no assurance that we will not encounter any environmental problems at
these sites or any other sites that may delay the construction of the plant. We
do not anticipate any environmental problems at any sites. The presence of a
environmental problems could delay construction of the plants and may require
additional resources to correct these problems and could delay our ability to
generate revenues.
Risks Related to Biodiesel Production
Our profitability is Dependent on Market Prices for Biodiesel and Related
Biodiesel By-products.
Our profitability and financial condition will be significantly affected
by the selling price for biodiesel and the related by-products. Uncontrolled
market forces ultimately drive the price and supply of biodiesel. Revenues are
directly related and dependent on the market prices for biodiesel. The National
Biodiesel Board (www.biodiesel.org) has estimated US biodiesel production
capacity as of 2005 is approximately 354 million gallons per year. In 2005,
approximately 75 million gallons of biodiesel were produced. In addition, as of
February 15, 2006, the National Biodiesel Board has identified 44 sites under
construction or expansion which would increase US capacity by 329 million
gallons and additional 24 sites in "pre-construction" which would increase US
capacity by an additional 518 million gallons. Currently, there are four active
biodiesel plants in Iowa and two in Georgia. At least seven other companies have
proposed plants in Iowa and three in Georgia.
12
Increased biodiesel capacity also leads to increased supplies of
by-products from the production of biodiesel, such as glycerin. Increased
supplies could exceed demand and could lead to lower prices for these
by-products. Downward changes in the price of biodiesel or its by-products may
result in less income, which would decrease our revenues and decrease our
profitability.
An Increase in Feedstock Prices Could Increase our Costs and Decrease our
Profits.
Changes in the cost of feedstock can significantly affect our business.
The cost of feedstock is estimated to be approximately 50-60% of our biodiesel
cost. In the past, the prices of feedstock (some feedstock examples are soybean,
sunflowers, palm, rapeseed, and canola) have been volatile. Increased biodiesel
production may also lead to an increase in the price of feedstock and thus lower
profit margins. Feedstock prices may also be affected by other market sectors.
Increased feedstock prices could decrease our profitability.
Reliance on Third Party Suppliers for Feedstock may Impact our Biodiesel
Production and Profitability.
To date, we have no binding commitments for the supply of feedstock. We
anticipate entering into feedstock procurement agreements with third party
suppliers. However, many suppliers utilize their own feedstock in biodiesel
plants where they have an interest. Our suppliers could terminate our contracts
and sell to other buyers, or enter into the biodiesel production business in
direct competition with us. If our suppliers do not perform their obligations as
agreed we may be unable to enforce our agreements with our suppliers.
Competition for feedstock may raise the cost of feedstock and adversely impact
our profitability.
Risks Related To Our Current Financing
There Are A Large Number of Shares Underlying Our Convertible Debentures And
Warrants That May Be Available For Future Sale And The Sale Of These Shares May
Depress The Future Market Price Of Our Common Stock.
As of April 17, 2006, we had 38,611,224 shares of common stock issued and
outstanding and convertible debentures outstanding or to be issued that may be
converted into an estimated 5,434,783 shares of common stock, and outstanding
warrants to purchase up to 5,625,000 shares of common stock. In addition, other
warrants to purchase an aggregate of 2,395,000 and options to purchase 800,000
shares of common stock have been granted. The number of shares of common stock
issuable upon conversion of the outstanding convertible debentures may increase
if the market price of our stock declines. All of the shares, including all of
the shares issuable upon conversion of the debentures and upon exercise of our
warrants, may be sold without restriction. There is currently a limited market
for shares of our common stock and the sale of these shares may adversely affect
the market price of our common stock.
The Continuously Adjustable Conversion Price Feature Of Our Convertible
Debentures Could Require Us To Issue A Substantially Greater Number Of Shares,
Which Will Cause Dilution To Our Existing Stockholders.
Our obligation to issue shares upon conversion of our convertible
debenture in the principal amount of $5,000,000 is essentially limitless since
conversion is at the lower of $1.00 or 80% of the lowest closing bid price for
the common stock for the 5 trading days before but not including the conversion
date. Accordingly, the number of shares of common stock issuable upon conversion
of our secured convertible notes will increase if the market price of our stock
declines, which will cause dilution to our existing stockholders. The following
is an example of the amount of shares of our common stock that are issuable,
upon conversion of the callable secured convertible notes (excluding accrued
interest), based on market prices 25%, 50% and 75% below the current market
price of $1.59.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 80% Issuable Stock
- ------ ----- ------ -------- -----
25% $1.1925 $0.9540 5,241,090 11.95%
50% $0.7950 $0.6360 7,861,635 16.92%
75% $0.3975 $0.3180 15,723,270 28.94%
13
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible notes will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
The Continuously Adjustable Conversion Price Feature Of Our $5,000,000 Principal
Convertible Debenture May Encourage Investors To Make Short Sales In Our Common
Stock, Which Could Have A Depressive Effect On The Price Of Our Common Stock.
The convertible debenture is convertible into shares of our common stock
at a 20% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the selling stockholder converts and sells material amounts of common stock
could encourage short sales by investors. This could place further downward
pressure on the price of the common stock. There is currently a limited market
for our common stock and the selling stockholder could sell common stock into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
notes, warrants and options, but also the mere perception that these sales could
occur, may adversely affect the market price of the common stock.
The Issuance Of Shares Upon Conversion Of The Convertible Debentures And
Exercise Of Outstanding Warrants May Cause Immediate And Substantial Dilution To
Our Existing Stockholders.
The issuance of shares upon conversion of the convertible debentures and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the selling stockholders
may not convert their convertible debentures and/or exercise their warrants if
such conversion or exercise would cause them to own more than 4.9% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
In The Event That Our Stock Price Declines, The Shares Of Common Stock Allocated
For Conversion Of The Convertible Debentures And Registered Pursuant To This
Prospectus May Not Be Adequate And We May Be Required To File A Subsequent
Registration Statement Covering Additional Shares. If The Shares We Have
Allocated And Are Registering Herewith Are Not Adequate And We Are Required To
File An Additional Registration Statement, We May Incur Substantial Costs In
Connection Therewith.
Based on the current conversion price of our convertible debentures, we
have made a good faith estimate as to the amount of shares of common stock that
we are required to register and allocate for conversion of the convertible
debentures. Accordingly, we have allocated and are registering 32,798,913 shares
to cover the conversion of the convertible debentures and related stock purchase
warrants. In the event that our conversion or exercise price decreases, the
shares of common stock we have allocated for conversion of the convertible
debentures and are registering hereunder may not be adequate. If the shares we
have allocated to the registration statement are not adequate and we are
required to file an additional registration statement, we may incur substantial
costs in connection with the preparation and filing of such registration
statement.
If We Are Required For Any Reason To Repay Our Outstanding Convertible
Debentures, We Would Be Required To Deplete Our Working Capital, If Available,
Or Raise Additional Funds. Our Failure To Repay The Convertible Debentures, If
Required, Could Result In Legal Action Against Us, Which Could Require The Sale
Of Substantial Assets.
On January 24, 2006, we entered into a financing arrangement involving the
sale of an aggregate of $5,000,000 principal amount of convertible debentures
and stock purchase warrant to buy 1,125,000 shares of our common stock. The
convertible debenture is due and payable, with 10% interest, three years from
the date of issuance, unless sooner converted into shares of our common stock.
In addition, any event of default such as our failure to repay the principal or
interest when due, our failure to issue shares of common stock upon conversion
by the holder, our failure to timely file a registration statement or have such
registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business or the commencement of a
bankruptcy, insolvency, reorganization or liquidation proceeding against us
could require the early repayment of the convertible debentures. We anticipate
that the full amount of the convertible debentures will be converted into shares
of our common stock, in accordance with the terms of the convertible debentures.
If we are required to repay the convertible debentures, we would be required to
use our limited working capital and raise additional funds. If we were unable to
repay the notes when required, the note holders could commence legal action
against us and foreclose on all of our assets to recover the amounts due. Any
such action would require us to curtail or cease operations.
14
Risks Related To This Offering
There Is No Assurance Of An Established Public Trading Market, Which Would
Adversely Affect The Ability Of Investors In Our Company To Sell Their
Securities In The Public Markets.
Although our common stock trades on the Over-the-Counter Bulleting Board
(the "OTCBB"), a regular trading market for the securities may not be sustained
in the future. The NASD has enacted recent changes that limit quotations on the
OTCBB to securities of issuers that are current in their reports filed with the
Securities and Exchange Commission. The effect on the OTCBB of these rule
changes and other proposed changes cannot be determined at this time. The OTCBB
is an inter-dealer, Over-The-Counter market that provides significantly less
liquidity than the NASD's automated quotation system (the "NASDAQ Stock
Market"). Quotes for stocks included on the OTCBB are not listed in the
financial sections of newspapers as are those for The Nasdaq Stock Market.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their securities at
or near their original offering price or at any price. Market prices for our
common stock will be influenced by a number of factors, including:
o the issuance of new equity securities;
o changes in interest rates;
o competitive developments, including announcements by competitors of
new products or services or significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
o variations in quarterly operating results;
o change in financial estimates by securities analysts;
o the depth and liquidity of the market for our common stock;
o investor perceptions of our company and the technologies industries
generally; and
o general economic and other national conditions.
The Limited Prior Public Market And Trading Market May Cause Volatility In The
Market Price Of Our Common Stock.
Our common stock is currently traded on a limited basis on the OTCBB under
the symbol "NWGN." The quotation of our common stock on the OTCBB does not
assure that a meaningful, consistent and liquid trading market currently exists,
and in recent years such market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many smaller
companies like us. Our common stock is thus subject to volatility. In the
absence of an active trading market:
o investors may have difficulty buying and selling or obtaining market
quotations;
o market visibility for our common stock may be limited; and
o a lack of visibility for our common stock may have a depressive
effect on the market for our common stock.
Our Common Stock Could Be Considered To Be A "Penny Stock."
Our common stock could be considered to be a "penny stock" if it meets one
or more of the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Securities Exchange Act of 1934, as amended. These include
but are not limited to the following: (i) the stock trades at a price less than
$5.00 per share; (ii) it is NOT traded on a "recognized" national exchange;
(iii) it is NOT quoted on The Nasdaq Stock Market, or even if so, has a price
less than $5.00 per share; or (iv) is issued by a company with net tangible
assets less than $2.0 million, if in business more than a continuous three
years, or with average revenues of less than $6.0 million for the past three
years. The principal result or effect of being designated a "penny stock" is
that securities broker-dealers cannot recommend the stock but must trade in it
on an unsolicited basis.
15
Broker-Dealer Requirements May Affect Trading And Liquidity.
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule
15g-2 promulgated there under by the SEC require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account.
Potential investors in our common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.
Shares Eligible For Future Sale May Adversely Affect The Market Price Of Our
Common Stock, As The Future Sale Of A Substantial Amount Of Our Restricted Stock
In The Public Marketplace Could Reduce The Price Of Our Common Stock.
From time to time, certain of our stockholders may be eligible to sell all
or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act ("Rule 144"), subject to certain limitations. In general,
pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of securities, without any limitations, by a non-affiliate of our company that
has satisfied a two-year holding period. Any substantial sale of common stock
pursuant to Rule 144 or pursuant to any resale prospectus may have an adverse
effect on the market price of our securities.
16
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by selling stockholders. We will receive no proceeds
from the sale of shares of common stock in this offering. However, we will
receive the sale price of any common stock we sell to the selling stockholder
upon exercise of the warrants. We expect to use the proceeds received from the
exercise of the warrants, if any, for general working capital purposes. However,
the selling stockholders will be entitled to exercise the warrants on a cashless
basis if the shares of common stock underlying the warrants are not then
registered pursuant to an effective registration statement or if there is an
event of default. In the event that the selling stockholder exercises the
warrants on a cashless basis, then we will not receive any proceeds. In
addition, we have or will receive gross proceeds of $5,000,000 from the sale of
the convertible debentures. The proceeds received from the sale of the
convertible debentures will be and are being used for the acquisition of fuel
terminals, as well as working capital needs for such terminals.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the OTC Bulletin Board, referred to herein
as the OTCBB, under the symbol "NWGN" The following table sets forth, for the
calendar periods indicated, the range of the high and low last reported bid
prices of our common stock, as reported by the OTCBB. The quotations represent
inter-dealer prices without retail mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions.
2006
-----------------------------------------------------
High Low
-------------------------- ------------------------
1st Quarter.................................. $ 3.50 $ 0.70
2005
-----------------------------------------------------
High Low
-------------------------- ------------------------
1st Quarter.................................. $ 1.50 $ 0.75
2nd Quarter.................................. $ 1.50 $ 0.51
3rd Quarter.................................. $ 3.99 $ 0.60
4th Quarter.................................. $ 2.50 $ 1.25
2004
-----------------------------------------------------
High Low
-------------------------- ------------------------
1st Quarter.................................. $ 4.50 $ 0.78
2nd Quarter.................................. $ 2.10 $ 0.69
3rd Quarter.................................. $ 1.20 $ 0.75
4th Quarter.................................. $ 1.20 $ 0.75
As of April 17, 2006, there were approximately 343 holders of record of
our common stock.
Dividends
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for issuance as of
the fiscal year ended December 31, 2005.
17
EQUITY COMPENSATION PLAN INFORMATION
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding options, future issuance under
outstanding options, warrants and rights equity compensation plans
warrants and rights (excluding securities
reflected in column (a)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
(a) (b) (c)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans approved -0- -0- -0-
by security holders
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Equity compensation plans not 500,000 $1.00 7,500,000
approved by security holders
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Total 500,000 $1.00 7,500,000
- ------------------------------------ ------------------------ ----------------------- ---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
The information in this report contains forward-looking statements. All
statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. These forward-looking statements can be identified
by the use of words such as "believes," "estimates," "could," "possibly,"
"probably," anticipates," "projects," "expects," "may," "will," or "should" or
other variations or similar words. No assurances can be given that the future
results anticipated by the forward-looking statements will be achieved.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations.
The following discussion and analysis should be read in conjunction with
our financial statements, included herewith. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future. Such discussion represents
only the best present assessment of our management.
Corporate History
Refuel America, Inc. (a development stage company) ("Refuel") was
incorporated on June 1, 2005 under the laws of the state of Delaware. Refuel was
formed for the purpose of developing and distributing innovative alternative
fuels including biodiesel and ethanol blends with regular hydrocarbons. Refuel's
offices are located in Charlotte, North Carolina. Refuel's fiscal year end is
December 31.
On July 29, 2005, Bongiovi Entertainment, Inc. ("Bongiovi"), a totally
inactive reporting public shell corporation, consummated a Share Exchange
Agreement (the "Agreement") with Refuel whereby all of the shareholders in
Refuel had their shares converted into 28,135,033 shares of Bongiovi, or
approximately 89% of the common stock of Bongiovi. As part of the reverse merger
between Bongiovi and Refuel, warrants were issued to a shareholder to purchase
2,255,000 common shares. One warrant for 2,155,000 common shares has no
expiration date and has an exercise price of $0.001 per share. The other warrant
for 100,000 common shares is exercisable for a term of five years and has an
exercise price of $5.00 per share. Under generally accepted accounting
principles, a company whose stockholders receive over fifty percent of the stock
of the surviving entity in a business combination is considered the acquirer for
accounting purposes. Accordingly, the transaction was accounted for as an
acquisition of Bongiovi, the legal acquirer, and a recapitalization of Refuel,
the accounting acquirer.
18
On August 10, 2005, to effect a name change, Bongiovi executed a merger
and reorganization agreement with the sole shareholder of NewGen Technologies,
Inc, a newly formed Nevada corporation. This transaction effectively changed the
registrant's name from Bongiovi Entertainment, Inc. to NewGen Technologies, Inc.
("NewGen").
There have been no significant operations since inception and the Company
is in the process of raising additional capital and financing for future
operations.
Overview
Bongiovi was an entertainment content provider and independent record
label, whose market was the global entertainment/music consumer. Bongiovi was
engaged in the acquisition of music industry assets and in operational
activities that included: the signing and development of artists for the purpose
of creating, promoting, marketing and distributing and selling recorded
material, the utilization and development of a national/international record
promotion and distribution network, the identification, acquisition and
development of a "catalog" of recorded works and other entertainment related
activities.
Since June 14, 2004, Bongiovi had no operating business and did not intend
to develop its own operating business but instead was seeking to effect a merger
with a corporation and undertake a merger for its own corporate purposes. This
merger closed on August 2, 2005, whereby the Bongiovi became the legal acquirer
and Refuel became the accounting acquirer. As such, the inception date of Newgen
Technologies, Inc. is June 1, 2005 which is the inception date of Refuel
America. Accordingly, the profit and loss and cash flow statements include only
activity from June 1, 2005 (inception) to December 31, 2005.
Plan of Operations
To date we have not derived any revenues and we have not derived a profit
from our operations. There can be no assurance that we will be able close on the
transactions noted below or conduct operations profitably in the future, if at
all, or that we will be able to generate revenues from operations in the future.
We currently do not have sufficient cash reserves to meet all of our anticipated
obligations for the next twelve months. As a result, we are in the process of
soliciting additional equity and debt funding in the near future.
Newgen and its wholly-owned subsidiary, Refuel is a fuel production and
distribution company engaged in the development of fuel technology, including
bio fuels and blends, which can increase an automobile's miles per gallon while
providing cleaner fuel emissions by changing the property of fuel to allow more
complete combustion and decrease the dependency on foreign fuels.
While we have not yet begun distribution, we intend to utilize our patent
pending technology to produce fuel products, which we plan to distribute to both
the wholesale and retail segments of the fuel marketplace. We intend to continue
development of our technology to diversify our product offerings. We utilize
technology that is multi-functional and multi-purpose, allowing it to be used in
a wide range of fuels including gasoline, diesel, Biodiesel and Ethanol. Our
products include proprietary formulae, designed to positively alter the
combustion characteristics of the fuel. Because of the unique character of the
proprietary formulae, our formulations are designed to create a mono-layer on
the fuel delivery system, increasing lubricity (reducing engine wear and tear)
while the detergent character of the formulae is designed to prevent deposit
formation on fuel injectors. The technology is also designed to result in
greater atomization and efficiency of combustion, to provide increases in fuel
economy and reductions in emissions.
Currently, we are in the process of working with a joint venture partner
through our Refuel subsidiary to build and operate biodiesel plants in the
Southeast. A facility that is planned to produce 60 million gallons annually
will be based in Sandersville, Georgia. This joint venture serves as the initial
step in our plans to manufacture, process, and distribute biofuels in the U.S.
with the aim of substantially increasing a vehicle's operating efficiency while
reducing the amount of carbon monoxide, particulates, and nitrous oxides
produced. Current cash requirements are projected to be approximately $2,000,000
in general and administrative costs and approximately $60,000,000 in capital
expenditures over the next twelve to fourteen months. Operations are planned to
commence in the third quarter 2007.
19
In addition, we have closed on the purchase of three fuel terminals in the
southeast United States from Crown Central LLC. The terminals, with a total
storage capacity of over 10 million gallons, and an annual throughput capacity
of more than 500 million gallons, will be used for the distribution and storage
of alternative fuels, including biodiesel and ethanol blends, as well as
traditional hydrocarbon fuels. The three terminals are strategically located
near existing fuel pipelines with railcar access. The purchase of these
terminals will give NewGen the opportunity to process, blend, and store its
proprietary biodiesel and ethanol blends as well as hydrocarbon fuels. This
agreement is a crucial next step in our growth strategy - allowing the Company
to blend biodiesel and ethanol with hydrocarbon fuels for distribution
domestically and internationally. We intend to offer proprietary products to
meet the increasing demand for biofuel blends, driven by greater fuel
efficiency, cleaner exhaust, and a growing need for energy independence. Two of
these terminals, located in Charlotte, North Carolina and Spartanburg, South
Carolina, are expected to be operational in the summer of 2006, with the
Columbus, Georgia location scheduled to come on line in the fourth quarter.
On November 8, 2005, we announced that our wholly-owned subsidiary, Refuel
America, Inc., and PowerSHIFT Energy Company, Inc., a provider of alternative
energy solutions, entered into a Limited Liability Company Agreement for the
formation of PowerSHIFT Biofuels of Hawaii, LLC and a Limited Liability Company
Agreement for the formation of PowerSHIFT Biofuels of Iowa, LLC. These joint
venture entities are equally owned by NewGen and PowerSHIFT Energy and were
created to build biodiesel plants and power generation facilities in the United
States. These entities have already identified several potential opportunities
in California, Hawaii, and Iowa to provide biodiesel and complete green energy
solutions for utilities, industry and transportation. The first of these
projects could potentially be operational by the second quarter of 2007, and all
identified plants combined would produce in excess of 140 million gallons of
biodiesel. Current cash requirements are projected to be approximately
$3,000,000 in general and administrative costs and approximately $140,000,000 in
capital expenditures over the next twelve to fourteen months. Additional sites
are currently being explored in the Midwest and Rocky Mountain states.
On November 29, 2005, we entered into a joint venture agreement with AG
Global Partners Limited and Newgen Fuel Technologies Limited, to acquire 500
shares of Newgen Fuel Technologies Limited, so that it would be equally owned by
us and AG Global Partners Limited, and to allow Newgen Fuel Technologies Limited
to utilize our technology in the field of conventional and biofuel blends, and
the sale and distribution of such products. In connection with this joint
venture we also entered into a Technology License & Development Agreement with
Newgen Fuel Technologies Limited, to grant Newgen Fuel Technologies Limited an
exclusive license to our technology in certain defined territories in exchange
for royalty payments. This joint venture has not yet been consummated.
On November 30, 2005, NWGT International, Inc., our wholly owned
subsidiary and Actanol Service Ltd., entered into a Limited Liability Company
Agreement for the formation of Actanol BioEngineering, LLC. This joint venture
entity is equally owned by us and Actanol Service, Ltd. and was created to
oversee the design, engineering, construction, operations and technology support
for biodiesel and other biofuel plants worldwide.
Results of Operations
Our consolidated net loss for the period from June 1, 2005 (inception) to
December 31, 2005 was $4,264,080. General and administrative expenses primarily
consisted of the following:
o Professional fees of approximately $1,366,000
o of which $520,000 related to consulting prior to inception
(the largest of which consisted of approximately $200,000 for
a Bongiovi consultant) approximately $311,000 in legal fees,
approximately $200,000 in other outside services, $158,000 in
accounting fees and $154,000 in recruiting fees;
o Wages approximating $1,650,000, of which $185,000 related to stock
option grants.
o Travel expenses were approximately $452,000
o Marketing studies were approximately $241,000;
o Royalty expense of $125,000 relating the assignment to the company
of the Great Britain patent applications from related parties.
20
o Investor relations were approximately $118,000
o Reserve for uncollectible amounts paid on behalf of the
international joint venture not yet consummated, approximated
$109,000.
Currently there are no signed contracts that will produce revenue and no
commitments to purchase feedstock. There can be no assurances that management
will be successful in negotiating such contracts.
Bank fees and interest expense on note payable amounted to approximately
$33,000.
Prior to June 1, 2005, the Company had no operating business.
Liquidity and Capital Resources
Cash and Cash Flows From Operations
As of December 31, 2005, we had a cash balance of $151,430 and negative
cash flow from operations of $1,878,602. The primary funding of operations was
received through issuance of securities as discussed below. We currently do not
have sufficient cash reserves to meet all of our anticipated obligations for the
next twelve months. As a result, we will require additional equity and debt
funding in the near future. Accordingly, the consolidated financial statements
as of December 31, 2005 have been prepared on a going concern basis.
Financing Through Equity
During August and September, 2005 the Company issued 3,333,491 shares to
acquire Bongiovi, and sold 4,225,500 shares of common stock to various
individuals at a value of $0.50 per share for cash proceeds of $2,112,750. In
December 2005, an additional 1,070,200 shares were subscribed for by various
individuals for cash proceeds of $265,200 and a subscription receivable of
$805,000. The Company has subsequently collected all amounts due. The proceeds
from these offerings were used for the repayment of a portion of an outstanding
debt obligation, professional expenses, working capital and general corporate
expenses. In addition, the Company issued to employees, 300,000 and 500,000 of
options having an intrinsic value of $885,000 and $600,000, respectively, of
which $737,500 and $562,500 have been deferred as of December 31, 2005. The
Company also issued 300,000 shares in January 2006, discussed below in "Cornell
Financing" and issued an additional 440,000 shares to various individuals at
$1.00 per share for cash proceeds of $440,000 also in January 2006.
Cornell Financing
To obtain funding we entered into a Securities Purchase Agreement with
Cornell Capital Partners LP on January 24, 2006 for the sale of $5,000,000 in
secured convertible debentures and warrants to buy 1,125,000 shares of our
common stock. Provided that the terms and conditions of the Securities Purchase
Agreement are satisfied Cornell Capital Partners LP is obligated to provide us
with an aggregate of $5,000,000 as follows:
o $2,200,000 was disbursed on January 24, 2006;
o $650,000 was disbursed on March 14, 2006; and
o $2,150,000 will be disbursed two business days before this
prospectus is declared effective.
The secured convertible debentures bear interest at 10%, mature three
years from the date of issuance and the principal is convertible into our common
stock, at a conversion price per share equal to the lesser of (i) $1.00, or (ii)
eighty percent (80%) of the lowest closing bid price for the our common stock
during the five trading days immediately preceding the conversion date, subject
to adjustment. Upon three-business days advance written notice, we may redeem
the secured convertible debentures, in whole or part if the closing bid price of
our common stock at the time of such written notice is less than $1.00. In the
event that we exercise our right of redemption within 90 days of the date of
issuance of the secured convertible debentures, the redemption will be
calculated at 107% of the face value and if the right of redemption is exercised
after 90 days of the date of issuance of the secured convertible debentures, the
redemption will be calculated at 110% of the face value.
21
The warrants are exercisable until three years from the date of issuance
and have an exercise price of $1.00 per share. The conversion price of the
callable secured convertible debentures and the exercise price of the warrants
may be adjusted in certain circumstances such as if we pay a stock dividend,
subdivide or combine outstanding shares of common stock into a greater or lesser
number of shares, or take such other actions as would otherwise result in
dilution of the selling stockholder's position. The selling stockholders have
contractually agreed to restrict their ability to convert or exercise their
warrants and receive shares of our common stock such that the number of shares
of common stock held by them and their affiliates after such conversion or
exercise does not exceed 4.99% of the then issued and outstanding shares of
common stock. In addition, we have granted the investors registration rights and
a security interest in substantially all of our assets and intellectual
property.
As a result of the foregoing financing, we currently have sufficient funds
on hand to fund our current operations through the near term. We may engage in
additional financings to fund our current and future operations. If successful
in completing this financing, we may not be able to do so on terms that are not
excessively dilutive to our existing stockholders or less costly than existing
sources of financing. Failure to secure additional financing in a timely manner
and on favorable terms if and when needed in the future could have a material
adverse effect on our financial performance, balance sheet and stock price and
require us to implement cost reduction initiatives and curtail operations.
Investing
In conjunction with the convertible debentures noted above, also on
January 24, 2006, the Company, closed on a contract of sale, as amended,
pursuant to which the Company purchased three parcels of land, along with fuel
terminals located on such properties for a purchase price of $1,700,000 for all
three parcels. In February 2006, the Company began the process of assessing the
refurbishment of these fuel terminals. The remainder of the debt proceeds in the
amount of $2,800,000 will be used for refurbishing and upgrading the terminals.
Currently, the Company has engaged an experienced liquid bulk terminal storage
engineering consulting and contracting firm to inspect, assess and clean the
terminals. In addition, the same liquid bulk terminal storage engineering
consulting and contracting firm has been engaged to manage the refurbishment and
upgrading of various operating equipment and tanks to bring the terminals into
proper operating condition. Preliminary assessments of the total costs needed to
complete the project are not yet available. However, ongoing discussions with
the liquid bulk terminal storage engineering consultant and contractor have
indicated a range of costs as low as $2,500,000 and as high as $6,000,000. If
the total refurbishment and upgrade costs are in excess of the amount already
borrowed, we will need to secure additional funding in a timely manner. Failure
to do so could have a material adverse effect on our financial performance,
balance sheet and stock price and require us to implement cost reduction
initiatives and curtail operations.
We are not aware of any material trend, event or capital commitment that
which would potentially adversely affect liquidity.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based Payment".
SFAS No. 123 (R) revises SFAS No. 123, "Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees".
SFAS No. 123 (R) focuses primarily on the accounting for transactions in which
an entity obtains employee services in share-based payment transactions. SFAS
No. 123 (R) requires companies to recognize in the statement of operations the
cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards (with limited exceptions).
SFAS No. 123 (R) is effective as of the first interim or annual reporting period
that begins after June 15, 2005 for non-small business issuers and after
December 15, 2005 for small business issuers. Accordingly, the Company will
adopt SFAS No. 123 (R) in its quarter ending March 31, 2006. The Company has
$1,859,989 of unamortized stock based compensation to employees that will be
recognized over the next four years.
22
In May 2005, the FASB issued SFAS No. 154 that establishes new standards
on accounting for changes in accounting principles. Pursuant to the new rules,
all such changes must be accounted for by retrospective application to the
financial statements of prior periods unless it is impracticable to do so. SFAS
No. 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and
SFAS 3, though it carries forward the guidance in those pronouncements with
respect to accounting for changes in estimates, changes in the reporting entity,
and the correction of errors. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005.
Going Concern
Our consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has a working capital
deficiency of $1,331,322 as of December 31, 2005 and a net loss of $4,264,080
and a cash flow deficiency from operations of $1,878,602 for the period from
June 1, 2005 (inception) to December 31, 2005. These matters raise substantial
doubt about our ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
The Company's existence is dependent on management's ability to develop
profitable operations and resolve the Company's liquidity problems. In order to
improve the Company's liquidity, management is actively pursuing additional
equity and debt financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful in
its efforts to raise additional financing.
Critical Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
NewGen Technologies, Inc., its wholly-owned subsidiaries and all variable
interest entities (VIE's) (collectively, "the Company") for which the Company is
the primary beneficiary. All material intercompany accounts and transactions
have been eliminated in consolidation.
Variable Interest Entities
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 (FIN 46). In December 2003, the FASB modified FIN
46 to make certain technical corrections and address certain implementation
issues that had arisen. FIN 46 (R) provides a new framework for identifying
VIE's and determining when a company should include the assets, liabilities,
non-controlling interests and results of activities of a VIE in its consolidated
financial statements.
In general, a VIE is a corporation, partnership, limited-liability
corporation, trust or any other legal structure used to conduct activities or
hold assets that either 1) has an insufficient amount of equity to carry out its
principal activities without additional subordinated financial support 2) has a
group of equity owners that are unable to make significant decisions about its
accountabilities or 3) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns generated by its
operations. FIN 46 (R) requires a VIE to be consolidated if a party with an
ownership, contractual or other financial interest in the VIE (a variable
interest holder) is obligated to absorb a majority of the risk of loss from the
VIE's activities, is entitled to receive a majority of the VIE's residual
returns, or both. A variable interest holder that consolidates the VIE is called
the primary beneficiary. Upon consolidation, the primary beneficiary must record
all of the VIE's assets, liabilities and non-controlling interests at fair value
and account for the VIE as if it were consolidated based on majority voting
interest.
The provisions of FIN 46 (R), are effective for small business issuers no
later than the end of the first reporting period that ended after December 15,
2004.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
23
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclose the nature of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BUSINESS
Overview of Business
We are a fuel production and distribution company engaged in the
development of fuel technology which can increase an automobile's miles per
gallon while providing cleaner fuel emissions by changing the property of fuel
to allow more complete combustion. While we have not yet begun distribution, we
intend to utilize our patent pending technology to produce the following fuel
products, which we plan to distribute to both the wholesale and retail segments
of the fuel marketplace:
o E10 - a combination of gasoline and anywhere from 5.7 to 10% ethanol
based upon a customer's fuel specifications
o E85 - a combination of 85% fuel ethanol and 15% gasoline
o B20 - a combination of 20% biodiesel and 80% conventional diesel
o Premium Diesel - conventional diesel enhanced by our technology
We intend to continue development of our technology to diversify our
product offerings.
In addition, currently, we are in the process of working with various
joint venture partners to build and operate biodiesel plants throughout the
United States. This will allow us to manufacture, process, and distribute
biofuels in the United States with the aim of substantially increasing a
vehicle's operating efficiency while reducing the amount of carbon monoxide,
particulates, and nitrous oxides produced.
In January 2006, we acquired three fuel terminals in the southeast United
States from Crown Central, LLC. The terminals, with a total storage capacity of
over 10 million gallons, and an annual throughput capacity of more than 500
million gallons, will be used for the distribution and storage of alternative
fuels, including biodiesel and ethanol blends, as well as traditional
hydrocarbon fuels.
Features and Benefits of Our Products
We utilize technology that is multi-functional and multi-purpose, allowing
it to be used in a wide range of fuels including gasoline, diesel, Biodiesel and
Ethanol. Our products include proprietary formulae, designed to positively alter
the combustion characteristics of the fuel. Because of the unique character of
the proprietary formulae, our formulations are designed to create a mono-layer
on the fuel delivery system, increasing lubricity (reducing engine wear and
tear) while the detergent character of the formulae is designed to prevent
deposit formation on fuel injectors. The technology is also designed to result
in greater atomization and efficiency of combustion, to provide increases in
fuel economy and reductions in emissions. Below are the descriptions of specific
benefits intended from this new technology, which is achieved using components
substantially and predominantly from petroleum sources.
o Lubricity - The reduction of sulfur and aromatics in modern fuels
has led to lubricity problems in fuel delivery and combustion
systems. Our technology is designed to increase lubricity above the
recommended standards to resolve these problems. Higher lubricity
will reduce wear on the fuel system and will lower maintenance costs
on the engine, injectors and fuel pump. In addition, enhanced fuel
lubricity will allow the engine to run with improved efficiency.
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o Detergency - Modern fuel standards mean that all fuels should
contain a recommended amount of detergent. Our products have
detergent components that support these standards. Together with
lubricity enhancement, this is intended to enable more complete
combustion. This is especially effective with diesel fuels and can
substantially reduce black smoke and particulate matter without
decreasing power and torque.
o Greenhouse Gas Emissions - 100% complete combustion leaves only
residues of carbon dioxide (CO2) and water (H20). Carbon dioxide is
recognized as a major contributor to global warming. Incomplete
combustion produces nitrogen oxides (NOx) that may lead to ozone
problems, and unburned hydrocarbons, a carcinogen. Our products are
designed to provide more complete combustion and increase fuel
efficiency. When less fuel has to be burned for the same power
output, less CO2 and NOx are released into the atmosphere.
o Co-solvency - A designed benefit of our technology is the ability to
suspend water in fuel as a complete homogeneous solution. This
`cools the charge' in the combustion chamber which can provide more
effective, efficient, and complete combustion. This can also reduce
the prospects of short-lived fuel injectors which can fail when
water passes through them.
o Storage & Handling Contamination - Use of our technology in fuel
storage tanks and fuel systems can help to prevent microbial
contamination by eliminating phase separation. This can help reduce
blocked filters when the fuel is pumped through the fuel system. The
effect of these benefits is a reduction in the need for biocides
that are expensive and difficult to handle.
o Corrosion inhibitors - Our technology has been designed, as part of
our multifunctional purpose, to behave as a natural corrosion
inhibitor. Corrosion in fuel storage systems and engines has been
caused by free water in the fuel supply. Ethanol blends tend to
attract more water. Our technology is designed to eliminate
corrosion caused by this water by homogenizing the water into the
fuel to keep free water at a minimum in the fuel system.
Alternative Fuel Products
Ethanol Combinations
Ethanol is a fuel blending component that is used widely by major oil
companies and distributors. According to Ethanol producer Iogen (www.iogen.ca),
approximately 12% of all US gasoline is currently blended with Ethanol. Ethanol
is considered an `alternative' fuel component, as it can be produced from
domestically-produced agricultural products. Ethanol has been used in low
concentrations (less than 10%) with no changes in engine components or fuel
handling and delivery systems. Ethanol can be used in higher concentrations (up
to 85%) in specially-designed `Flexible Fuel Vehicles', described below.
E10 refers to a gasoline-based ethanol product. This typically has a
combination of 90% gasoline and 10% ethanol, but the percentage of ethanol can
range from 5.7% to 10% in accordance with the specifications of the customer.
E10 is commonly used throughout the United States and can be used in all
gasoline vehicles without engine modification.
E85 (85% ethanol, 15% gasoline) is currently available at approximately
400 gas station pumps in the United States, according to the National Ethanol
Vehicle Coalition (www.e85fuel.com). Flexible-Fuel Vehicles (FFVs) are designed
to run on regular unleaded or any ethanol fuel blend up to 85% Ethanol. Special
onboard diagnostics "read" the fuel blend, enabling drivers to fuel with E85 or
regular unleaded if E85 is not available. Today, Ford Motor Company, General
Motors, and Daimler-Chrysler Corporation all offer E85 engines as standard
equipment in certain vehicles. These vehicles come with the same factory
warranties as gasoline vehicles.
Ethanol has lower energy content vs. gasoline, and is `hygroscopic',
meaning that it can draw water into the fuel from the surrounding air. These
characteristics can create lower fuel efficiency and handling problems in
Ethanol-based fuels. Our technology is intended to make up for the typical loss
of performance with ethanol blends. Our technology is designed to enable a clear
homogenous solution, eliminating typical problems with water that cause phase
separation, and thereby improving combustion.
25
Biodiesel Combinations
Biodiesel is a bio fuel component which can be produced from domestically
grown soybean and other oil crops as well as palm oil, rape seed oil, waste oil
and animal fats. Biodiesel requires no engine modifications or changes in the
fuel handling and delivery systems. Biodiesel delivers similar horsepower,
torque, and miles per gallon as conventional diesel, while producing
significantly lower emissions of Carbon Monoxide, black smoke, and particulate
matter.
B20 (blend of 20% Biodiesel with 80% conventional diesel) has limited
distribution in the US currently, although all diesel vehicles can use this
fuel. According to the National Biodiesel Board, usage of Biodiesel in the US
was 30 million gallons in 2004, vs. a total on-road diesel consumption of 34
billion gallons, according to the Energy Information Administration. Federal and
state fleets are mandated to use B20 if available, to meet their targets for the
Energy Policy Act and EO13149 compliance (discussed below).
According to the EPA, one drawback with Biodiesel is that it increases
emissions of Nitrous Oxides. Our technology is designed to enhance the
performance of B20 by eliminating this Nitrous Oxide increase, while also
substantially increasing the reduction of black smoke and particulates.
Suppliers and Production Process
There are no special blending facilities or requirements necessary for the
production of our products, and the addition point in the fuel supply chain is
flexible. We are currently in negotiation for the supply of the other fuel
components, including traditional gasoline and diesel, as well as Ethanol and
Biodiesel. Supply is worldwide and will be contracted to the most cost effective
and geographical location to the order.
Industry Overview
According to the Energy Information Administration (www.eia.doe.gov),
gasoline is used in the US in over 200 million vehicles with combined travel of
over 7 billion miles per day. US on-highway diesel consumption averaged 94
million gallons per day in 2002, and was growing at a pace of 3 million
gallons/day per year. There are approximately 167,000 retail fuel outlets across
the nation.
Alternative fuels have become a national issue with growing support across
the country. The Wall Street Journal recently reported that Governors from 33
states are pushing to expand use of ethanol as a vehicle-fuel additive. They
recognize that ethanol creates jobs, is good for the environment and is good
public policy. Recently, the Fuels Security Act of 2005 was passed in the
Senate, designed to create a renewable fuels standard mandating the use of 7.5
billion gallons of renewable motor vehicle fuels in the US by 2012.
Our products are designed for use in all internal combustion engines,
opening the entire motor transport market for sales and distribution. This
market includes automotive, marine, rail and aviation. In addition, our products
can be utilized in stationary equipment as those used in power generation,
chemical plants and mining. The intended benefits of its technology are designed
to create competitive products with multiple economic and environmental effects.
Distribution
We currently do not have any mechanism for the distribution of our
alternative fuel products. However, we have recently acquired three fuel
terminals located in the Southeast region of the Unites States. In addition, we
may sell our branded alternative fuels under licensing and marketing agreements
with local dealers, wholesalers and jobbers. "Jobbers" is a term used in the
fuel industry to describe companies that have a supply infrastructure that
facilitates the purchase, blending, storage and delivery of fuel.
26
Intellectual Property
We have submitted the following patent applications for these new
technologies in the United Kingdom pertaining to the use of our proprietary
technology for production of our fuels. These applications show inventive steps
and novelty which distinguishes them from the prior patents granted to the
inventors of our technology. These inventive steps and novelty are required for
new patents to issue.
0509818.1 - CLEAN BURNING FUELS AND ADDTIVES
0509649.0 - CLEAN BURNING SPARK IGNITION FUELS AND ADDITIVES THAT ENABLE
THE UTILISATION OF A RENEWABLE FEEDSTOCK SUCH AS ETHANOL
0509653.2 - CLEAN BURNING COMPRESSION FUELS THAT ENABLE THE UTILISATION
OF A RENEWABLE FEEDSTOCK SUCH AS ETHANOL AND BIO DIESEL
These applications were each submitted on May 12, 2005, and are currently
being reviewed for issue by The Patent Office in the United Kingdom. It is
anticipated that patents would be converted to Patent Convention Treaty
applications to cover worldwide all the countries that have entered into the
Patent Convention Treaty (over 70 countries are members of the PCT). After one
year as a PCT applicant, we can then decide in which country we wish to file.
The US applications may be concurrently filed with the PCT applications.
Competition
To date, we have not commenced commercial production or sale of our
products. Our proprietary brand fuels will compete with many other branded
fuels. Our primary competition will be the larger oil and independent chain gas
stations across the United States. The fuel industry is extremely competitive
and includes several companies which have achieved substantial market share, and
have long operating histories, large customer bases, and substantially greater
financial, development, and marketing resources than we do. Currently, these
entities tend to compete in a commodity business, with differentiation created
by pricing. In some cases, the fuel suppliers also compete by differentiating
the quality of the product offering. By offering conventional and alternative
fuels with patent pending technology, we intend to provide a new source of
differentiation for the customer and consumer.
Other potential competitors are fuel additive manufacturers. There are six
major competitors in the additives market, including Lubrizol, Chevron-Texaco,
Associated Octel, Infineum, BASF, and Akzo Nobel. Our business model includes
sales of fuel, not additives. Therefore, these additive manufacturers are not
direct competitors unless they partner with fuel suppliers mentioned above. We
intend to continue development of our technology to maintain a competitive
advantage and to diversify our product offerings.
Government Regulation
In the US, two significant energy policy measures have shaped renewable
fuels' present and future status. First, the Energy Policy Act (EPAct) was
passed in 1992, designed to encourage the use of alternative fuels to help
reduce US dependence on imported oil. For fiscal year 1999 and beyond, 75% of a
federal fleet's vehicle acquisitions must be alternative fuel vehicles.
Supplementing this is Executive Order 13149 (EO13149), which mandates that any
federal agency with a fleet of 20 or more vehicles in the US must develop a
compliance strategy that documents how the agency plans to accomplish a required
reduction of 20% in petroleum consumption by 2005 (vs. 1999 consumption).
In addition to these mandates, recent changes to tax policy have continued
to build incentives for alternative fuels. The Volumetric Ethanol Excise Tax
Credit (VEETC) provision contained in the JOBS/FSC/ETI Bill (`Jumpstart Our
Business Strength' bill, containing a repeal of the Foreign Sales
Corporation/Extraterritorial Income (FSC/ETI) exclusion) has improved the
distribution and availability of both E85 and Biodiesel fuels. This bill was
signed into law in late October 2004.
In January 2000, the Environmental Protection Agency enacted a set of
diesel emission standards that requires significant reduction in harmful
emissions, especially particulate matter and oxides of Nitrogen. Particulate
matter in diesel emissions is to be reduced by 90% and oxides of Nitrogen is to
be reduced by 95%, beginning in 2004 and to be fully implemented by 2007. In
addition, the Environmental Protection Agency also requires that 97% of the
Sulfur currently in diesel fuel be eliminated beginning in 2006.
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Finally, the energy bill recently passed by congress contains additional
incentives and mandates for federal fleets in regards to renewable fuels. The
principal mandate is for state and federal fleets to report their alternative
fuel uses in accordance with EO13149. This federal leadership has been followed
by many states that have adopted tax incentives and mandates for state-operated
fleets.
In order for our products to be used in the United States, Environmental
Protection Agency registration is required. We will address this on an as and
when needed basis as all fuels will be within existing American Society for
Testing and Materials standards.
FACILITIES
We lease our principal executive offices, which are located at 6000
Fairview Road, 12th Floor, Charlotte, North Carolina 28210. These offices
consist of approximately 500 square feet, with monthly rent of $5,699.
In addition to our executive offices, we own three terminals which will be
used for the production and distribution of our alternative fuel products:
o Spartanburg Terminal - 400 Delmar Road, Spartanburg, South Carolina 29302
consisting of 3.8 acres;
o Columbus Terminal - 4840 Miller Road, Columbus, Georgia 31904 consisting
of 7.5 acres; and
o Charlotte Terminal - 7720 Mt. Holly Road, Paw Creek, North Carolina 28214
consisting of 6.2 acres.
We believe that current facilities are adequate for our current and
immediately foreseeable operating needs. We do not have any policies regarding
investments in real estate, securities or other forms of property.
EMPLOYEES
As of April 17, 2006 we had six employees. We have not experienced any
work stoppages and we consider relations with our employees to be good. We
anticipate hiring additional employees as we increase production and
distribution of our products
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse affect on our business,
financial condition or operating results.
MANAGEMENT
Executive Officers and Directors
Below are the names and certain information regarding our executive
officers and directors.
Name Age Position
- ---- --- --------
S. Bruce Wunner 63 Chief Executive Officer and Chairman
Ian Williamson 50 President and Director
Scott Deininger 43 Chief Financial Officer and Director
Cliff Hazel 53 Director
Noel M. Corcoran 54 Director
Officers are elected annually by the Board of Directors, at our annual
meeting, to hold such office until an officer's successor has been duly
appointed and qualified, unless an officer sooner dies, resigns or is removed by
the Board. There are no family relationships among any of our directors and
executive officers.
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Background of Executive Officers and Directors
S. Bruce Wunner, Chief Executive Officer and Chairman. Mr. Wunner was
appointed Chairman of NewGen on June 9, 2005. Prior to joining NewGen, Mr.
Wunner was instrumental in key leadership roles in the international expansion
of McDonald's Corporation for over 33 years from 1962 to 1995 and retired as
Senior Vice President CEO of Latin America. Since 1996, Mr. Wunner has been the
managing partner of FEA, LLC, D/B/A Treasure Coast Capital Partners, a boutique
investment banking firm focusing on mid-market mergers & acquisitions,
divestitures and raising capital. Mr. Wunner focuses on specialties in real
estate development, retail food, distribution, recreation, leisure and the
entertainment industry.
Ian Williamson, President and Director. Mr. Williamson was appointed as
the President and as a Director of NewGen on June 9, 2005. Mr. Williamson has
been actively involved in the development of alternative and renewable fuels
since 1975. His initial work was predominantly in the field of district heating
and energy schemes, utilizing trash and other non-oil substitutes. In 1994, Mr.
Williamson started industry research and development for alternative fuels for
the motor industry. Mr. Williamson and Cliff Hazel are the original inventors of
a clear stable "e-diesel" and authors of numerous patents and applications
related to cleaner-burning and performance-enhancing motor fuels utilizing
alcohol, water, bio-diesel and liquids from natural gas. From October 1999 Mr.
Williamson founded Interfacial Technologies (UK) Ltd which was acquired in May
2001 by International Fuel Technology Inc. (IFT) Mr. Williamson was employed as
Chief Technology Officer and served on the board of directors of IFT from May
2001 to May 2003. After his employment with IFT, Mr. Williamson continued his
research, leading to the discovery of the new molecules referenced above. Mr.
Williamson studied Mechanical and Combustion Engineering at Nottingham
University, United Kingdom. He has had peer-reviewed papers published, and is a
member of the Society of Automotive Engineers.
Scott Deininger, Chief Financial Officer. Mr. Deininger joined us as Chief
Financial Officer in October 2005 and was appointed as a Director in January
2006. Prior to joining us Mr. Deininger served as treasurer and senior vice
president of finance and administration (principal financial officer) at
American Tire Distributors Holdings, Inc. from July, 2003 to October, 2005. From
January, 2001 until June, 2003, Mr. Deininger served as vice president and
corporate controller of Safety-Kleen Corporation, prior to which he was the
Chief Financial Officer of Carmeuse North America. Prior to working for Carmeuse
North America Mr. Deininger spent eight years working at KPMG. Mr. Deininger is
a certified public accountant and holds a B.S. degree in Accounting from York
College of Pennsylvania.
Cliff Hazel, Director. Mr. Hazel was appointed as a Director of NewGen on
June 9, 2005. Mr. Hazel has a strong background in computer programming and has
consulted for international blue chip companies world wide. The basis of the
technology purchased in the US by International Fuel Technology, Inc. and O2
Diesel Corporation was a trial and error algorithm and plotting probabilities of
solution maps. Mr. Hazel was the co-founder of Interfacial Technologies (UK) Ltd
and was a consultant to Interfacial and IFT from 1999 to 2003. As the
co-inventor of the technology to be utilized by NewGen Mr. Hazel has been
improving the formulae. Since 2003 Mr. Hazel has been Managing Director of MF
Logic, LLC, a development stage company that is about to launch a
multi-functional computer-driven printer/scanner/copier into the hotel market
for executive users.
Noel M. Corcoran, Director. Mr. Corcoran was appointed as a Director of
NewGen in January 2006. Mr. Corcoran has led his own tax consulting firm, Noel
M. Corcoran & Associates, since 1984. During that time, he has served as a
financial and tax advisor to many corporations and high net worth individuals
internationally. He has also been President of the Irish Taxation Institute and
serves as a director of many companies. He has a Commerce Degree from University
College Dublin and is a Fellow of the Irish Taxation Institute.
Board of Directors
Our Directors are elected by the vote of a majority in interest of the
holders of our voting stock and hold office until the expiration of the term for
which he or she was elected and until a successor has been elected and
qualified.
A majority of the authorized number of directors constitutes a quorum of
the Board for the transaction of business. The directors must be present at the
meeting to constitute a quorum. However, any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.
29
Directors may receive compensation for their services and reimbursement
for their expenses as shall be determined from time to time by resolution of the
Board. Our non-executive directors currently receive compensation of $3,000 per
month for their participation at Board meetings and committees of the Board.
Executive Compensation
The following table sets forth all compensation paid in respect of our
Chief Executive Officer and those individuals who received compensation in
excess of $100,000 per year (collectively, the "Named Executive Officers") for
our last three completed fiscal years.
SUMMARY COMPENSATION
Annual Compensation
--------------------------------------------------
Name and Principal Other Annual
Position Year Salary($) Bonus($) Compensation($)(1) Stock Options(2)
- -------------------------------- ---- --------- -------- ------------------ ----------------
S. Bruce Wunner, 2005 31,250 -- 164,634 36,875
Chief Executive Officer 2004 -- -- --
2003 -- -- --
John King, 2005 328,285 -- 50,000 36,875
Former Chief Executive Officer 2004 -- -- --
2003 -- -- --
Ian V. Williamson 2005 195,247 -- 120,000
President 2004 -- -- --
2003 -- -- --
Ronald E. Simmons 2005 -- -- --
Former Chief Executive Officer 2004 -- -- --
2003 -- -- --
Larry Shatsoff 2005 -- -- --
Former President 2004 -- -- --
2003 -- -- --
(1) Includes non-cash compensation, in the form of common stock, for services
performed for the company, health insurance reimbursement, life insurance
reimbursement and auto allowance.
(2) On September 9, 2005, the Company issued to each of Bruce Wunner and John
King options to purchase 75,000 shares at $0.50 having an intrinsic value
of $221,250, of which $184,375 remains deferred over a two year vesting
period.
There are no current employment agreements between us and any individuals.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 1, 2005, Refuel entered into a consulting agreement with
Treasure Coast Capital Partners a company solely owned by Bruce Wunner our Chief
Executive Office and Chairman. Pursuant to this agreement Mr. Wunner was to be
paid fees for various services provided to Refuel. On September 14, 2005, after
Mr. Wunner was appointed Chairman the agreement was modified to pay Mr. Wunner
$43,250 for services provided and the remainder of the agreement was canceled.
On July 1, 2005, Advanced Fuel Chemistry, Inc., a Delaware Corporation
("Advanced Fuel") assigned to Refuel the patent applications previously
referenced. According to the terms of this assignment, Refuel was assigned these
applications with full title guarantee. In addition, on July 1, 2005, Refuel
entered into a royalty agreement, whereby Refuel paid Clifford Hazel, a member
of our Board of Directors, and Ian Williamson, our President, an aggregate of
$250,000 immediately and is required to pay a continuing royalty fee of the
greater of $250,000 or 0.1% of the aggregate fuel additive products sold
utilizing the patents per year during the term (indefinite until cancelled by
either party) of the Royalty Agreement.
30
On June 1, 2005, Refuel issued a promissory note to John King, our former
Chief Executive Officer and a former member of our board of directors, in the
aggregate principal amount of $316,500. The promissory note bears interest at an
annual rate of 10% from May 1, 2005, and was due January 15, 2006. The
promissory note was issued to Mr. King as repayment for pre-incorporation
expenses paid for on behalf of Refuel and is currently in default.
On November 1, 2005, we acquired all of the issued and outstanding equity
of Advanced Fuel Chemistry, Inc., a company jointly owned by a member of our
Board of Directors and Ian Williamson, our President, for a purchase price of
$1.00. At the date of acquisition, Advanced Fuel Chemistry, Inc. was an inactive
company having no assets or liabilities.
Our obligations in connection with $5,000,000 in secured convertible
debentures issued to Cornell Capital Partners LP are secured by substantially
all of our assets and the assets of our subsidiaries. In addition, S. Bruce
Wunner has granted a security interest in 214,916 shares of common stock that he
owns, Ian Williamson has granted a security interest in 5,000,000 shares of
common stock that he owns, Scott Deininger has granted a security interest in
115,000 shares of common stock that he owns and Cliff Hazel has granted a
security interest in 5,000,000 shares of common stock that he owns.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 12, 2006
with respect to the beneficial ownership of the outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of our executive officers
and directors; and (iii) our directors and executive officers as a group. Except
as otherwise indicated, each of the stockholders listed below has sole voting
and investment power over the shares beneficially owned.
Name of Beneficial Owner (1) Number of Shares Percentage of Number of Number of Percentage of
Beneficially Owned Shares Shares Offered Shares Shares
Prior to Offering Beneficially Beneficially Beneficially
Owned Prior to Owned After Owned After
Offering (2) the Offering the Offering
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
S. Bruce Wunner (3) 429,833 1.13% 163,337 266,496 *
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
Ian Williamson 10,232,867 27.02% 3,861,122 6,371,745 16.50%
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
Scott Deininger 280,000 * 106,400 173,600 *
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
Cliff Hazel 10,000,000 26.39% 3,861,122 6,138,878 15.90%
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
Noel M. Corcoran 0 * 0 0 *
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
Cornell Capital Partners, 3,137,329 8.13% 300,000 2,837,329 7.35%
L.P. (4)
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
All officers and directors 20,942,700 54.24% 7,991,981 12,950,719 33.54%
as a group (5 persons)
- ----------------------------- ------------------------- ----------------- --------------- ---------------- ----------------
* Less than 1%.
(1) Except as otherwise indicated, the address of each beneficial owner
is c/o NewGen Technologies, Inc. 6000 Fairview Road, 12th Floor,
Charlotte, North Carolina 28210.
(2) Applicable percentage ownership is based on 38,611,224 shares of
common stock outstanding as of April 17, 2006, together with
securities exercisable or convertible into shares of common stock
within 60 days of April 17, 2006 for each stockholder. Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
that are currently exercisable or exercisable within 60 days of
April 17, 2006 are deemed to be beneficially owned by the person
holding such securities for the purpose of computing the percentage
of ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other
person.
31
(3) Of the shares beneficially owned by Mr. Wunner 347,333 shares are
owned by FEA, LLC, an entity in which Mr. Wunner owns the majority
of the outstanding membership interests.
(4) All investment decisions of, and control of, Cornell Capital
Partners are held by its general partner, Yorkville Advisors, LLC.
Mark Angelo, the managing member of Yorkville Advisors, makes the
investment decisions on behalf of and controls Yorkville Advisors.
No Director, executive officer, affiliate or any owner of record or
beneficial owner of more than 5% of any class of voting securities
of the Company is a party adverse to the Company or has a material
interest adverse to the Company.
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock at a par value of $0.001 per share and 10,000,000 shares of preferred
stock at a par value of $0.001 per share. As of April 17, 2006, there were
38,611,224 shares of our common stock issued and outstanding and no shares of
preferred stock outstanding.
Holders of our common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of our common stock representing a majority of the voting
power of our capital stock issued, outstanding and entitled to vote, represented
in person or by proxy, are necessary to constitute a quorum at any meeting of
stockholders. A vote by the holders of a majority of our outstanding shares is
required to effectuate certain fundamental corporate changes such as
liquidation, merger or an amendment to our articles of incorporation.
Holders of our common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In the event of a liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate pro rata in all assets that
remain after payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock. Our common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to our common stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our directors and executive officers are indemnified as provided by the
Nevada Revised Statutes. These provisions state that our directors may cause us
to indemnify a director or former director against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
actually and reasonably incurred by him as a result of him acting as a director.
The indemnification of costs can include an amount paid to settle an action or
satisfy a judgment. Such indemnification is at the discretion of our board of
directors and is subject to the Securities and Exchange Commission's policy
regarding indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other 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 the purchaser;
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;
32
o short sales that are not violations of the laws and regulations of
any state or the United States;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
33
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. A description of each selling stockholder's relationship to our
Company and how each selling stockholder acquired the shares in this offering is
detailed in the information immediately following this table.
Total Shares
of Common
Stock and
Common Stock Total
Issuable Percentage
Upon of Common Percentage Percentage
Conversion Stock, Shares of Beneficial of Common Beneficial of Common
of Notes Assuming Common Stock Ownership Stock Owned Ownership Stock Owned
and/or Full Included in Before Before After After
Name Warrants** Conversion Prospectus Offering*** Offering*** Offering (2) Offering (2)
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Cornell Capital 9,697,112 21.47% Up to 3,137,329(1) 8.13% 2,837,329 7.35%
Partners, L.P.(5) 33,098,913
shares of
common stock
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
John B. Lowy, P.C. 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
John B. Lowy 100,000 * 100,000 100,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Patrick F. Speake & 100,000 * 100,000 100,000 * 0 *
Jennifer A. Speake
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
34
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
John Yuhnick 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Nils Hellpap 4,000 * 4,000 4,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Donna L. King & Wayne 80,000 * 80,000 80,000 * 0 *
King
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Marlene J. Larose 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Elliott R. Larose 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
D'onofrio Living Trust 130,000 * 130,000 130,000 * 0 *
August 7, 1998
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Jeffrey S. Araj 100,000 * 100,000 100,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Gordon H. Harper 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Jagdish P. Patel 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
S. Bruce Wunner 82,500 * 31,350 429,833(4) 1.13%(4) 215,346(4) *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Brandon Lee Wunner 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michelle Lee Coffey 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Colleen Sue Britt 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michael Bruce Wunner 10,000 * 10,000 10,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Lewis James Bryan 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Shannon Marie Wright 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Casey Christopher Wunner 7,500 * 7,500 7,500 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
FEA,LLC 347,333 * 131,987 347,333 * 215,346 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michael Woods 203,333 * 101,667 203,333 * 101,666 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Ian Williamson 10,232,867 * 3,861,122 10,232,867 27.02% 6,371,745 16.50%
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Cliff Hazel 10,000,000 * 3,861,122 10,000,000 26.39% 6,138,878 15.90%
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michael F. D'Onofrio 360,000 * 180,000 360,000 * 180,000 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Conrad Lee 60,000 * 60,000 60,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Carlos Genardini 54,000 * 54,000 54,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
John W. King 960,380 * 100,000 960,380 2.49% 860,380 2.25%
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michael J. Daniels 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Stephen Kravit & Anne 50,000 * 50,000 50,000 * 0 *
Kravit
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
George Hohas 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Equity Trust Company 7,500 * 7,500 7,500 * 0 *
Custodian FBO Samantha
Aberman IRA
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Equity Trust Company 7,500 * 7,500 7,500 * 0 *
Custodian FBO Michael
Aberman IRA
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Equity Trust Company 7,500 * 7,500 7,500 * 0 *
Custodian FBO Elliot
Aberman IRA
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Equity Trust Company 14,000 * 14,000 14,000 * 0 *
Custodian FBO Joel
Aberman IRA
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Equity Trust Company 14,000 * 14,000 14,000 * 0 *
Custodian FBO Holli
Aberman IRA
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Martin McNeill 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Clearing and Outsourcing 200,000 * 200,000 200,000 * 0 *
Services, Jeffrey S.
Araj, FBO
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Daniel Berman 40,000 * 40,000 40,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Fidelity Management 30,000 * 30,000 30,000 * 0 *
Trust Co., Michael
D'Onofrio, FBO
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Roy Moore 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Christopher David Bissell 48,000 * 48,000 48,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Trevor Ashmore 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Tyne Cure Ltd. 500,000 * 500,000 500,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Jean Carol Ryan 288,000 * 288,000 288,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Ezio Da Fonseca 150,000 * 150,000 150,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Redmount Trust Company 200,000 * 200,000 200,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
C. D. Bissell 52,000 * 52,000 52,000 * 0 *
Engineering Ltd.
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Joseph Wilson 100,000 * 100,000 100,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Alan and Janice Keeble 100,000 * 100,000 100,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Kurt Hellinger 70,000 * 70,000 70,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Frank Hawkins 30,000 * 30,000 30,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Scott Deininger 280,000 * 106,400 280,000 * 173,600 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Winifred Jack 328,000 * 328,000 328,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Alexander Greystoke 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
35
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Blois Olson 150,000 * 150,000 150,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Colin John Meek 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Casa Azul Investments, 50,000 * 50,000 50,000 * 0 *
LLC
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
ADP Clearing and 100,000 * 100,000 100,000 * 0 *
Outsourcing Services,
Barry Forst, FBO
(729-90107)
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Carl Planagan 30,000 * 30,000 30,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Radu Achirilaoie 100,000 * 100,000 100,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Frank H. Marincek 60,000 * 60,000 60,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Hartford Mutual Fund 40,000 * 40,000 40,000 * 0 *
IRA, Mariano Orlando
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Salvatore Cerruto 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
ADP Clearing and 80,000 * 80,000 80,000 * 0 *
Outsourcing Services,
FBO Peter Cardasis
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Lorraine Szocik 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Armando Tiscareno 40,000 * 40,000 40,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michael T. Young 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Frank J. Orlando 45,000 * 45,000 45,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
4237901 Canada Inc. 200,000 * 200,000 200,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Joseph W. Beasley, P.A. 100,000 * 100,000 100,000 * 0 *
Qualified Deferred
Compensation Trust
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Zaid I. Ayoub 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Basim S. Nimri 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Stephen Saul Kennedy 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Dieter Langer & Loretta 40,000 * 40,000 40,000 * 0 *
Langer
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Michael Karr 24,000 * 24,000 24,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Daphne Kennedy 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Maria Tiscareno 6,000 * 6,000 6,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Claudine Young 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Brandon Lord 3,000 * 3,000 3,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Carol Racette Lord 12,000 * 12,000 12,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
John Godfrey 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
The Blues 1,360,000 * 1,360,000 1,360,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Desmond Morrow 1,500,000 * 1,500,000 1,500,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Marie C. D'Onofrio 33,500 * 33,500 33,500 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Thomas M. D'Onofrio 17,000 * 17,000 17,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Frank Crivello, SEP IRA 2,570,240 * 2,570,240 2,004,888(3) 4.9%(3) 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Frank Crivello 875,000 * 875,000 875,000(3) 4.9%(3) 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Giuseppe Orlando - IRA 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
LMU & Company 75,000 * 75,000 75,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Battersea Capital Inc. 75,000 * 75,000 75,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Kurt Jensen 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Crotolus, Inc. 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
David Marks 500,000 * 500,000 500,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Luigi Lo Basso 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Guy Crawford 75,000 * 75,000 75,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Henry Hackel 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Underwood Family Partners 25,000 * 25,000 25,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Sichenzia Ross Friedman 100,000 * 100,000 100,000 * 0 *
Ference LLP
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Betty Jo Currie 10,000 * 10,000 10,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Hugh Tarbutton 100,000 * 100,000 100,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Ed Zamorski 3,000 * 3,000 3,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
MFGLL NewGen LLC 12,000 * 12,000 12,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Bradely Haight 1,000 * 1,000 1,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Stuart Valentine 3,000 * 3,000 3,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Hal Masover & Joan 5,000 * 5,000 5,000 * 0 *
Masover
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Joseph Smith 3,900 * 3,900 3,900 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
George Windate 2,000 * 2,000 2,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Robert Armstrong 20,000 * 20,000 20,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Pavlette Long 7,000 * 7,000 7,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Mary Jane Ferguson 2,500 * 2,500 2,500 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Colter Dean Hunter 2,000 * 2,000 2,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Steve Martin 3,000 * 3,000 3,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Stephen Dexter 10,000 * 10,000 10,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
S. Hunter Smith 2,000 * 2,000 2,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Fox Growth Fund, Inc. 1,140,000 * 1,140,000 1,140,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
36
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Elaine Saleeby & Eli 5,000 * 5,000 5,000 * 0 *
Saleeby
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
LP Cramer & Associates 50,000 * 50,000 50,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
James Persse 5,000 * 5,000 5,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
David Hanby 10,000 * 10,000 10,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Concetta Cotugno 1,000 * 1,000 1,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
John Deininger 1,000 * 1,000 1,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Peter Deininger 100 * 100 100 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Andrew Deininger 100 * 100 100 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Kristin Brown 100 * 100 100 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Hampton Holcomb 5,000 * 5,000 5,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Frank Stone 5,000 * 5,000 5,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Jack's Creek Farm 2,000 * 2,000 2,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Pamela Hall 2,500 * 2,500 2,500 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Raymon Bellucci 10,000 * 10,000 10,000 * 0 *
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
Sarmatan Developments 100,000 * 100,000 100,000 * 0 *
Ltd.
- -------------------------- -------------- ------------- -------------- -------------- ------------- ------------- -------------
* Less than 1%.
** This column represents an estimated number based on a conversion price of
$0.92, based upon 80% of the lowest closing bid price of the common stock for
the five days ended April 17, 2006. *** Assumes 38,611,224 shares of common
stock issued and outstanding.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended,
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rule, beneficial ownership includes any shares as
to which the selling stockholders has sole or shared voting power or investment
power and also any shares, which the selling stockholders has the right to
acquire within 60 days. The actual number of shares of common stock issuable
upon the conversion of the secured convertible notes is subject to adjustment
depending on, among other factors, the future market price of the common stock,
and could be materially less or more than the number estimated in the table.
The actual number of shares of common stock offered in this prospectus,
and included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon conversion of the secured convertible notes and exercise of the
related warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933, as amended.
(1) Such number of shares represents the ownership of actual outstanding shares
of common stock together with shares issuable upon conversion of secured
convertible notes and exercise of warrants The selling stockholder has
contractually agreed to restrict its ability to convert its secured convertible
note or exercise its warrants and receive shares of our common stock such that
the number of shares of common stock held by them and their affiliates in the
aggregate after such conversion or exercise does not exceed 4.9% of the then
issued and outstanding shares of common stock as determined in accordance with
Section 13(d) of the Exchange Act. Upon the sale of such number of outstanding
shares of stock which result in the actual number of shares then owned by such
shareholder to be less than 4.9% of the then issued and outstanding shares of
common stock, the shareholder's beneficial ownership shall be limited to 4.9% of
the then issued and outstanding shares of common stock.
(2) Assumes that all securities registered will be sold.
(3) Frank Crivello is the beneficial owner of the shares held by Frank Crivello
SEP IRA. The actual number of shares of common stock offered in this prospectus,
and included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon exercise of warrants. However the selling stockholder has
contractually agreed to restrict his ability to exercise his warrants and
receive shares of our common stock such that the number of shares of common
stock beneficially held by him in the aggregate after such exercise does not
exceed 4.9% of the then issued and outstanding shares of common stock as
determined in accordance with Section 13(d) of the Exchange Act. Accordingly,
the number of shares of common stock set forth in the table for the selling
stockholder exceeds the number of shares of common stock that the selling
stockholders could own beneficially at any given time through their ownership of
the warrants. In that regard, the beneficial ownership of the common stock by
the selling stockholder set forth in the table is not determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
(4) Of the shares beneficially owned by Mr. Wunner 347,333 shares are owned by
FEA, LLC, an entity in which Mr. Wunner owns the majority of the outstanding
membership interests.
(5) In connection with its ownership of convertible debentures in the principal
amount of $5,000,000 and a warrant to purchase 1,125,000 shares of common stock
Cornell Capital Partners is subject to a 4.9% limitation as to the amount of
stock that it can own at one time. However, Cornell Capital Partners currently
owns 3,137,329 shares of common stock, of which 300,000 are being offered in
this prospectus.
37
Cornell Capital Partners, L.P. is the holder of convertible debentures in
the principal amount of $5,000,000, a warrant to purchase 1,125,000 shares of
common stock and 3,137,329 shares of common stock. Cornell Capital Partners is a
private equity fund. All investment decisions of Cornell Capital Partners are
made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the managing
member of Yorkville Advisors, makes the investment decisions on behalf of
Yorkville Advisors and has voting control over the securities beneficially owned
by Yorkville Advisors, LLC and Cornell Capital Partners. Cornell Capital
Partners acquired all shares being registered in this offering in financing
transactions with us.
The convertible debenture has a term of three years, accrues interest at
10% and is convertible into our common stock at a price per share equal to the
lesser of $1.00 or 80% of the lowest closing bid price of the our common stock
for the 5 trading days immediately preceding the conversion date. The warrants
are exercisable until three years from the date of issuance and have an exercise
price of $1.00 per share. Cornell Capital Partners may not convert the debenture
or exercise the warrant for a number of shares of common stock in excess of that
number of shares of common stock which, upon giving effect to such conversion,
would cause the aggregate number of shares of common stock beneficially owned by
the holder and its affiliates to exceed 4.9% of the outstanding shares of our
common stock following such conversion.
Except as set forth, none of the selling stockholders have held a position
or office, or had any other material relationship, with our Company. The selling
stockholders, other than Cornell Capital Partners, L.P. acquired their
securities through private placement offerings which closed between August 2005
and in January 2006.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
The financial statements of NewGen Technologies, Inc. as of December 31,
2005 and for the period from June 1, 2005 (date of inception) through December
31, 2005, appearing in this prospectus and registration statement, have been
audited by Weinberg & Company, P.A., independent registered public accountants,
as set forth on their report thereon appearing elsewhere here in and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 to
register the securities offered by this prospectus. For future information about
us and the securities offered under this prospectus, you may refer to the
registration statement and to the exhibits filed as a part of the registration
statement.
In addition, we are required to file annual, quarterly, and current
reports, or other information with the SEC as provided by the Securities
Exchange Act. You may read and copy any reports, statements or other information
we file at the SEC's public reference facility maintained by the SEC at 100 F
Street, N.E., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
room. Our SEC filings are also available to the public through the SEC Internet
site at http\\www.sec.gov.
38
NEWGEN TECHNOLLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheet as of December 31, 2005 F-2
Consolidated Statements of Operations for the period from June 1, 2005
(inception) through December 31, 2005 F-3
Consolidated Statements of Changes in Shareholders' Deficiency for the
period from June 1, 2005 (inception) through December 31, 2005 F-4
Consolidated Statement of Cash Flows for the period from June 1, 2005
(inception) through December 31, 2005 F-5
Notes to the Consolidated Financial Statements as of December 31, 2005 F-6
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of:
NewGen Technologies, Inc. (Formerly Bongiovi Entertainment, Inc.) and
Subsidiaries (a development stage company)
We have audited the accompanying condolidated balance sheet of NewGen
Technologies, Inc. (formerly Bongiovi Entertainment, Inc.) and subsidiaries (a
development stage company) (the "Company") as of December 31, 2005 and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for the period from June 1, 2005 (inception) to December 31, 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
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 financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NewGen
Technologies, Inc. (formerly Bongiovi Entertainment, Inc.) and subsidiaries (a
development stage company) as of December 31, 2005 and the consolidated results
of their operations and their cash flows for the period from June 1, 2005
(inception) to December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 10 to the
consolidated financial statements, the Company has a working capital deficiency
of $1,331,322 and a stockholders' deficiency of $984,834 as of December 31, 2005
and a net loss of $4,264,080 and a cash flow deficiency from operations of
$1,878,602 for the period from June 1, 2005 (inception) to December 31, 2005.
These matters raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 10. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
April 12, 2006
F-1
NEWGEN TECHNOLOGIES, INC.
(Formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(A development stage company)
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
2005
-----------
CURRENT ASSETS
Cash $ 151,430
Prepaid royalty 125,000
Prepaid assets 6,368
-----------
Total Current Assets 282,798
-----------
Deposit on land and improvements 340,000
Property and equipment, net of accumulated depreciation of $ 1,620 6,488
-----------
Total Other Assets 346,488
-----------
TOTAL ASSETS $ 629,286
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses - related parties $ 967,767
Accounts payable and accrued expenses - other 364,853
Note payable, related party 281,500
-----------
TOTAL LIABILITIES 1,614,120
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, none issued and outstanding --
Common stock, $0.001 par value; 100,000,000 shares authorized,
36,788,024 shares issued and outstanding 36,788
Additional paid-in capital 4,322,753
Common stock to be issued (1,083,200 shares) 1,083,200
Common stock subscriptions receivable (807,581)
Deferred equity-based expenses (1,355,914)
Deficit accumulated during development stage (4,264,080)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (984,834)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 629,286
===========
The accompanying notes are an integral part of the
consolidated financial statements
F-2
NEWGEN TECHNOLOGIES, INC.
(Formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(A development stage company)
CONSOLIDATED STATEMENT OF OPEREATIONS
FOR THE PERIOD JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Revenues $ --
General and administrative expenses 4,230,973
------------
Loss from operations (4,230,973)
------------
Other (expenses)
Interest (27,232)
Bank fees and escrow fees (5,875)
------------
Total other (expenses) (33,107)
------------
Loss before provision for income taxes (4,264,080)
Provision for income taxes --
------------
Net loss $ (4,264,080)
============
Loss per share - basic and diluted $ (0.12)
============
Weighted average number of common
shares outstanding - basic and diluted 34,398,490
============
The accompanying notes are an integral part of the
consolidated financial statements
F-3
NEWGEN TECHNOLOGIES, INC.
(Formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(A development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Additional Common
Common Stock Paid-In Stock to
Shares Amount Capital be issued
----------- ----------- ----------- -----------
Balance at June 1, 2005 -- $ -- $- $-
Issuance of shares of common
stock to founders in exchange for
subscriptions receivable 27,711,000 27,711 (24,940) --
Issuance of shares of common
stock in exchange for services
and expense reimbursement 424,033 424 211,596 --
Transfer of shares of common
stock in a share exchange
agreement 3,333,491 3,333 (3,333) --
Common stock to be issued
for cash (4,225,500 shares) -- -- -- 2,112,750
Common stock to be issued
for services and expense
reimbursement (1,094,000
shares) -- -- -- 547,000
Non-cash compensation expense
for options granted in September -- -- 885,000 --
Issuance of shares of common
stock 4,225,500 4,226 2,108,524 (2,112,750)
Non-cash compensation expense
for options granted in October -- -- 600,000 --
Issuance of shares of common
stock 1,094,000 1,094 545,906 (547,000)
Common stock to be issued
for services and expense
reimbursement (13,000 shares) -- -- -- 13,000
Common stock to be issued
for cash (265,200 shares) -- -- -- 265,200
Common stock to be issued
in exchange for subscriptoins
receivable (805,000 shares) -- -- -- 805,000
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 2005 36,788,024 $ 36,788 $ 4,322,753 $ 1,083,200
=========== =========== =========== ===========
Deficit
Accumulated
Common Stock Deferred During
Subscriptions Equity Based Development
Receivable Expenses Stage Total
----------- ----------- ----------- -----------
Balance at June 1, 2005 $- $- $ -- $-
Issuance of shares of common
stock to founders in exchange for
subscriptions receivable (2,581) -- -- 190
Issuance of shares of common
stock in exchange for services
and expense reimbursement -- -- -- 212,020
Transfer of shares of common
stock in a share exchange
agreement -- -- -- --
Common stock to be issued
for cash (4,225,500 shares) (25,000) -- -- 2,087,750
Common stock to be issued
for services and expense
reimbursement (1,094,000
shares) -- (122,641) -- 424,359
Non-cash compensation expense
for options granted in September -- (737,500) -- 147,500
Issuance of shares of common
stock 25,000 -- -- 25,000
Non-cash compensation expense
for options granted in October -- (562,500) -- 37,500
Issuance of shares of common
stock -- 70,727 -- 70,727
Common stock to be issued
for services and expense
reimbursement (13,000 shares) -- (4,000) -- 9,000
Common stock to be issued
for cash (265,200 shares) -- -- -- 265,200
Common stock to be issued
in exchange for subscriptoins
receivable (805,000 shares) (805,000) -- -- --
Net loss -- -- (4,264,080) (4,264,080)
----------- ----------- ----------- -----------
Balance at December 31, 2005 $ (807,581) $(1,355,914) $(4,264,080) $ (984,834)
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements
F-4
NEWGEN TECHNOLOGIES, INC.
(Formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(A development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Cash flows from operating activities:
Net loss $(4,264,080)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,620
Expense portion of stock based compensation and services 716,106
Non-cash compensation expense 185,000
Changes in operating assets and liabilities:
Increase in prepaid royalty (125,000)
Increase in prepaid assets (6,368)
Increase in accounts payable and accrued expenses - related parties 967,767
Increase in accounts payable and accrued expenses - other 364,853
Note payable issued for expenses paid on behalf of the Company
and accrued interest, net of repayments 281,500
-----------
Net cash used in operating activities (1,878,602)
-----------
Cash flows from investing activities:
Deposit on land and improvements (340,000)
Purchases of property and equipment (8,108)
-----------
Net cash used in investing activities (348,108)
-----------
Cash flows from financing activities:
Proceeds received for common stock issued to founders 190
Proceeds received for common stock issued and to be issued 2,377,950
-----------
Net cash provided by financing activities 2,378,140
-----------
Net increase in cash 151,430
Cash, beginning of period --
-----------
Cash, end of period $ 151,430
===========
Non cash investing and financing activities:
Common stock issued for deferred equity based expenses $ 1,355,914
===========
Common stock issued for subscriptions receivable $ 807,581
===========
The accompanying notes are an integral part of the
consolidated financial statements
F-5
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
(1) ORGANIZATION
Refuel America, Inc. (a development stage company), ("Refuel") was incorporated
on June 1, 2005 under the laws of the state of Delaware. Refuel was formed for
the purpose of developing and distributing innovative alternative fuels
including biodiesel. Refuel's offices are located in Charlotte, North Carolina.
Refuel's fiscal year end is December 31.
On July 29, 2005, Bongiovi Entertainment, Inc. ("Bongiovi"), a totally inactive
reporting public shell corporation, consummated a Share Exchange Agreement (the
"Agreement") with Refuel whereby all of the shareholders in Refuel had their
shares converted into 28,135,033 shares of Bongiovi, or approximately 89% of the
common stock of Bongiovi. As part of the reverse merger between Bongiovi and
Refuel, warrants were issued to two shareholders to purchase 2,255,000 common
shares. One warrant for 2,155,000 common shares has no expiration date and has
an exercise price of $0.001 per share. The other warrant for 100,000 common
shares is exercisable for a term of five years and has an exercise price of
$5.00 per share. Under generally accepted accounting principles, a company whose
stockholders receive over fifty percent of the stock of the surviving entity in
a business combination is considered the acquirer for accounting purposes.
Accordingly, the transaction was accounted for as an acquisition of Bongiovi,
the legal acquirer, and a recapitalization of Refuel, the accounting acquirer.
On August 10, 2005, to effect a name change, Bongiovi executed a merger and
reorganization agreement with the sole shareholder of NewGen Technologies, Inc,
a newly formed Nevada corporation. This transaction effectively changed the
registrant's name from Bongiovi Entertainment, Inc. to NewGen Technologies, Inc.
("NewGen").
The Company has not generated any revenues since inception and the Company is in
the process of raising additional capital and financing for future operations
(See Note 10).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
NewGen Technologies, Inc., its wholly-owned subsidiaries and all variable
interest entities (VIE's) (collectively, "the Company") for which the Company is
the primary beneficiary. All material intercompany accounts and transactions
have been eliminated in consolidation.
Variable Interest Entities
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 (FIN 46). In December 2003, the FASB modified FIN
46 to make certain technical corrections and address certain implementation
issues that had arisen. FIN 46 (R) provides a new framework for identifying
VIE's and determining when a company should include the assets, liabilities,
non-controlling interests and results of activities of a VIE in its consolidated
financial statements.
F-6
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
In general, a VIE is a corporation, partnership, limited-liability corporation,
trust or any other legal structure used to conduct activities or hold assets
that either 1) has an insufficient amount of equity to carry out its principal
activities without additional subordinated financial support; 2) has a group of
equity owners that are unable to make significant decisions about its
accountabilities; or 3) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns generated by its
operations. FIN 46 (R) requires a VIE to be consolidated if a party with an
ownership, contractual or other financial interest in the VIE (a variable
interest holder) is obligated to absorb a majority of the risk of loss from the
VIE's activities, is entitled to receive a majority of the VIE's residual
returns, or both. A variable interest holder that consolidates the VIE is called
the primary beneficiary. Upon consolidation, the primary beneficiary must record
all of the VIE's assets, liabilities and non-controlling interests at fair value
and account for the VIE as if it were consolidated based on majority voting
interest.
Joint Ventures
The Company intends to operate its manufacturing and distribution business
through various joint ventures. Upon the adoption of FIN 46 (R), the Company has
consolidated all joint ventures that were determined to be VIE's and where the
Company is the primary beneficiary.
On September 2, 2005, the Company formed a joint venture, named Advanced
Biotechnologies, LLC, with Advanced Biotechnologies, Inc. for the purpose of
blending, processing, storing, distributing and selling biodiesel, biodiesel
mixtures and biodiesel byproducts. The Company has a 50% voting interest and a
50% allocation share of Advanced Biotechnologies, LLC's profits and losses. The
Company is committed to fully fund the $200,000 of joint venture equity to be
used for working capital. The Company has contributed capital of $188,500 for
initial start up costs to Advanced Biotechnologies, LLC as of December 31, 2005.
Although not required, an additional $117,150 was contributed for working
capital subsequent to December 31, 2005. The Company has concluded that this
joint venture is a VIE and accordingly has included this entity in its
consolidated financial statements as of December 31, 2005 and for the period
from June 1, 2005 (inception) to December 31, 2005.
On November 8, 2005, the Company formed a joint venture, named PowerSHIFT
Biofuels of Iowa, LLC, with PowerSHIFT Energy Company, Inc., for the purpose of
conducting the business of manufacturing, processing, storing, marketing,
distributing, and selling biodiesel, biodiesel mixtures, and biodiesel
byproducts. The Company has a 50% voting interest and a 50% allocation share of
PowerSHIFT Biofuels of Iowa, LLC's profits and losses. The Company is committed
to fund up to $125,000 in initial start up costs. The Company has contributed
capital of $50,000 for initial start up costs to PowerSHIFT Biofuels of Iowa,
LLC as of December 31, 2005. Although not required, an additional $100,000 was
contributed for working capital subsequent to December 31, 2005. The Company has
concluded that this joint venture is a VIE and accordingly has included this
entity in its consolidated financial statements as of December 31, 2005 and for
the period from June 1, 2005 (inception) to December 31, 2005.
F-7
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
On November 8, 2005, the Company formed a joint venture, named PowerSHIFT
Biofuels of Hawaii, LLC, with PowerSHIFT Energy Company Inc., for the purpose of
conducting the business of manufacturing, processing, storing, marketing,
distributing, and selling biodiesel, biodiesel mixtures, and biodiesel
byproducts. The Company has a 50% voting interest and a 50% allocation share of
PowerSHIFT Biofuels LLC's profits and losses. The Company is committed to fund
up to $125,000 in initial start up costs. The Company has not advanced capital
for initial start up costs to PowerSHIFT Biofuels of Hawaii, LLC as of December
31, 2005. The Company has concluded that this joint venture is a VIE and
accordingly has included this entity in its consolidated financial statements as
of December 31, 2005 and for the period from June 1, 2005 (inception) to
December 31, 2005.
On November 29, 2005, the Company formed a joint venture named NewGen Fuel
Technologies, Ltd., a company registered in the United Kingdom, with AG Global
Partners, Ltd. to be involved in all steps of the manufacture of biofuels
through the supply and distribution of fuels to wholesale and retail networks in
Europe, the Middle East, Southeastern Asia and Australia. The Company has a 50%
voting interest and a 50% allocation share of NewGen Fuel Technologies, Ltd's
profits and losses. The Company is committed to fund up to $200,000 in working
capital costs as a short-term loan. As of December 31, 2005, the Company has
funded start up costs in the amount of $108,557. The Company maintains a
majority of Board of Director members on the joint venture and accordingly this
joint venture shall be consolidated in the next reporting period if the joint
venture is consummated. Accordingly, the Company has fully reserved start-up
costs loaned to this joint venture.
On November 30, 2005, the Company formed a joint venture named Actanol
BioEngineering, LLC, with Actanol Service, Ltd., a provider of alternative
energy and biofuel plant solutions, to conduct the business of design,
engineering, contracting, building, staffing and managing the feasibility and
operational processes of various types of biofuel plants and agro-refineries.
The Company has a 50% voting interest and a 50% allocation share of Actanol
BioEngineering, LLC profits and losses. The Company is committed to fund up to
$125,000 in initial start up costs. The Company has advanced $13,762 for initial
start up costs to Actanol BioEngineering, LLC as of December 31, 2005. Although
not required, an additional $247,195 was contributed for working capital
subsequent to December 31, 2005. The Company has concluded that this joint
venture is a VIE and accordingly has included this entity in its consolidated
financial statements as of December 31, 2005 and for the period from June 1,
2005 (inception) to December 31, 2005.
F-8
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Cash
The Company maintains its cash balances in financial institutions. Balances in
the institutions may at times exceed the Federal Deposit Insurance Corporation
limits.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the related assets using a double declining method with useful
lives of five years for office equipment.
Loss per Share
Basic net loss per common share for the period from June 1, 2005 (Inception) to
December 31, 2005 is computed based on the weighted average number of common
shares outstanding during the period. Diluted net income per common share is
computed based on the weighted average number of common shares and common stock
equivalents outstanding during the period. The exercise of options to purchase
800,000 shares and warrants to purchase 2,255,000 common shares as of December
31, 2005, were not included in the computation of diluted loss per share since
the assumed conversion and exercise would be anti-dilutive for all periods
presented.
Use of Estimates
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclose the nature of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Fair Value of Financial Instruments
At December 31, 2005, the carrying value of the Company's financial instruments,
which include cash, accounts payable and accrued expenses for related parties
and other, and notes payable-related party, approximates their fair value due to
the short-term maturity of those instruments.
F-9
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which encourages but does not require companies to recognize
compensation expense for stock-based awards based on their fair market value at
the date of grant. SFAS No. 123 allows companies to continue to employ the
intrinsic value method under APB No. 25 provided that pro-forma disclosures of
net income and earnings per share under the fair value method are included in
the notes to the consolidated financial statements. The required disclosures
were amended in December 2002 with the issuance of SFAS No. 148, Accounting for
Stock Based Compensation - Transition and Disclosure. The Company has adopted
the disclosure requirements of SFAS No. 123 as amended by SFAS No. 148, until
the adoption of SFAS No. 123(R) in the first quarter 2006.
The Company accounts for its employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the exercise
price. The Company provides pro-forma net income and pro-forma earnings per
share disclosures for employee stock option grants as if the fair-value-based
method had been applied in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Had the cost of
stock options issued to employees been determined based on the fair value of
options at the grant date, the Company's net loss and loss per share pro-forma
amounts would be as follows:
For the period from
June 1, 2005 (Inception) to
December 31, 2005
-----------------
Net loss as reported $ (4,264,080)
Add: Stock based employee compensation expense
included in reported net income net of related tax effects 185,000
Deduct: Total stock based employee compensation
expense determined under fair value based method
net of related tax effects (237,631)
-----------------
Pro forma net loss $ (4,316,711)
=================
Loss per share:
Basic and diluted - as reported $ (0.12)
=================
Basic and diluted - pro forma $ (0.13)
=================
The fair value of these options was estimated at the date of grant using
Black-Scholes option pricing model with the following weighted average
assumptions.
2005
--------------
Risk free interest rate 3.94%
Volatility factor 185.50%
Weighted average expected life 11.67 - 13.75
Expected dividend yield --
F-10
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
On September 7, 2005, the Company adopted an incentive based Non-Qualified Stock
Option Plan ("NQSO Plan") with a vesting period of four (4) years from the grant
date with an expiration period of ten (10) years after the last vesting date. Up
to eight million shares or 15% of the float of Common stock will be provided for
the NQSO Plan. The incentive awards will be based on performance, up to maximum
levels, tiered as follows: Chairman/CEO 100%, next level 50% to 75%, and the
next level 25% of their cash compensation.
In addition, a special one-time award was granted to certain individuals for
their efforts contributed to the Company up to the date of the award. The amount
of shares allocated for this award is 300,000. The options were granted as of
September 9, 2005, and participants will be fully vested over a two-year
timeframe with an expiration period of ten (10) years after the last vesting
date. The option exercise price is $0.50 per share. The shares are to be equally
split between certain officers. Another award was granted to the chief financial
officer on October 10, 2005, the date of employment, for the option to purchase
500,000 shares at $1.00 per share and vesting in accordance with the NQSO Plan.
The weighted average fair value of options and warrants granted during 2005 is
estimated to be $2.62 and $0.60, respectively.
The Company has reserved shares of its authorized but unissued common stock for
the following:
Stock Options Warrants
----------------------- -------------------------
Weighted Weighted
Average Exercise Price Average Exercise Price
Shares Per Share Shares Per Share Total Exercisable
---------- ----------- ----------- ----------- ----------- -------------
Balance at 06/01/2005 (Inception): -- -- -- -- -- --
Granted 800,00 $ 0.81 2,255,000 $ 0.22 3,055,000 2,255,000
Excercised -- --
Expired -- --
Forfeited -- --
---------- ----------- -----------
Balance Outstanding, 12/31/2005: 800,00 $ 0.81 2,255,000 $ 0.22 3,055,000 2,255,000
========== =========== ===========
The following table summarizes information concerning options and warrants
outstanding and excercisable at December 31, 2005:
Options Outstanding Options Exercisable
---------------------------- --------------------------------
Weighted Number Weighted Number Weighted
Average of Average Exercise of Average Exercise
Range of Exercise Prices Remaining Life Options Price Per Share Options Price Per Share
- -------------------------- -------------- --------- ---------------- --------- ----------------
$ 0.50 11.67 300,000 0.50 -- --
1.00 13.75 500,000 1.00 -- --
--------- ---------
0.50 - 1.00 12.97 800,000 0.81 -- --
========= =========
Warrants Outstanding Warrants Excercisable
---------------------------- --------------------------------
Weighted Number Weighted Number Weighted
Average of Average Exercise of Average Exercise
Range of Exercise Prices Remaining Life Warrants Price Per Share Warrants Price Per Share
- -------------------------- -------------- --------- ---------------- --------- ----------------
$ 0.001 29.58 * 2,155,000 0.001 2,155,000 0.001
5.00 4.58 100,000 5.00 100,000 5.00
--------- ---------
0.001 - 5.00 28.47 2,255,000 0.22 2,255,000 0.22
========= =========
* This warrant has an indefinite term, the Company has assigned a term of 30
years as reasonable estimate for reporting purposes
F-11
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based Payment". SFAS
No. 123 (R) revises SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS
No. 123 (R) focuses primarily on the accounting for transactions in which an
entity obtains employee services in share-based payment transactions. SFAS No.
123 (R) requires companies to recognize in the statement of operations the cost
of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards (with limited exceptions).
SFAS No. 123 (R) is effective as of the first interim or annual reporting period
that begins after June 15, 2005 for non-small business issuers and after
December 15, 2005 for small business issuers. Accordingly, the Company will
adopt SFAS No. 123 (R) in its quarter ending March 31, 2006. The Company has
$1,859,989 of unamortized stock based compensation to employees that will be
recognized over the next four years.
In May 2005, the FASB issued SFAS No. 154 that establishes new standards on
accounting for changes in accounting principles. Pursuant to the new rules, all
such changes must be accounted for by retrospective application to the financial
statements of prior periods unless it is impracticable to do so. SFAS No. 154
completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3,
though it carries forward the guidance in those pronouncements with respect to
accounting for changes in estimates, changes in the reporting entity, and the
correction of errors. This statement is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
(3) DEPOSIT ON LAND AND IMPROVEMENTS
On September 28, 2005, the Company executed a definitive agreement in the amount
of $1,700,000 for the purchase of three fuel terminals, subject only to
obtaining financing, that are strategically located near existing fuel pipelines
in the Southeast United States. In conjunction with this purchase contract, a
deposit of $170,000 was given to the seller. On December 13, 2005, the Company
paid an additional $170,000 deposit to extend the purchase contract to January
15, 2006. The terminals, with a total storage capacity of over 10 million
gallons, and an annual throughput capacity of more than 500 million gallons,
will be used for the distribution and storage of alternative fuels, including
biodiesel and ethanol blends, as well as traditional hydrocarbons. The Company
closed on this purchase on January 24, 2006.
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
For the period from June 1, 2005 (inception) to December 31, 2005, various
officers and directors of the Company agreed to defer a portion of their
salaries payable until such time as adequate funds have been received by the
Company. The amount deferred as of December 31, 2005 was $327,887, which is
included in accounts payable and accrued expenses - related parties (See Note
9). Accounts payable and accrued expenses consisted of the following as of
December 31, 2005:
Related Non-related
--------------- --------------
Accounts Payable $ 187,924 $ 254,012
Accrued Expenses 779,843 110,841
--------------- --------------
Total $ 967,767 $ 364,853
=============== ==============
F-12
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
(5) NOTE PAYABLE - RELATED PARTY
The Company's wholly-owned subsidiary, Refuel, executed a promissory note on
June 30, 2005 with a now former Executive Director in the amount of $316,500. As
of December 31, 2005, the principal balance is $281,500 and accrued interest of
$20,283 which is included in accrued expenses-related parties. The unsecured
note bears interest at 10% per annum with an original due date of December 1,
2005, that was extended to January 15, 2006. The note has not been paid off and
is currently in default. The Company is in negotiations to further extend this
note. There are no adverse covenants relating to this note payable.
(6) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases approximately 500 square feet of office space under three
non-cancelable operating leases. Two of these leases expire on May 30, 2006 and
one expired on February 28, 2006 (which was automatically renewed for six
months). Recurring monthly rents aggregate $5,699 per month. Rent expense for
all operating leases for the period from June 1, 2005 (inception) through
December 31, 2005 was $26,204. The leases are renewable every six months.
Commitments
The Company has entered into two management services contracts (commencing on
October 1, 2005 and November 1, 2005) for management of two fuel terminals
(storage tanks, piping and racks for dispensing) for $8,333 per month each for
the next sixty months. As of December 31, 2005, the Company has paid $41,667 in
terminal management services.
On November 8, 2005, the Company formed a joint venture, named PowerSHIFT
Biofuels of Hawaii, LLC, with PowerSHIFT Biofuels Inc., for the purpose of
conducting the business of manufacturing, processing, storing, marketing,
distributing, and selling biodiesel, biodiesel mixtures, and biodiesel
byproducts. The Company is committed to fund up to $125,000 in initial start up
costs. The Company has not advanced capital for initial start up costs to
PowerSHIFT Biofuels of Hawaii, LLC as of December 31, 2005.
Contingencies
On November 3, 2005, NewGen was advised by two Directors that a personal lawsuit
against them in the United Kingdom alleging they improperly obtained technology
owned by another company has been dropped. NewGen is currently marketing
products utilizing technology received from the two Directors under a royalty
agreement. The management of NewGen firmly believes that the technology is
materially different than that referred to in the aforementioned lawsuit.
Further, the two NewGen Directors have filed patent applications in the United
Kingdom for protection of their technology used by NewGen.
F-13
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
(7) INCOME TAXES
December 31, 2005
-----------------
Taxes at U.S. federal statutory rate of 34% $ (1,028,387)
Valuation allowance 1,028,387
-----------------
Tax expense (benefit) $ --
=================
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2005 are presented below:
December 31, 2005
-----------------
Deferred income tax assets:
Net operating loss carryforwards $ 1,028,387
Deferred income tax liabilities: --
-----------------
1,028,387
Valuation allowance (1,028,387)
-----------------
Net deferred tax assets $ --
=================
As of December 31, 2005, the Company has a net operating loss carryforward for
Federal income tax purposes in the amount of $3,024,667, which expires in 2025.
The Company has recorded a valuation allowance of $1,028,387 as of December 31,
2005. The valuation allowance was recorded due to the doubt surrounding the
Company's ability to utilize the deferred tax asset.
(8) STOCKHOLDERS' DEFICIENCY
The total number of shares of all classes of stock which the Company is
authorized to issue is 100,000,000 shares of common stock, par value $ 0.001
("Common Stock") and 10,000,000 shares of preferred stock, par value $ 0.001
("Preferred Stock"). The Common Stock shall be identical and shall entitle each
of the holders thereof to the same rights and privileges. When dividends (if
any) are declared upon the Common Stock, whether payable in cash, in property or
in shares of stock of the Company, the holders of Common Stock shall be entitled
to share equally, share for share, in such dividends. Each holder of Common
Stock shall be entitled to one vote per share.
In June 2005, the Company issued 27,711,000 shares of Common Stock to founders
at $0.001 per share for total subscriptions receivable of $2,771, of which $190
has been received as of December 31, 2005. The Company also maintains $2,025 in
its attorney's escrow account of proceeds received from founders who overpaid
their subscriptions.
In June 2005, the Company issued a total of 424,033 shares of Common Stock to
various individuals in exchange for services rendered and expense reimbursement,
at $0.50 per share for a total of $212,020.
F-14
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
On July 29, 2005, Bongiovi Entertainment, Inc. ("Bongiovi"), a totally inactive
reporting public shell corporation, consummated a Share Exchange Agreement (the
"Agreement") with Refuel whereby all of the shareholders in Refuel had their
shares converted into 28,135,033 shares of Bongiovi, or approximately 89% of the
common stock of Bongiovi. As part of the reverse merger between Bongiovi and
Refuel, warrants were issued to two shareholders to purchase 2,255,000 common
shares. One warrant for 2,155,000 common shares has no expiration date and has
an exercise price of $0.001 per share. The other warrant for 100,000 common
shares is exercisable for a term of five years and has an exercise price of
$5.00 per share.
During August and September, 2005 the Company sold 4,225,500 shares of Common
Stock to various individuals at $0.50 per share for cash proceeds of $2,087,750
and a subscription receivable of $25,000, which has been received as of December
31, 2005.
On September 9, 2005, the Company issued to four employees options to purchase
300,000 shares at $0.50 per share, having an intrinsic value of $885,000, of
which $737,500 remains deferred as of December 31, 2005 over a two year vesting
period.
On October 10, 2005, the Company issued to one employee options to purchase
500,000 shares at $1.00 per share having an intrinsic value of $600,000, of
which $562,500 remains deferred as of December 31, 2005 over a four year vesting
period.
During November and December 2005, the Company issued a total of 1,094,000
shares of Common Stock to various individuals who exchanged services, future
services and expense reimbursements at $0.50 per share totaling $547,000, of
which $51,914 remains deferred as of December 31, 2005.
In December 2005, the Company agreed to issue a total of 13,000 shares of Common
Stock to various individuals in exchange for services rendered and future
services at $1.00 per share totaling $13,000, of which $4,000 remains deferred
as of December 31, 2005.
In December 2005, the Company sold 1,070,200 shares of Common Stock to various
individuals at $1.00 per share for cash proceeds of $265,200 and a subscription
receivable of $805,000, which has been received subsequent to December 31, 2005.
In conjunction with the sale of shares of Common Stock in December 2005, the
Company issued a warrant to purchase 140,000 shares of the Company's Common
Stock at an exercise of $1.50 per share. The warrant was issued on January 16,
2006 and expires in 5 years.
(9) RELATED PARTY TRANSACTIONS
The Company's wholly-owned subsidiary, Refuel, executed a promissory note on
June 30, 2005 with an Executive Director in the amount of $316,500, which
includes $5,863 in accrued interest included in the note payable. As of December
31, 2005, the principal balance is $281,500 and accrued interest of $20,283
which is included in accrued expenses-related parties (See Note 4). The note
bears interest at 10% per annum with an original due date of December 1, 2005,
that was extended to January 15, 2006. The note has not been paid off and is
currently in default. The Company is in negotiations to further extend this
note. There are no adverse covenants relating to this note payable.
F-15
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
Various officers and directors of the Company agreed to defer a portion of their
salaries, payable, until such time as adequate funds have been received by the
Company. The amount deferred as of December 31, 2005 was $327,887, which is
included in accounts payable and accrued expenses - related parties (See Note
4).
On July 1, 2005, the Company entered into an assignment and royalty agreement
with two directors and shareholders of the Company, whereby various Great
Britain patent applications were assigned to the Company. According to the terms
of the agreement, the Company was required to pay $250,000 at the inception of
the agreement (paid July 1, 2005) and a continuing royalty fee of the greater of
$250,000 or 0.1% of the aggregate products sold per year utilizing the assigned
patents during the term of the royalty agreement (indefinite until cancelled by
either the directors or the Company). As of December 31, 2005, $125,000 of the
$250,000 inception payment remains prepaid and $125,000 has been amortized.
On September 14, 2005, the Company entered into a two-month management services
agreement with Treasure Coast Capital Partners ("TCCP"), a company owned by a
shareholder and officer of the Company. The agreement provided for the Company
to pay $43,250 in fees, of which $30,000 has been paid. This agreement has not
been renewed.
On November 1, 2005, the Company acquired all of the issued and outstanding
equity of Advanced Fuel Chemistry, Inc., a company jointly owned by a member of
the Company's board of directors and president, for a purchase price of $1. At
the date of acquisition, Advanced Fuel Chemistry, Inc. was an inactive company
having no assets or liabilities.
The Company's obligations in connection with the Convertible Debentures (See
Notes 8 & 11) are secured by substantially all of the Company's assets and the
assets of the Company's subsidiaries. In addition, the chairman has granted a
security interest in 214,916 shares of common stock that he owns, the president
has granted a security interest in 5,000,000 shares of common stock that he
owns, the chief financial officer has granted a security interest in 115,000
shares of common stock that he owns and a director has granted a security
interest in 5,000,000 shares of common stock that he owns.
(10) GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has a working capital
deficiency of $1,331,322 and a stockholders' deficiency of $984,834 as of
December 31, 2005 and a net loss of $4,264,080 and a cash flow deficiency from
operations of $1,878,602 for the period from June 1, 2005 (inception) to
December 31, 2005. These matters raise substantial doubt about the Company's
ability to continue as a going concern. These consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
The Company's existence is dependent on management's ability to develop
profitable operations and resolve the Company's liquidity problems. In order to
improve the Company's liquidity, management is actively pursuing additional
equity and debt financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful in
its efforts to raise additional financing.
F-16
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
(11) SUBSEQUENT EVENTS
On January 14, 2006, the Company sold and issued 440,000 shares of Common Stock
to various individuals and a mutual fund at $1.00 per share for cash proceeds of
$440,000. In conjunction with the sale of shares of Common Stock in December
2005, the Company issued a warrant to purchase 140,000 shares of the Company's
Common Stock at an exercise of $1.50 per share. The warrant was issued on
January 16, 2006 and expires in 5 years.
On January 24, 2006, in connection with the sale of $5,000,000 of its 10%
Secured Convertible Debentures (the "Convertible Debentures"), the Company
issued 300,000 shares of Common Stock to Cornell Capital Partners, LP
("Cornell"). Also, as part of the same transaction, the Company also issued a
warrant to Cornell for the purchase of 1,125,000 shares of the Company's Common
Stock at an exercise price of $1.00 per share. The agreement allows for the
increase in shares to match $1,125,000 if the Company sells shares at a price
below $1.00 per share. The warrant expires in three years.
On January 24, 2006, the Company consummated a securities purchase agreement
(the "Purchase Agreement") providing for the sale of its Convertible Debentures
in the aggregate principal amount of $5,000,000 of which $2,200,000 was advanced
immediately, $650,000 was advanced on March 14, 2006, and the remaining
$2,150,000 shall be advanced two days before the Company's Registration
Statement on Form SB-2 is declared effective by the Securities & Exchange
Commission. If the Registration Statement is not declared effective by May 24,
2006, the Company is required to pay the holder liquidated damages for each
month that the Registration Statement has not been declared effective, as the
case may be, either a cash amount or shares of the Company's Common Stock, equal
to 2% of the liquidated value of the Convertible Debentures. Holders may
convert, at any time, the principal amount outstanding under the Convertible
Debentures into shares of Common Stock, at a conversion price per share equal to
the lesser of (i) $1.00, or (ii) eighty percent (80%) of the lowest closing bid
price for the Company's Common Stock during the five trading days immediately
preceding the conversion date, subject to adjustment. Upon three business days
advance written notice, the Company may redeem the Convertible Debentures, in
whole or part, if the closing bid price of the Company's Common Stock at the
time of such written notice is less than $1.00. In the event that the Company
exercises its right of redemption within 90 days of the date of issuance of the
Convertible Debentures, the redemption will be calculated at 107% of the
Convertible Debentures face value and the right of redemption is exercised after
90 days of the date of issuance of the Convertible Debentures, the redemption
will be calculated at 110% of the Convertible Debentures face value.
The Company's obligations under the Purchase Agreement are secured by
substantially all of the Company's assets. In addition, certain executive
officers and directors of the Company have granted the holders a security
interest in a portion of the shares of common stock held by such officers and
directors (See Note 9).
F-17
NEWGEN TECHNOLOGIES, INC.
(formerly Bongiovi Entertainment, Inc.) and Subsidiaries
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
On January 24, 2006, the Company closed on a contract of sale, as amended,
pursuant to which the Company purchased three parcels of land along with fuel
terminals located on such properties for a purchase price of $1,700,000 for all
three parcels. In February 2006, the Company began the process of assessing the
refurbishment of these fuel terminals.
On February 1, 2006, the Company entered into a consulting agreement to assist
in marketing, distribution and sales in the fuel industry for $2,500 per month
for the next six months. The agreement is renewable upon mutual consent.
On February 10, 2006, the Company filed a Form SB-2 Registration Statement with
the Securities & Exchange Commission to register up to 47,675,838 shares of its
Common Stock for resale by the selling shareholders. These shares include
20,124,588 shares of Common Stock issued to shareholders, 2,395,000 shares of
common stock issuable upon the exercise of Common Stock purchase warrants,
19,531,250 shares of Common Stock underlying Convertible Debentures owed to
Cornell as discussed above based on a multiple of five times the Convertible
Debentures adjusted for the share price being lesser than $1.00 and discounted
by 20% of the market price, and 5,625,000 shares of Common Stock based a
multiple of five times the issuable Common Stock purchase warrant of 1,125,000
issued to Cornell in conjunction with the Convertible Debentures noted above.
The Company will receive no proceeds from the sale of these shares. Currently,
the Company has received a response from the Securities & Exchange Commission
requiring the Form SB-2 to be withdrawn and re-filed after addressing certain
questions raised.
In February 2006, the Company entered into an agreement with an engineering
consultant and contractor for approximately $96,500 to inspect and clean the
individual tanks and roof pontoons of the Charlotte, NC location, of which the
Company has paid $78,750.
In February 2006, the Company entered into an agreement with an engineering
consultant and contractor for approximately $87,500 to inspect and clean the
individual tanks and roof pontoons of the Spartanburg, SC location, of which the
Company has paid $8,750.
In March 2006, the Company executed agreements with other contractors in the
amount of approximately $39,000, of which approximately $11,300 has been paid to
renovate the interior, exterior lanes and parking area of the Charlotte, NC
location.
In March 2006, the Company also executed an agreement with the same engineering
consultant and contractor to purchase and install a vapor combustion unit for
the Charlotte, NC location in the amount of approximately $163,500, of which
approximately $41,000 has been paid.
In March 2006, the Company also executed an agreement with the same engineering
consultant and contractor to purchase and install a vapor combustion unit for
the Spartanburg, SC location in the amount of approximately $163,500, of which
approximately $41,000 has been paid.
F-18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Nevada Revised Statutes our directors and officers will have no
individual liability to us or our stockholders or creditors for any damages
resulting from the officer's or director's act or failure to act in his or her
capacity as an officer or director unless it is proven that (i) the officer's or
director's act or failure to act constituted a breach of his or her fiduciary
duties as an officer or director; and (ii) the officer's or director's breach of
those duties involved intentional misconduct, fraud or a knowing violation of
law. The effect of this statute is to eliminate the individual liability of our
officers and directors to the corporation or its stockholders or creditors,
unless any act or failure to act of an officer or director meets both situations
listed in (i) and (ii) above.
Our Amended Articles of Incorporation provide for the indemnification of
our officers and directors to the maximum extent permitted by Nevada law. The
Nevada Revised Statutes also provide that a corporation may indemnify any
officer or director who is a party or is threatened to be made a party to a
litigation by reason of the fact that he or she is or was an officer or director
of the corporation, or is or was serving at the request of the corporation as an
officer or director of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such officer
or director if (i) there was no breach by the officer or director of his or her
fiduciary duties to the corporation involving intentional misconduct, fraud or
knowing violation of law; or (ii) the officer or director acted in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, payable by the Registrant
relating to the sale of common stock being registered. All amounts are estimates
except the SEC registration fee.
SEC registration fee $ 8,724.98
Printing and engraving expenses $ 10,000.00
Legal fees and expenses $ 50,000.00
Accounting fees and expenses $ 20,000.00
Miscellaneous expenses $ 5,000.00
-----------
Total.............................................$ 93,724.98
===========
The Registrant has agreed to bear expenses incurred by the selling
stockholders that relate to the registration of the shares of common stock being
offered and sold by the selling stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to a Share Exchange Agreement dated July 29, 2005, which closed
on August 2, 2005, we issued 28,135,033 shares of common stock and a warrant to
purchase 2,155,000 shares of common stock to accredited investors and non-U.S.
persons (as contemplated by Rule 902 under the Securities Act of 1933). These
issuances are exempt from registration requirements under Regulation D or
Regulation S under the Securities Act of 1933, as amended. The shares issued
pursuant to Regulation S were issued in an "offshore transaction" as defined in,
and pursuant to, Rule 902 under the Securities Act of 1933 on the basis that the
purchaser was not offered the shares in the United States and did not execute or
deliver any agreement in the United States.
1
On August 2, 2005, we issued to Sarmatan Developments Ltd. a warrant to
purchase 100,000 shares of common stock, at an exercise price of $5.00 per
share, exercisable for a term of 5 years. The issuance of the warrant is exempt
from the registration requirements under Rule 4(2) of the Securities Act of
1933, as amended.
On August 24, 2005, we completed a private placement offering of 534,000
shares our common stock, par value $0.001 per share, to accredited investors for
an aggregate purchase price of approximately $267,000. The aforementioned
securities were sold in reliance upon the exemption afforded by the provisions
of Regulation D, as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
On September 2, 2005, we completed a private placement offering of
2,238,000 shares our common stock, par value $0.001 per share, to accredited
investors for an aggregate purchase price of approximately $1,119,000.
Additionally, we issued 1,094,000 shares of common stock, par value $0.001 per
share, in consideration for settlement of $547,000 of our debt obligations. The
aforementioned securities were sold in reliance upon the exemption afforded by
the provisions of Regulation D, as promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
On September 30, 2005, we completed a private placement offering of
1,187,500 shares our common stock, par value $0.001 per share, to accredited
investors for an aggregate purchase price of approximately $593,750. The
aforementioned securities were sold in reliance upon the exemption afforded by
the provisions of Regulation D, as promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
On October 10, 2005, we completed a private placement offering of 266,000
shares our common stock, par value $0.001 per share, to accredited investors for
an aggregate purchase price of approximately $133,000. The aforementioned
securities were sold in reliance upon the exemption afforded by the provisions
of Regulation D, as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In December 2005, we completed a private placement offering of 1,070,200
shares our common stock, par value $0.001 per share, to accredited investors for
an aggregate purchase price of approximately $1,070,200. The aforementioned
securities were sold in reliance upon the exemption afforded by the provisions
of Regulation D, as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In January 2006, we completed a private placement offering of 440,000
shares our common stock, par value $0.001 per share, for an aggregate purchase
price of approximately $440,000.
Cornell Financing
To obtain funding we entered into a Securities Purchase Agreement with
Cornell Capital Partners LP on January 24, 2006 for the sale of $5,000,000 in
secured convertible debentures and warrants to buy 1,125,000 shares of our
common stock. Provided that the terms and conditions of the Securities Purchase
Agreement are satisfied Cornell Capital Partners LP is obligated to provide us
with an aggregate of $5,000,000 as follows:
o $2,200,000 was disbursed on January 24, 2006;
o $650,000 was disbursed on March 14, 2006; and
o $2,150,000 will be disbursed two business days before this
prospectus is declared effective.
2
The secured convertible debentures bear interest at 10%, mature three
years from the date of issuance and the principal is convertible into our
common, at a conversion price per share equal to the lesser of (i) $1.00, or
(ii) eighty percent (80%) of the lowest closing bid price for the our common
stock during the five trading days immediately preceding the conversion date,
subject to adjustment. Upon three-business days advance written notice, we may
redeem the secured convertible debentures, in whole or part if the closing bid
price of our common stock at the time of such written notice is less than $1.00.
In the event that we exercise our right of redemption within 90 days of the date
of issuance of the secured convertible debentures, the redemption will be
calculated at 107% of the face value and if the right of redemption is exercised
after 90 days of the date of issuance of the secured convertible debentures, the
redemption will be calculated at 110% of the face value.
The warrants are exercisable until three years from the date of issuance
and have an exercise price of $1.00 per share. The conversion price of the
callable secured convertible debentures and the exercise price of the warrants
may be adjusted in certain circumstances such as if we pay a stock dividend,
subdivide or combine outstanding shares of common stock into a greater or lesser
number of shares, or take such other actions as would otherwise result in
dilution of the selling stockholder's position. The selling stockholders have
contractually agreed to restrict their ability to convert or exercise their
warrants and receive shares of our common stock such that the number of shares
of common stock held by them and their affiliates after such conversion or
exercise does not exceed 4.99% of the then issued and outstanding shares of
common stock. In addition, we have granted the investors registration rights and
a security interest in substantially all of our assets and intellectual
property.
* All of the above offerings and sales were deemed to be exempt under
Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The offerings and
sales were made to a limited number of persons, all of whom were accredited
investors, business associates of our company or executive officers of our
company, and transfer was restricted by our company in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with us.
ITEM 27. EXHIBITS.
Exhibit
Number Description of Exhibit
3.1 Registrant's Articles of Incorporation (incorporated by reference to the exhibits to Registrants Form
8-K filed on November 14, 2005).
3.2 Certificate of Amendment to Registrant's Articles of Incorporation
3.4 Articles of Merger changing the Registrant's name to NewGen Technologies, Inc. (incorporated by
reference to the exhibits to Registrants Form 8-K filed on August 12, 2005).
3.5 Registrant's By-Laws.
5.1 Opinion of Sichenzia Ross Friedman Ference LLP
10.1 Share Exchange Agreement by and among Bongiovi Entertainment, Inc., Refuel America, Inc. and the
shareholders of Refuel America, Inc. (incorporated by reference to a Form 8-K filed by the Registrant
on August 4, 2005)
10.2 Management Services Agreement by and between Bongiovi Entertainment, Inc. and Sarmatan Developments
Ltd. (incorporated by reference to a Form 8-K filed by the Registrant on August 4, 2005)
10.3 Warrant issued to Frank Crivello SEP IRA dated August 2, 2005 (incorporated by reference to a Form
8-K filed by the Registrant on August 4, 2005)
10.4 Form of Registration Rights Agreement (incorporated by reference to the exhibit to Registrants Form
8-K filed on August 25, 2005)
10.5 Limited Liability Company Agreement of Advanced Biotechnology, LLC (incorporated by reference to a
Form 8-K filed by the Registrant on September 22, 2005)
10.6 Contract of Sale, dated September 28, 2005, by and among Crown Central LLC and Refuel America, Inc.
(incorporated by reference to a Form 8-K filed by the Registrant on October 3, 2005)
10.7 Amendment to Contract of Sale, dated December 9, 2005, by and among Crown Central LLC and Refuel
America, Inc. (incorporated by reference to the exhibit to Registrants Form 8-K filed on December 16,
2005)
10.8 Limited Liability Company Agreement of Powershift Biofuels of Hawaii, LLC, dated November 15, 2005,
by and among Powershift Biofuels of Hawaii, LLC, Powershift Energy Company, Inc. and Refuel America,
Inc. (incorporated by reference to a Form 8-K filed by the Registrant on November 16, 2005)
3
Exhibit
Number Description of Exhibit
10.9 Limited Liability Company Agreement of Powershift Biofuels of Iowa, LLC, dated November 15, 2005, by
and among Powershift Biofuels of Hawaii, LLC, Powershift Energy Company, Inc. and Refuel America,
Inc. (incorporated by reference to a Form 8-K filed by the Registrant on November 16, 2005)
10.10 Joint Venture Agreement, dated November 29, 2005, by and among NewGen Technologies, Inc., AG Global
Partners Limited and NewGen Fuel Technologies Limited (incorporated by reference to a Form 8-K filed
by the Registrant on December 6, 2005)
10.11 Technology License & Development Agreement, dated November 29, 2005, by and between Newgen
Technologies, Inc. and NewGen Fuel Technologies Limited (incorporated by reference to a Form 8-K
filed by the Registrant on December 6, 2005)
10.12 Limited Liability Company Agreement of Actanol Bioengineering, LLC, dated November 28, 2005, by and
among Actanol Bioengineering, LLC, Actanol Service Ltd. and Newgen Technologies, Inc. (incorporated
by reference to a Form 8-K filed by the Registrant on December 6, 2005)
10.13 $2,200,000 principal amount Secured Convertible Debenture, dated January 24, 2006, issued by NewGen
Technologies, Inc. to Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by
the Registrant on January 30, 2006)
10.14 Warrant to purchase 1,125,000 shares of Common Stock of NewGen Technologies, Inc., issued January 24,
2006 (incorporated by reference to a Form 8-K filed by the Registrant on January 30, 2006)
10.15 Securities Purchase Agreement, dated January 24, 2006, by and between NewGen Technologies, Inc. and
Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by the Registrant on
January 30, 2006)
10.16 Investor Registration Rights Agreement, dated January 24, 2006, by and between NewGen Technologies,
Inc. and Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by the Registrant
on January 30, 2006)
10.17 Amended and Restated Securities Purchase Agreement, dated
February 10, 2006, by and between NewGen Technologies, Inc. and
Cornell Capital Partners LP (incorporated by reference to the
exhibit to Registrants Form 8-K filed on February 16, 2006)
10.18 Security Agreement, dated January 24, 2006, by and between NewGen Technologies, Inc. and Cornell
Capital Partners LP (incorporated by reference to a Form 8-K filed by the Registrant on January 30,
2006)
10.19 Subsidiary Security Agreement, dated January 24, 2006, by and between Refuel Terminal Operations,
Inc. and Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by the Registrant
on January 30, 2006)
10.20 Subsidiary Security Agreement, dated January 24, 2006, by and between Refuel America, Inc. and
Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by the Registrant on
January 30, 2006)
10.21 Subsidiary Security Agreement, dated January 24, 2006, by and between NewGen International, Inc. and
Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by the Registrant on
January 30, 2006)
10.22 $650,000 principal amount Secured Convertible Debenture, dated March 10, 2006, issued by NewGen
Technologies, Inc. to Cornell Capital Partners LP (incorporated by reference to a Form 8-K filed by
the Registrant on March 16, 2006)
10.23 Amendment to Amended and Restated Securities Purchase Agreement, dated April 20, 2006 by and between
NewGen Technologies, Inc. and Cornell Capital Partners LP
21.1 List of Subsidiaries
23.1 Consent of Weinberg & Company, P.A.
23.2 Consent of Sichenzia Ross Friedman Ference LLP (contained in Exhibit 5.1)
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
4
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned small business issuer will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned small business issuer or used or referred to by the
undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business issuer or
its securities provided by or on behalf of the undersigned small business
issuer; and
(iv) Any other communication that is an offer in the offering made by the
undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission 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 Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether 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.
5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in Charlotte, North
Carolina, on April 21, 2006.
NEWGEN TECHNOLOGIES, INC.
By: /s/ S. Bruce Wunner
--------------------------
S. Bruce Wunner
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Scott A. Deininger
--------------------------
Scott A. Deininger
Chief Financial Officer
(Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S. Bruce Wunner and Scott A. Deininger his true
and lawful attorneys-in-fact, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this registration statement and to sign a registration statement pursuant to
Section 462(b) of the Securities Act of 1933, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated: Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ S. Bruce Wunner
- --------------------------- Chief Executive Officer and Chairman April 21, 2006
S. Bruce Wunner
/s/ Ian Williamson President and Director April 21, 2006
- ---------------------------
Ian Williamson
/s/ Scott A. Deininger Chief Financial Officer April 21, 2006
- ---------------------------
Scott Deininger
/s/ Noel M. Corcoran Director April 21, 2006
- ---------------------------
Noel M. Corcoran
/s/ Cliff Hazel Director April 21, 2006
- ---------------------------
Cliff Hazel
6