Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas New York NY 10018
Tel 212 930 9700 Fax 212 930 9725 www.srff.com
May 9, 2006
Carmen Moncada-Terry, Esq
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: NewGen Technologies, Inc.
Registration Statement on Form SB-2
Filed February 10, 2006
File No. 333-131745
Form 10-KSB for the fiscal year ended December 31, 2005
Filed April 17, 2006
File No. 33-22264
Dear Ms. Moncada-Terry:
This firm represents NewGen Technologies, Inc. (the "Company") in the
above-referenced matters. In accordance with our conversation, enclosed are the
revised pages of the Company's amended Form 10-KSB, which we intend to file as
soon we have been informed that the revisions made are satisfactory. Below
please find our responses to your May 3, 2006 comment letter:
Form 10-KSB for the Fiscal Year Ended December 31, 2005
- -------------------------------------------------------
Management's Discussion and Analysis or Plan of Operation
- ---------------------------------------------------------
Plan of Operations, page 21
- ---------------------------
1. You disclose that your cash requirements are $60 million related to your
biodiesal plant in the Southeast, plus an additional $140 million related
to your joint ventures with PowerSHIFT Energy Company, Inc. On page 22,
you disclose you do not have sufficient cash to meet your anticipated
obligations over the next twelve months. On page 23, you disclose you have
sufficient funds for the near term. Revise the discussion of your plan of
operations and your discussion of liquidity and capital resources to
consistently describe your financial position. include a specific
discussion of how long you can currently satisfy your cash requirements
and your plans for raising additional funds over the next twelve months.
Response
--------
We have revised the discussion of the Company's plan of operations and the
discussion of the Company's liquidity and capital resources to
consistently describe its financial position. In addition, we have
included a specific discussion of how long the Company can currently
satisfy its cash requirements and its plans for raising additional funds
over the next twelve months.
2. We note that you will require additional debt or equity financing to meet
your anticipated capital expenditures of approximately $200 million, and
the amount of authorized but unissued shares you have available. Provide
specific disclosures regarding your expectations as to the nature and
terms of the financing, analysis of the amounts or ranges involved and how
it may differ from your current financing arrangements. Refer to Financial
Reporting Codification 501.l3.b.2 for guidance.
Response
--------
We have revised to provide additional disclosures regarding the types of
financing the Company's is expecting to obtain.
Recent Accounting Pronouncements, page 25
- -----------------------------------------
3. We note your discussion of the unamortized stock compensation to be
recognized as a result of adopting SFAS 123(R) in the quarter ending March
31, 2006. Revise your disclosure to provide.
o a brief description of the new standard,
o the methods of adoption allowed,
o the method expected to he utilized, if known, and
o the impact the adoption is expected to have on your financial
statements.
In particular, revise this disclosure to address the fair value of the
stock based compensation that will be expensed each year. Refer to Staff
Accounting Bulletin Topic 11 M for guidance.
Response
--------
We have revised the disclosure to address the fair value of the stock
based compensation that will be expensed each year.
Financial Statements and Supplementary Data
- -------------------------------------------
Consolidated State of Operations, page F-3
- ------------------------------------------
4. You have disclosed $4.2 million of operating expenses for 2005. Revise
your statement of operations to disclose your operating expenses in
sufficient detail to enhance the reader's understanding of the nature and
trends of current changes affecting your business. This presentation
should include a separate line item for each material expense category.
Response
--------
We have revised the statement of operations to disclose the Company's
operating expenses in sufficient detail to enhance the reader's
understanding of the nature and trends of current changes affecting the
Company's business.
Note - Organization, page F-6
- -----------------------------
2
5. Expand your disclosures to clarify the legal and accounting form of your
recapitalization transaction. Specifically, your disclosure should state
that the historical financial statements presented are a continuation of
Refuel America, Inc., and not those of Bongiovi Entertainment Inc., and
explain that the capital structure of the Company is now different from
that appearing in the historical financial statements of Bongiovi
Entertainment Inc. due to the effects of the reverse merger.
Response
--------
We have expanded the disclosure to clarify the legal and accounting form
of the Company's recapitalization.
Note 2 -Summary of Significant Accounting Policies, page F-7
- ------------------------------------------------------------
6. We note your policy for the consolidation of joint ventures determined to
be variable interest entities. For each of your joint ventures, tell us
the facts and circumstances you considered to conclude that the joint
venture is a variable interest entity and that you are the primary
beneficiary of that variable interest. Refer to Financial Interpretation
46(R) for further guidance. We may have further comment.
Response
--------
The facts and circumstances that the Company considered to conclude that
the joint venture is a variable interest entity and that the Company is
the primary beneficiary of that variable interest is annexed hereto.
Note 9 -Related Party Transactions, page F-16
- ---------------------------------------------
7. It appears the assignment and royalty agreement between the company and
the directors is a material agreement. File this agreement as an exhibit
as required by Regulation S-B Item 601(b)(10).
Response
--------
A copy of the assignment and royalty agreement between the Company and the
directors will be filed as an exhibit.
Note 11 -Subsequent Events, page F-I 7
- --------------------------------------
8. We note your issuance of convertible debt and warrants that are
convertible into a variable number of shares of your common stock
depending on the market price of such stock. Tell us how you will report
and account for each of these financial instruments in your March 31, 2006
financial statements. In your response, tell us what consideration you
gave to the guidance in SFAS 133, Emerging issues Taskforce (EITF) 00-19
and other related accounting guidance. Please refer to Current Accounting
and Disclosure Issues, page 30, on our website at
http://www.sec.gov/divisions/corpfin.shtml for further guidance. We may
have further comment.
3
Response
--------
We have referred to the Current Accounting and Disclosures Issues in the
Division of Corporation Finance, page 30. The Company is aware that its
convertible debentures and related warrant will be required to be
accounted for under either SFAS 133, ETIF 00-19, SFAS 150 or APB 14. The
Company is also considering ETIF D-98, EITF 98-5, and ETIF 00-27 as they
relate to beneficial conversion features. Further, the Company is
currently evaluating the terms contained in the convertible debenture
agreements and any registration rights. The Company has not yet performed
the detailed analysis to determine the value of these potential
liabilities. The Company expects to have this analysis completed for its
March 31, 2006 financial statements.
Controls and Procedures, page 29
- --------------------------------
9. We note you have concluded as to the effectiveness of your internal
control over financial reporting. Remove this disclosure, or provide all
of the information required by Regulation S-B Item 308 regarding this
disclosure, including the attestation report of the registered accounting
firm on such assessment.
Response
--------
We have removed the requested disclosure.
10. We further note your disclosure regarding significant changes in internal
controls subsequent to year end. Amend this disclosure to address any
change in your internal control over financial reporting that occurred
during your last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, your internal control over
financial reporting, as required by Regulation S-B Item 308(c).
Response
--------
We have amended this disclosure to address any changes in the Company's
internal control over financial reporting that occurred during its last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, its internal control over financial reporting, as
required by Regulation S-B Item 308(c).
Exhibits 31.1 and 31.2, page 36
- -------------------------------
11. Revise the wording of your certifications to conform exactly to the
wording required by Regulation S-B Item 601(B)(3 1). Revise as follows:
o The title of each exhibit 31 .1 and 31.2 should be "Certifications".
Remove all other language at the top of the exhibit.
o Remove all references to "annual" or "quarterly" before the word "report"
except in paragraph number 1. Remove the introductory language in
paragraph 4 that refers to the certifying officers' responsibility for
establishing and maintaining internal control over financial reporting for
the company since you have removed paragraph 4(b). This language is only
required in the first annual report required to contain management's
internal control report and thereafter
o All references to "registrant" or "registrant's" should be replaced with
the phrases "small business issuer" or "small business issuer's",
respectively
Response
--------
4
We have revise the wording of the Company's certifications to conform to
the wording required by Regulation S-B Item 601(B)(3 1).
***
Should you have any further questions, please do not hesitate to
contact the undersigned at (212) 930-9700.
Sincerely,
/s/Yoel Goldfeder
Yoel Goldfeder
5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/ A
(Amendment No. 1)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the period June 1, 2005 (Inception) to December 31, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 033-22264
NEWGEN TECHNOLOGIES, INC.
(A development stage company)
(Name of small business issuer in its charter)
Nevada 33-0840184
-------- -------------
State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization
6000 Fairview Road 12th Floor, Charlotte, North Carolina 28210
--------------------------------------------------------------
(Address of principal executive office)
Issuer's telephone number: (704) 552-3590
--------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.) Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
The Issuer's revenues for the period June 1, (inception) to December 31, 2005
were $-0-.
As of April 12, 2006 the number of shares outstanding of the Issuer's common
stock was 38,611,224.
As of April 12, 2006 the aggregate number of shares held by non-affiliates was
approximately 14,477,195.
As of April 12, 2006 the aggregate market value of the Issuer's common stock
held by non-affiliates was $18,530,810, based on the average high and low price
of $1.28 per share as of April 12, 2006.
1
NEWGEN TECHNOLOGIES, INC.
(Formerly Bongiovi Entertainment, Inc.)
(A development stage company)
FORM 10-KSB/ A
(Amendment No. 1)
EXPLANATORY NOTE
This amendment No. 1 on Form 10-KSB/ A (this "Form 10-KSB/ A) amends our Annual
Report on Form 10-KSB for the period from June 1, 2005 (Inception) to December
31, 2005, as initially filed with the Securities and Exchange Commission (the
"SEC") on April 17, 2006. The amendment is being filed to reflect comments from
a review of our filing made by the Securities & Exchange Commission Division of
Corporation Finance in conjunction our Form SB-2 registration statement as filed
on April 21, 2006. The following changes have been made:
o Part II Item 5. The first quarter stock price for 2006 have been changed
from a high of $0.95 and a low of $0.87 to the correct values of a high of
$3.50 and a low of $0.70.
o Pat II Item 6 - "Corporate History" and Footnote No. 1 "Organization" has
added a sentence alerting the reader that historical financial statements
are those of Refuel America, Inc. not Bongiovi Entertainment, Inc. and the
capital structure is different than those appearing in the historical
financial statements of Bongiovi.
o Part II Item 6 - "Plan of Operations" has made consistent the fact that we
do not have sufficient cash to fund our operations in the near term.
Additional paragraphs have been added to clarify the debt financing that
we expect to raise and clarify that financing in place for $2,150,000 that
will be remitted two days before our registration statement filed on Form
SB-2 becomes effective, will provide the capital to fund operations after
the near term for the next 12 months.
o Part II Item 6 "Recent Accounting Pronouncements" has enhanced our
disclosure of SFAS 123(R) and now includes a description of the new
standard, methods of adoption allowed, the method expected to be utilized
and the impact the adoption will have on our financial statements as well
as the compensation that will be expensed for each year.
o Page F-3 "Consolidated Statement of Operations" has disclosed the material
expense categories in separate line items.
o Part II Item 8A "Controls and Procedures" the paragraph has been removed
as we have not provided all the information required under Regulation S-B
Item 308, nor is it yet required.
o Exhibits 31.1 and 31.2 "Certifications" have been revised to conform with
the wording required by Regulation S-B Item 601 (B)(31)
o Part III Item 11 "Security Ownership of Certain Beneficial Owners" has
corrected an error in the number of shares beneficially owned. Our
transfer agent indicated that Cornell Capital Partners owned 5,300,000
shares or 13.73% of the shares beneficially owned. The correct amount is
3,137,329 and 8.13%.
This form 10-KSB/A does not reflect events occurring after the filing of the
Form 10-KSB on April 17, 2006 or modify or update these disclosures, including
exhibits on the Form 10-KSB affected by subsequent events. Information not
affected by the adjustments noted above is unchanged and reflects the
disclosures made at the time of the original filing of Form 10-KSB on April 17,
2006.
Accordingly, this Form 10-KSB/ A should be read in conjunction with our filings
made with the SEC subsequent to the filing of the original Form 10-KSB,
including any amendments to those filings
2
FORM 10-KSB/ A
(Amendment No. 1)
FOR THE PERIOD JUNE 1, 2005 (INCEPTION) TO DECEMBER 31, 2005
INDEX
Page
PART I...................................................................... 5
ITEM 1. DESCRIPTION OF BUSINESS..................................... 5
ITEM 2. DESCRIPTION OF PROPERTY..................................... 18
ITEM 3. LEGAL PROCEEDINGS........................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.......... 18
PART II..................................................................... 19
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY SECURITIES................................................ 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION........................................................... 20
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................. 30
ITEM 8A. CONTROLS AND PROCEDURES.................................... 30
ITEM 8B. OTHER INFORMATION.......................................... 30
PART III.................................................................... 31
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT........................................................ 31
ITEM 10. EXECUTIVE COMPENSATION..................................... 33
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS...................... 34
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 35
ITEM 13. EXHIBITS................................................... 36
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES..................... 38
3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
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 12, 2006|_|, there were approximately 343 holders of record of our
common stock.
Recent Issuances of Unregistered Securities.
In December 2005, the Company exchanged a total of 13,000 shares of Common
Stock to various individuals who exchanged services and future services at a
value of $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 a value of $1.00 per share for cash proceeds of $265,200
and a subscription receivable of $805,000 as of December 31, 2005, which has
been subsequently paid.
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.
All other sales have been previously reported on Form 8-K.
19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto. Our fiscal year ends
December 31. This document contains certain forward-looking statements
including, among others, anticipated trends in our financial condition and
results of operations and our business strategy. (See "Factors Which May Affect
Future Results"). These forward-looking statements are based largely on our
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from these forward-looking statements.
Important factors to consider in evaluating such forward-looking statements
include (i) changes in external factors or in our internal budgeting process
which might impact trends in our results of operations; (ii) unanticipated
working capital or other cash requirements; (iii) changes in our business
strategy or an inability to execute our strategy due to unanticipated changes in
the industries in which the Company operates; and (iv) various competitive
market factors that may prevent us from competing successfully in the
marketplace.
Corporate History
Refuel America, Inc. (a development stage company), (the "Company" or
"Refuel") was incorporated on June 1, 2005 under the laws of the state of
Delaware. The Company was formed for the purpose of developing and distributing
innovative alternative fuels including biodiesel and ethanol blends with regular
hydrocarbons. The Company's offices are located in Charlotte, North Carolina.
The Company'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 a total of 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.
The transaction was accounted for as an acquisition of Bongiovi, the legal
acquirer, and a recapitalization of Refuel, the accounting acquirer. The
historical financial statements presented are a continuation of Refuel and not
those of Bongiovi. Due to the effects of the reverse merger, the capital
structure is different than those appearing in the historical financial
statements of Bongiovi.
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.
20
As of December 31, 2005, we had cash available to fund current operations
for approximately one month. In January 2006, we received cash proceeds of
$440,000 from the issuance of 440,000 shares of common stock, as discussed
below, and gross cash proceeds of $2,200,000 from the issuance of 10%
convertible debentures, as discussed below. In addition, in March 2006, we
received gross cash proceeds of $650,000 from the further disbursement of funds
under the 10% convertible debentures. We will receive further gross proceeds of
$2,150,000 from the 10% convertible debentures two business days before our
registration statement filed on Form SB-2 is declared effective. We believe the
foregoing financing will fund our current operations for the next 12 months.
In connection with our currently planned capital projects, including, but
not limited to the construction and operation of biodiesel plants and power
generation facilities, we will require approximately $200 million in additional
financing. In addition, we will require approximately $8 million to complete the
refurbishment of the fuel terminals We are currently reviewing various proposals
for traditional debt project financing in order to fund a majority of the costs
of these projects. In addition, we may decide to seek additional private debt or
equity financing in order to provide for any additional financing needs we may
have.
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 $857,000 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;
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 do not have sufficient funds on hand to fund our current operations
through the near term. We intend to complete additional rounds of our private
placement financing 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.
Accordingly, the consolidated financial statements as of December 31, 2005 have
been prepared on a going concern basis.
23
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, another 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.
Financing through Debt - Cornell Debenture
- ------------------------------------------
To obtain funding we entered into a Securities Purchase Agreement with
Cornell Capital Partners LP ("Cornell") on January 24, 2006 for the sale of
$5,000,000 in secured convertible debentures and a warrant to purchase 1,125,000
shares of our common stock at $1.00 per share. 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 our
registration statement filed on Form SB-2 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.
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.
24
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123(R)), which replaces SFAS No. 123 and
supersedes APB Opinion No. 25. SFAS No 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning with the first
interim period after December 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under SFAS No. 123 will no longer be an
alternative to financial statement recognition. Under SFAS No. 123(R), the
Company must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at the date of adoption. The permitted transition
methods include either retrospective, prospective or modified prospective
adoption. Under the retrospective option, prior periods may be restated either
as of the beginning of the year of adoption or for all periods presented. The
prospective method only relates to the options that were issued prior to January
1, 2006 and have historically been accounted for under the minimum value method.
Such options continue to be accounted for under the provisions of APB Opinion
No. 25. The modified prospective method requires that compensation expense be
recorded for all unvested stock options at the beginning of the first quarter of
adoption of SFAS No. 123(R), while the retrospective methods would record
compensation expense for all unvested stock options beginning with the first
period presented. The Company anticipates adopting the modified prospective
method to account for stock options starting in 2006. The Company estimates the
impact of adopting SFAS No. 123(R) will be to record additional compensation
expense of $780,075, $609,628, $268,734 and $201,551 for 2006 through 2009,
respectively.
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
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 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. These
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
Accounting policies, methods and estimates are an integral part of our
consolidated financial statements and are based upon management's current
judgments. Certain accounting policies, methods and estimates are particularly
important because of their significance to the consolidated financial
statements. Note 2 of the Notes to the Consolidated Financial Statements
included in Part II Item 7 of this report, includes a summary of the significant
accounting policies, estimates and methods we use. The following is a discussion
of what we believe to be the most critical of these policies and methods.
26
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 $ --
Compensation 1,650,000
Professional services 1,366,000
Travel 452,000
Marketing 241,000
Royalty 125,000
Investor relations 118,000
Bad debt 108,000
General & administrative 170,973
------------
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)
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.
The transaction was accounted for as an acquisition of Bongiovi, the legal
acquirer, and a recapitalization of Refuel, the accounting acquirer. The
historical financial statements presented are a continuation of Refuel and not
those of Bongiovi. Due to the effects of the reverse merger, the capital
structure is different than those appearing in the historical financial
statements of Bongiovi.
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
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123(R)), which replaces SFAS No. 123 and
supersedes APB Opinion No. 25. SFAS No 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values beginning with the first
interim period after December 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under SFAS No. 123 will no longer be an
alternative to financial statement recognition. Under SFAS No. 123(R), the
Company must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at the date of adoption. The permitted transition
methods include either retrospective, prospective or modified prospective
adoption. Under the retrospective option, prior periods may be restated either
as of the beginning of the year of adoption or for all periods presented. The
prospective method only relates to the options that were issued prior to January
1, 2006 and have historically been accounted for under the minimum value method.
Such options continue to be accounted for under the provisions of APB Opinion
No. 25. The modified prospective method requires that compensation expense be
recorded for all unvested stock options at the beginning of the first quarter of
adoption of SFAS No. 123(R), while the retrospective methods would record
compensation expense for all unvested stock options beginning with the first
period presented. The Company anticipates adopting the modified prospective
method to account for stock options starting in 2006. The Company estimates the
impact of adopting SFAS No. 123(R) will be to record additional compensation
expense of $780,075, $609,628, $268,734 and $201,551 for 2006 through 2009,
respectively.
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.
F-12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. NewGen Technologies, Inc.'s
Chief Executive Officer and Chief Financial Officer have designed disclosure
controls and procedures over financial reporting and evaluated the effectiveness
of NewGen Technologies, Inc.'s disclosure controls and procedures (as such term
is defined in Rules 13a-15 and 15d-15 under the Exchange Act) over financial
reporting as of the end of the period covered by this annual report (the
"Evaluation Date"). Based on such evaluation, such officers have concluded that,
as of the Evaluation Date, NewGen Technologies, Inc.'s disclosure controls and
procedures over financial reporting are effective.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the most recent
fiscal year, there have not been any changes in NewGen Technologies, Inc.'s
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect internal controls over financial
reporting
ITEM 8A. CONTROLS AND PROCEDURES
NONE
ITEM 8B. OTHER INFORMATION
None.
30
Name of Beneficial Number of Percentage
Owner (1) Shares of Shares
Beneficially Beneficially
Owned Owned (2)
S. Bruce Wunner(3) 429,833 1.13%
Ian Williamson 10,232,867 27.02%
Scott Deininger 280,000 *
Cliff Hazel 10,000,000 26.39%
Noel M. Corcoran 0 *
Cornell Capital
Partners 3,137,329 8.13%
All officers and
directors as a
group
(5 persons) 20,942,700 54.54%
* 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. Cornell Capital Partners, LP is
located at 101 Hudson St. Jersey City, New Jersey, 07302
(2) Applicable percentage ownership is based on 38,611,224 shares of
common stock outstanding as of April 12, 2006, together with
securities exercisable or convertible into shares of common stock
within 60 days of April 12, 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 12, 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.
(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.
ITEM 12. 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
35
EXHIBIT 31.1
CERTIFICATIONS
I, S. Bruce Wunner, certify that:
1. I have reviewed this annual report on Form 10-KSB of NewGen
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) [Omitted pursuant to the guidance of Release No. 33-8238];
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth quarter in the case of annual report) that
has materially affected, or is reasonably likely to materially
affect, the small business issuer's internal control over financial
reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation, to the small business issuer's
auditors and the audit committee of small business issuer's board of directors
(or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the small business issuer's
ability to record, process, summarize and report financial data and have
identified for the small business issuer's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Dated: April 17, 2006 By /s/ S. Bruce Wunner
----------------------
S. Bruce Wunner
Chief Executive Officer
40
EXHIBIT 31.2
CERTIFICATIONS
I, Scott A. Deininger, certify that:
1. I have reviewed this report on Form 10-KSB of NewGen Technologies, Inc;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the for the small
business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) [Omitted pursuant to the guidance of Release No. 33-8238];
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth quarter in the case of annual report) that
has materially affected, or is reasonably likely to materially
affect, the small business issuer's internal control over financial
reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation, to the small business issuer's
auditors and the audit committee of small business issuer's board of directors
(or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the small business issuer's
ability to record, process, summarize and report financial data and have
identified for the small business issuer's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal controls and financial reporting
Dated: April 17, 2006 By /s/ Scott A. Deininger
-------------------------
Scott A. Deininger
Chief Financial Officer
41
Inquiry on the Application of Interpretation No. 46 (R) for Advanced
Biotechnologies, LLC
ISSUE:
- ------
The management of NewGen Technologies, Inc. ("NewGen" or "the Company") has a
foreign owned joint venture and Refuel America, Inc. ("RFA") a wholly-owned
subsidiary that has joint venture relationships ("JV's)with several entities. We
believe these entities should be consolidated into the financial statements of
NewGen to provide more complete information about the resources, obligations,
risks and opportunities of the NewGen. NewGen has disclosed in its public
filings the fact that we have been entering into a series of JV's to operate its
business. We believe FASB Interpretation No. 46 (R), Consolidation of Variable
Interest Entities (FIN 46 (R)), applies to ALL NewGen joint ventures as the
"voting interest" approach used in Accounting Research Bulletin No. 51,
Consolidated Financial Statements (ARB 51) is "not effective in identifying
controlling interests in entities that are not controllable through voting
interests".
Our auditors have provided the following accounting guidance obtained from
Accounting Research Bulletin No. 51, Consolidated Financial Statements, in their
interpretation of conditions to consolidation: "As a general rule, direct (or
indirect) ownership of more than 50% of the outstanding voting stock of a
company is a condition that ordinarily points to consolidation. The only
exception to this general rule is when control does not rest with the majority
owners (e.g., subsidiary is in reorganization or bankruptcy)"
ASSERTION:
- ----------
Simply put, it appears FIN 46 (R) is attempting to consolidate entities or
arrangements whereby the primary beneficiary has the ability to absorb losses,
reap residual returns, and make decisions that significantly impact the success
of the entity (day to day, pricing, hire/fire, expenditure) - regardless of
voting rights. Entities that are "stand alone" operating businesses that do not
appear as extensions of the equity investors business are specifically exempted
under FIN 46 (R), however fall under ARB 51 - majority voting interest rules.
Based on the fact that the Company intends to conduct its business through a
series of JV's, the Company believes these JV's are an extension of its
business. The following is a statement from the Company's draft SB-2, "MD&A or
Plan of Operation" section:
"Refuel America, Inc. (a development stage company), (the "Company") was
incorporated on June 1, 2005 under the laws of the state of Delaware. The
Company was formed for the purpose of developing and distributing innovative
alternative fuels including biodiesel."
Considering that the Company is in the business of developing and distributing
alternative fuels, including biodiesel, and the JV's principal business is the
production of biodiesel, the Company believes it is appropriate to consolidate
these JV's as this is how our business will be conducted. We believe not
consolidating these JV's would be misleading to the investing public.
FIN 46 (R) is to be applied before applying the majority voting interest in ARB
51.
Our understanding is that there is a two step sequence of events that need to
occur in the evaluation of FIN 46 (R). First an enterprise needs to determine
whether it has any variable interests as identified in FIN 46 (R) paragraph 2.C
"variable interests are contractual, ownership or other pecuniary interests in
an entity that change with changes in changes in the fair market value of the
entities net assets exclusive of variable interests". Second, if not
specifically excepted (or "scoped out") in paragraph 4 of FIN 46 (R), the entity
needs to consider whether the "equity investment is at risk" as described in the
conditions noted in paragraph 5 of FIN 46 (R).
We have determined that the NewGen and RFA (the "Company") has made an equity
interest which is "at risk" pursuant to paragraph 2.C. (and entered into a
subordinated debt arrangement), the voting interests (50%) are disproportionate
to our potential share in losses or gains (meaning the equity contribution is
not equal to our 50% voting partners contribution. Thus, a variable interest is
present in each of the company's joint ventures, and the Company has a greater %
of equity at risk than the partner.
Paragraph 4.H of FIN 46 (R) specifically excepts "entities deemed to be a
business" unless substantially all of the entities activities are conducted on
behalf of the reporting enterprise (extension of the business) or the reporting
enterprise provides more than 1/2 the equity, subordinated debt or other
subordinated financial support. At this stage, all the Company's joint ventures
are not businesses as defined in appendix C, as they do are not a "self
sustaining integrated set of activities and assets conducted and managed for the
purpose of providing a return to investors", yet. Thus, they are not "scoped
out". In addition, when the JV's do become operational, the Company will have a
greater % of equity at risk than the JV partner.
As noted in paragraph 5.A of FIN 46 (R), the total equity investment at risk is
not sufficient to permit the entity to finance its activities with out
additional subordinated financial support.
CONCLUSION:
- -----------
Based on the above research, all the NewGen and RFA joint venture equity
interest relationships meet the criteria of holding variable interests as
defined in paragraph 2.c of Fin 46 (R) and those variable interests are variable
interest entities as defined by paragraph 5.c of FIN 46 (R). As such, the joint
ventures should be consolidated into the financial statements of NewGen. Lastly,
the JV's are an extension of the Company's business, and thus should be
consolidated.
Application of Interpretation No. 46 (R) for Actanol, LLC
ISSUE:
- ------
The management of NewGen Technologies, Inc. ("NewGen" or "the Company") and NWGT
International, Inc (NWGT) a wholly-owned subsidiary that has joint venture
relationships ("JV's) with several entities. We believe these entities should be
consolidated into the financial statements of NewGen to provide more complete
information about the resources, obligations, risks and opportunities of the
NewGen. NewGen has disclosed in its public filings the fact that we have been
entering into a series of JV's to operate its business. We believe FASB
Interpretation No. 46 (R), Consolidation of Variable Interest Entities (FIN 46
(R)), applies to ALL NewGen joint ventures as the "voting interest" approach
used in Accounting Research Bulletin No. 51, Consolidated Financial Statements
(ARB 51) is "not effective in identifying controlling interests in entities that
are not controllable through voting interests".
Our auditors have provided the following accounting guidance obtained from
Accounting Research Bulletin No. 51, Consolidated Financial Statements, in their
interpretation of conditions to consolidation: "As a general rule, direct (or
indirect) ownership of more than 50% of the outstanding voting stock of a
company is a condition that ordinarily points to consolidation. The only
exception to this general rule is when control does not rest with the majority
owners (e.g.,
subsidiary is in reorganization or bankruptcy)"
ASSERTION:
- ----------
Simply put, it appears FIN 46 (R) is attempting to consolidate entities or
arrangements whereby the primary beneficiary has the ability to absorb losses,
reap residual returns, and make decisions that significantly impact the success
of the entity (day to day, pricing, hire/fire, expenditure) - regardless of
voting rights. Entities that are "stand alone" operating businesses that do not
appear as extensions of the equity investors business are specifically exempted
under FIN 46 (R), however fall under ARB 51 - majority voting interest rules.
Based on the fact that the Company intends to conduct its business through a
series of JV's, the Company believes these JV's are an extension of its
business.
Considering that the Company is in the business of developing and distributing
alternative fuels, including biodiesel, and the JV's principal business is the
production of biodiesel, the Company believes it is appropriate to consolidate
these JV's as this is how our business will be conducted. We believe not
consolidating these JV's would be misleading to the investing public.
FIN 46 (R) is to be applied before applying the majority voting interest in ARB
51.
Our understanding is that there is a two step sequence of events that need to
occur in the evaluation of FIN 46 (R). First an enterprise needs to determine
whether it has any variable interests as identified in FIN 46 (R) paragraph 2.C
"variable interests are contractual, ownership or other pecuniary interests in
an entity that change with changes in changes in the fair market value of the
entities net assets exclusive of variable interests". Second, if not
specifically excepted (or "scoped out") in paragraph 4 of FIN 46 (R), the entity
needs to consider whether the "equity investment is at risk" as described in the
conditions noted in paragraph 5 of FIN 46 (R).
We have determined that the NewGen and NWGT (the "Company") has made an equity
interest which is "at risk" pursuant to paragraph 2.C. (and entered into a
subordinated debt arrangement), the voting interests (50%) are disproportionate
to our potential share in losses or gains (meaning the equity contribution is
not equal to our 50% voting partners contribution. Thus, a variable interest is
present in each of the company's joint ventures, and the Company has a greater %
of equity at risk than the partner.
Paragraph 4.H of FIN 46 (R) specifically excepts "entities deemed to be a
business" unless substantially all of the entities activities are conducted on
behalf of the reporting enterprise (extension of the business) or the reporting
enterprise provides more than 1/2 the equity, subordinated debt or other
subordinated financial support. At this stage, all the Company's joint ventures
are not businesses as defined in appendix C, as they do are not a "self
sustaining integrated set of activities and assets conducted and managed for the
purpose of providing a return to investors", yet. Thus, they are not "scoped
out". In addition, when the JV's do become operational, the Company will have a
greater % of equity at risk than the JV partner.
As noted in paragraph 5.A of FIN 46 (R), the total equity investment at risk is
not sufficient to permit the entity to finance its activities with out
additional subordinated financial support.
CONCLUSION:
- -----------
Based on the above research, all the NewGen and NWGT's joint venture equity
interest relationship meets the criteria of holding variable interests as
defined in paragraph 2.c of Fin 46 (R) and those variable interests are variable
interest entities as defined by paragraph 5.c of FIN 46 (R). As such, the joint
ventures should be consolidated into the financial statements of NewGen. Lastly,
the JV is an extension of the Company's business, and thus should be
consolidated.
Application of Interpretation No. 46 (R) for PowerSHIFT Biofuels of Hawaii, LLC
ISSUE:
- ------
The management of NewGen Technologies, Inc. ("NewGen" or "the Company") and
Refuel America, Inc (RFA) a wholly-owned subsidiary that has joint venture
relationships ("JV's) with several entities. We believe these entities should be
consolidated into the financial statements of NewGen to provide more complete
information about the resources, obligations, risks and opportunities of the
NewGen. NewGen has disclosed in its public filings the fact that we have been
entering into a series of JV's to operate its business. We believe FASB
Interpretation No. 46 (R), Consolidation of Variable Interest Entities (FIN 46
(R)), applies to ALL NewGen joint ventures as the "voting interest" approach
used in Accounting Research Bulletin No. 51, Consolidated Financial Statements
(ARB 51) is "not effective in identifying controlling interests in entities that
are not controllable through voting interests".
Our auditors have provided the following accounting guidance obtained from
Accounting Research Bulletin No. 51, Consolidated Financial Statements, in their
interpretation of conditions to consolidation: "As a general rule, direct (or
indirect) ownership of more than 50% of the outstanding voting stock of a
company is a condition that ordinarily points to consolidation. The only
exception to this general rule is when control does not rest with the majority
owners (e.g.,
subsidiary is in reorganization or bankruptcy)"
ASSERTION:
- ----------
Simply put, it appears FIN 46 (R) is attempting to consolidate entities or
arrangements whereby the primary beneficiary has the ability to absorb losses,
reap residual returns, and make decisions that significantly impact the success
of the entity (day to day, pricing, hire/fire, expenditure) - regardless of
voting rights. Entities that are "stand alone" operating businesses that do not
appear as extensions of the equity investors business are specifically exempted
under FIN 46 (R), however fall under ARB 51 - majority voting interest rules.
Based on the fact that the Company intends to conduct its business through a
series of JV's, the Company believes these JV's are an extension of its
business.
Considering that the Company is in the business of developing and distributing
alternative fuels, including biodiesel, and the JV's principal business is the
production of biodiesel, the Company believes it is appropriate to consolidate
these JV's as this is how our business will be conducted. We believe not
consolidating these JV's would be misleading to the investing public.
FIN 46 (R) is to be applied before applying the majority voting interest in ARB
51.
Our understanding is that there is a two step sequence of events that need to
occur in the evaluation of FIN 46 (R). First an enterprise needs to determine
whether it has any variable interests as identified in FIN 46 (R) paragraph 2.C
"variable interests are contractual, ownership or other pecuniary interests in
an entity that change with changes in changes in the fair market value of the
entities net assets exclusive of variable interests". Second, if not
specifically excepted (or "scoped out") in paragraph 4 of FIN 46 (R), the entity
needs to consider whether the "equity investment is at risk" as described in the
conditions noted in paragraph 5 of FIN 46 (R).
We have determined that the NewGen and NWGT (the "Company") has made an equity
interest which is "at risk" pursuant to paragraph 2.C. (and entered into a
subordinated debt arrangement), the voting interests (50%) are disproportionate
to our potential share in losses or gains (meaning the equity contribution is
not equal to our 50% voting partners contribution. Thus, a variable interest is
present in each of the company's joint ventures, and the Company has a greater %
of equity at risk than the partner.
Paragraph 4.H of FIN 46 (R) specifically excepts "entities deemed to be a
business" unless substantially all of the entities activities are conducted on
behalf of the reporting enterprise (extension of the business) or the reporting
enterprise provides more than 1/2 the equity, subordinated debt or other
subordinated financial support. At this stage, all the Company's joint ventures
are not businesses as defined in appendix C, as they do are not a "self
sustaining integrated set of activities and assets conducted and managed for the
purpose of providing a return to investors", yet. Thus, they are not "scoped
out". In addition, when the JV's do become operational, the Company will have a
greater % of equity at risk than the JV partner.
As noted in paragraph 5.A of FIN 46 (R), the total equity investment at risk is
not sufficient to permit the entity to finance its activities with out
additional subordinated financial support.
CONCLUSION:
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Based on the above research, all the NewGen and RFA's joint venture equity
interest relationship meets the criteria of holding variable interests as
defined in paragraph 2.c of Fin 46 (R) and those variable interests are variable
interest entities as defined by paragraph 5.c of FIN 46 (R). As such, the joint
ventures should be consolidated into the financial statements of NewGen. Lastly,
the JV is an extension of the Company's business, and thus should be
consolidated.
Application of Interpretation No. 46 (R) for PowerSHIFT Biofuels of Iowa, LLC
ISSUE:
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The management of NewGen Technologies, Inc. ("NewGen" or "the Company") and
Refuel America, Inc (RFA) a wholly-owned subsidiary that has joint venture
relationships ("JV's) with several entities. We believe these entities should be
consolidated into the financial statements of NewGen to provide more complete
information about the resources, obligations, risks and opportunities of the
NewGen. NewGen has disclosed in its public filings the fact that we have been
entering into a series of JV's to operate its business. We believe FASB
Interpretation No. 46 (R), Consolidation of Variable Interest Entities (FIN 46
(R)), applies to ALL NewGen joint ventures as the "voting interest" approach
used in Accounting Research Bulletin No. 51, Consolidated Financial Statements
(ARB 51) is "not effective in identifying controlling interests in entities that
are not controllable through voting interests".
Our auditors have provided the following accounting guidance obtained from
Accounting Research Bulletin No. 51, Consolidated Financial Statements, in their
interpretation of conditions to consolidation: "As a general rule, direct (or
indirect) ownership of more than 50% of the outstanding voting stock of a
company is a condition that ordinarily points to consolidation. The only
exception to this general rule is when control does not rest with the majority
owners (e.g.,
subsidiary is in reorganization or bankruptcy)"
ASSERTION:
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Simply put, it appears FIN 46 (R) is attempting to consolidate entities or
arrangements whereby the primary beneficiary has the ability to absorb losses,
reap residual returns, and make decisions that significantly impact the success
of the entity (day to day, pricing, hire/fire, expenditure) - regardless of
voting rights. Entities that are "stand alone" operating businesses that do not
appear as extensions of the equity investors business are specifically exempted
under FIN 46 (R), however fall under ARB 51 - majority voting interest rules.
Based on the fact that the Company intends to conduct its business through a
series of JV's, the Company believes these JV's are an extension of its
business.
Considering that the Company is in the business of developing and distributing
alternative fuels, including biodiesel, and the JV's principal business is the
production of biodiesel, the Company believes it is appropriate to consolidate
these JV's as this is how our business will be conducted. We believe not
consolidating these JV's would be misleading to the investing public.
FIN 46 (R) is to be applied before applying the majority voting interest in ARB
51.
Our understanding is that there is a two step sequence of events that need to
occur in the evaluation of FIN 46 (R). First an enterprise needs to determine
whether it has any variable interests as identified in FIN 46 (R) paragraph 2.C
"variable interests are contractual, ownership or other pecuniary interests in
an entity that change with changes in changes in the fair market value of the
entities net assets exclusive of variable interests". Second, if not
specifically excepted (or "scoped out") in paragraph 4 of FIN 46 (R), the entity
needs to consider whether the "equity investment is at risk" as described in the
conditions noted in paragraph 5 of FIN 46 (R).
We have determined that the NewGen and NWGT (the "Company") has made an equity
interest which is "at risk" pursuant to paragraph 2.C. (and entered into a
subordinated debt arrangement), the voting interests (50%) are disproportionate
to our potential share in losses or gains (meaning the equity contribution is
not equal to our 50% voting partners contribution. Thus, a variable interest is
present in each of the company's joint ventures, and the Company has a greater %
of equity at risk than the partner.
Paragraph 4.H of FIN 46 (R) specifically excepts "entities deemed to be a
business" unless substantially all of the entities activities are conducted on
behalf of the reporting enterprise (extension of the business) or the reporting
enterprise provides more than 1/2 the equity, subordinated debt or other
subordinated financial support. At this stage, all the Company's joint ventures
are not businesses as defined in appendix C, as they do are not a "self
sustaining integrated set of activities and assets conducted and managed for the
purpose of providing a return to investors", yet. Thus, they are not "scoped
out". In addition, when the JV's do become operational, the Company will have a
greater % of equity at risk than the JV partner.
As noted in paragraph 5.A of FIN 46 (R), the total equity investment at risk is
not sufficient to permit the entity to finance its activities with out
additional subordinated financial support.
CONCLUSION:
- -----------
Based on the above research, all the NewGen and RFA's joint venture equity
interest relationship meets the criteria of holding variable interests as
defined in paragraph 2.c of Fin 46 (R) and those variable interests are variable
interest entities as defined by paragraph 5.c of FIN 46 (R). As such, the joint
ventures should be consolidated into the financial statements of NewGen. Lastly,
the JV is an extension of the Company's business, and thus should be
consolidated.