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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2008
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number 333-76242
HYDROGEN HYBRID TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
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Nevada 45-0487463
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 Sandstone Manor Unit #11, Pickering, ON L1W3X9 Canada
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(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (416) 303-9499
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 |_|
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act (Check one).
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller Reporting Company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
As of February 13, 2009, the registrant's outstanding common stock consisted
of 89,071,362 shares, $0.001 Par Value. Authorized - 180,000,000 common
voting shares.
Table of Contents
Hydrogen Hybrid Technologies, Inc.
Index to Form 10-Q
For the Quarterly Period Ended December 31, 2008
Part I. Financial Information
Page
Item 1. Financial Statements
Balance Sheets as of December 31, 2008 and September 30, 2008 3
Statements of Operations for the three months
ended December 31, 2008 and 2007 4
Statement of Stockholders' Equity 5
Statements of Cash Flows for the three months
ended December 31, 2008 and 2007 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
Part II Other Information
Item 1. Legal Proceedings 21
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits 22
Signatures 23
2
Part I. Financial Information
Item 1. Financial Statements
HYDROGEN HYBRID TECHNOLOGIES, INC.
Balance Sheets
Balance Sheets
ASSETS
------
December 31, September 30,
2008 2008
------------ -------------
(Unaudited)
CURRENT ASSETS
Cash $ 1,526 $ 812
Accounts receivable - -
Prepaid deposits 14,301 24,568
------------ -------------
Total Current Assets 15,827 25,380
------------ -------------
DISTRIBUTION RIGHTS 1,950,047 2,284,945
------------ -------------
TOTAL ASSETS $ 1,965,874 $ 2,310,325
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,140,952 $ 1,397,651
------------ -------------
Total Current Liabilities 1,140,952 1,397,651
------------ -------------
STOCKHOLDERS' EQUITY
Common shares: $0.001 par value, 180,000,000
shares authorized: 89,071,362 shares
issued and outstanding 89,071 89,071
Additional paid-in capital 5,006,777 5,006,777
Accumulated deficit (4,440,814) (4,479,580)
Accumulated other comprehensive income 169,888 296,406
------------ -------------
Total Stockholders' Equity 824,922 912,674
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,965,874 $ 2,310,325
============ =============
The accompanying notes are an integral part of these financial statements.
3
HYDROGEN HYBRID TECHNOLOGIES, INC.
Statements of Operations
(Unaudited)
Statements of Operations
For the Three Months Ended
December 31,
------------------------------
2008 2007
-------------- --------------
REVENUES $ 133,625 $ 68,980
COST OF SALES - 46,848
-------------- --------------
GROSS PROFIT 133,625 22,132
OPERATING EXPENSES
Management expenses 6,402 -
General and administrative 23,141 573
Professional fees 14,792 40,864
Amortization expense 28,296 -
-------------- --------------
Total Operating Expenses 72,631 41,437
-------------- --------------
LOSS FROM OPERATIONS 60,994 (19,305)
OTHER INCOME (EXPENSE)
Interest expense (22,228) -
-------------- --------------
LOSS BEFORE INCOME TAXES 38,766 (19,305)
INCOME TAX EXPENSE - -
-------------- --------------
NET INCOME (LOSS) $ 38,766 $ (19,305)
============== ==============
OTHER COMPREHENSIVE INCOME
Gain (loss) on foreign currency translation (126,518) (33,253)
-------------- --------------
NET COMPREHENSIVE INCOME (LOSS) $ (87,752) $ (52,558)
============== ==============
BASIC LOSS PER SHARE $ 0.00 $ (0.00)
============== ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 89,011,362 129,071,362
============== ==============
The accompanying notes are an integral part of these financial statements.
4
HYDROGEN HYBRID TECHNOLOGIES, INC.
Statements of Stockholders' Equity
Statements of Stockholders' Equity
Accumulated
Common Stock Additional Other Total
-------------------- Paid-in Comprehensive Accumulated Members'
Shares Amount Capital Income (Loss) Deficit Equity
----------- -------- ----------- -------- ------------ ------------
Balance,
September 30,
2007 129,071,362 $129,071 $4,966,777 $463,359 $(1,319,478) $ 4,239,729
Shares
returned
to treasury
and
cancelled (40,000,000)(40,000) 40,000 - - -
Foreign
exchange
translation
adjustments
for rate
changes (166,953) - (166,953)
Net loss
for the
year ended
September 30,
2008 - - - - (3,160,102) (3,160,102)
----------- -------- ----------- -------- ------------ ------------
Balance,
September 30,
2008 89,071,362 $ 89,071 $5,006,777 $296,406 $(4,479,580) $ 912,674
Foreign
exchange
translation
adjustments
for rate
changes (126,518) - (126,518)
Net loss
for the
three months
ended
December 31,
2008 - - - - 38,766 38,766
----------- -------- ----------- -------- ------------ ------------
Balance,
December 31,
2008 89,071,362 $ 89,071 $5,006,777 $169,888 $(4,440,814) $ 824,922
=========== ======== =========== ======== ============ ============
The accompanying notes are an integral part of these financial statements.
5
HYDROGEN HYBRID TECHNOLOGIES, INC.
Statements of Cash Flows
(Unaudited)
Statements of Cash Flows
For the Three Months Ended
December 31,
------------------------------
2008 2007
-------------- --------------
OPERATING ACTIVITIES
Net income (loss) $ 38,766 $ (19,305)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization expense 28,296 -
Asset impairment - -
Changes in operating assets and liabilities:
Changes in accounts receivable - -
Changes in prepaid deposits 10,267 (68,365)
Changes in accounts payable and
accrued liabilities (256,699) 91,550
-------------- --------------
Net Cash Provided by
(Used in) Operating Activities (179,370) 3,880
-------------- --------------
INVESTING ACTIVITIES
Purchase of distribution rights - -
-------------- --------------
Net Cash Used in Investing Activities - -
-------------- --------------
FINANCING ACTIVITIES
Proceeds from notes payable - 29,500
Issuance of common stock - -
-------------- --------------
Net Cash Provided by Financing Activities - 29,500
-------------- --------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES 180,084 (33,253)
NET DECREASE IN CASH 714 127
CASH AT BEGINNING OF PERIOD 812 -
-------------- --------------
CASH AT END OF PERIOD $ 1,526 $ 127
============== ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ - $ -
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements
6
HYDROGEN HYBRID TECHNOLOGIES, INC.
Notes to the Condensed Financial Statements
December 31, 2008 and 2007
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows at December 31, 2008, and for
all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
September 30, 2008 audited financial statements. The results of operations
for the periods ended December 31, 2008 and 2007 are not necessarily
indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles in the United States of America applicable to a going
concern which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has not yet
established an ongoing source of revenues sufficient to cover its operating
costs and allow it to continue as a going concern. The ability of the Company
to continue as a going concern is dependent on the Company obtaining adequate
capital to fund operating losses until it becomes profitable. If the Company
is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other
things, additional capital resources. Management's plan is to obtain such
resources for the Company by obtaining capital from management and
significant shareholders sufficient to meet its minimal operating expenses
and seeking equity and/or debt financing. However management cannot provide
any assurances that the Company will be successful in accomplishing any of
its plans.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain
profitable operations. The accompanying financial statements do not include
any adjustments that might be necessary if the Company is unable to continue
as a going concern.
7
HYDROGEN HYBRID TECHNOLOGIES, INC.
Notes to the Condensed Financial Statements
December 31, 2008 and 2007
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
- ----------------
The preparation of 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 at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Foreign Currency and Comprehensive Income
- -----------------------------------------
The Company's functional currency is the Canadian dollar (CAD). The financial
statements of the Company were translated to United States Dollar (USD) using
year-end exchange rates for the balance sheet, and average exchange rates for
the statements of operations. Equity transactions were translated using
historical rates. The period-end exchange rates of 1.224 and 0.9881 were used
to convert the Company's December 31, 2008 and March 31, 2008 balance sheets,
respectively, and the statements of operations used weighted average rates of
1.124702 and 1.030019 for the nine months ended December 31, 2008 and 2007,
respectively. All amounts in the financial statements and footnotes are
presumed to be stated in USD, unless otherwise identified. Foreign currency
translation gains or losses as a result of fluctuations in the exchange rates
are reflected in the Statement of Operations and Other Comprehensive Income.
Recent Accounting Pronouncements
- --------------------------------
In May of 2008 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 163, "Accounting for
Financial Guarantee Insurance - an interpretation of FASB Statement No. 60,
Accounting and Reporting by Insurance Enterprises". This statement requires
that an insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is evidence that credit deterioration has
occurred in an insured financial obligation. This statement also clarifies
how Statement 60 applies to financial guarantee insurance contracts. This
statement is effective for fiscal years beginning after December 15, 2008.
This statement has no effect on the Company's financial reporting at this
time.
In May of 2008, the FASB issued Statement No. 162, "The Hierarchy of
Generally Accepted Accounting Principles." This statement identifies
literature established by the FASB as the source for accounting principles to
be applied by entities which prepare financial statements presented in
conformity with generally accepted accounting principles (GAAP) in the United
States. This statement is effective 60 days following approval by the SEC of
the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles." This statement will require no changes in the
Company's financial reporting practices.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
The Company may from time to time make written or oral "forward-looking
statements" including statements contained in this report and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include statements of the Company's plans,
objectives, expectations, estimates and intentions, which are subject to
change based on various important factors (some of which are beyond the
Company's control). The following factors, in addition to others not listed,
could cause the Company's actual results to differ materially from those
expressed in forward looking statements: the strength of the domestic and
local economies in which the Company conducts operations, the impact of
current uncertainties in global economic conditions and the ongoing financial
crisis affecting the domestic and foreign banking system and financial
markets, including the impact on the Company's suppliers and customers,
changes in client needs and consumer spending habits, the impact of
competition and technological change on the Company, the Company's ability to
manage its growth effectively, including its ability to successfully integrate
any business which it might acquire, and currency fluctuations. All forward-
looking statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result
of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
- ----------------------------
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", included in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2008.
9
Results of Operations
- ---------------------
Overview of Current Operations
- ------------------------------
Hydrogen Hybrid Technologies, Inc. ("HYHY" or "the Company") was incorporated
under the laws of the State of Nevada on February 2, 2002, under the name
Eaton Laboratories, Inc.
Our Business
- ------------
Hydrogen Hybrid Technologies is engaged in the business of selling and
distributing of on-board hydrogen generating and injections systems for the
Original Equipment Manufacturer ("OEM"), car and light truck markets
globally. HYHY has acquired the exclusive rights to market a proprietary
patented technology from a related company. In addition it holds non-
exclusive rights to distribute the product to other markets including the
heavy goods vehicle market (Commercial Transport Fleets).
The on-board hydrogen generating system strives to improve fuel consumption
and reduce pollution through the enhancement of the internal combustion
process. The technology consists of an on-board system which generates
hydrogen and oxygen by splitting distilled water. Once these gases are
available they are not stored but directly injected through the air intake of
an internal combustion engine. The result of the Hydrogen Fuel Injection
system ("HFI") is a reduction in pollution causing emission and an increase
in fuel efficiency and overall engine performance.
Hydrogen Fuel Injection ("HFI") system
- --------------------------------------
The science behind HFI is well documented. It has been known for some time
(since a 1974 paper by the Jet Propulsion Lab of the California Institute of
Technology) that the addition of hydrogen to fossil fuels, burned in internal
combustion engines, will increase the efficiency of that engine. This premise
has been validated by a number of papers published by the Society of
Automotive Engineers (SAE). The concept is valid with any fossil fuel
(diesel, gasoline, propane, natural gas) or bio-fuel (biodiesel, ethanol)
though it is most effective in diesel engines. Among other, more subtle
effects, the faster flame speed of hydrogen allows for a more complete burn
of the fuel earlier in the power cycle. Of course, electrolysis itself is
well understood.
10
The HYHY technology differs from its competitors in that it focuses on
delivering an engineering solution using these scientific principles that is
reliable, efficient, and cost-effective. As an integral part of the research
and development cycle, HYHY delivers an HFI solution geared toward a specific
vertical market that has gone through an extensive field trial and testing
verification stage.
Product Highlights
- ------------------
A number of the product highlights offered by HYHY's on-board hydrogen
generating and injections systems include:
o Reduce fuel consumption 5% to 30% depending on operating environment
o Reduce emissions from 30% to 80% (meets most 2010 emission
requirements)
o Functional with any internal combustion engine and any fossil fuel
o Configurations are available for both 12 & 24 volt, plus 120 amp
services
o Does not require additional power capabilities within current OEM
vehicles
o Simple installation (many trained installers across N.A. - 4 hrs
required)
o Leasing provides immediate positive cash flow for Heavy Vehicle
Operators
o Product that reduces emissions while increasing cash flow
Business Strategy
- -----------------
While the HFI technology is initially an after-market device, HYHY is
actively seeking Original Equipment Manufacturers (OEM) during the
development and testing phase to license the technology and incorporate it
directly into their engineering cycle. Eventually, with exhaust water re-
capture technology, the HFI system can be built seamlessly into internal
combustion engines.
11
As HFI technology achieves greater acceptance and penetration in various
markets, HYHY will continue to develop hydrogen solutions that meet ongoing
public requirements of emission reductions and energy economies. The HFI
system is positioned as a bridge technology to handle the transition to
products that would, ultimately, allow our society to cease using hydrocarbon
fuels. It is management's belief that the term "hybrid" could soon come to
mean "hydrogen-hydrocarbon" technologies.
HYHY markets on-demand hydrogen-generating technology designed to increase
the efficiency of virtually any combustion process. The technology is based
on a patented Hydrogen Fuel Injection ("HFI") system, in which hydrogen and
oxygen are generated on demand via electrolysis and then introduced into the
combustion process. The HFI system draws power, 12V to 20V, and splits
distilled water to produce hydrogen and oxygen; then both gases are injected
directly into the air intake of the engine. In the engine, the hydrogen acts
as an initiator to promote more complete combustion. By converting more
chemical energy into mechanical energy, the engine operator is able to reduce
fuel consumption, plus the more complete combustion dramatically lowers
exhaust emissions (CO, PM, HC, NOx).
Marketing Strategies
- --------------------
Management plans to market their technology initially towards the Heavy Goods
Vehicle (HGV) market. HGVs are Class 7 and Class 8 heavy duty, long-haul
trucks (7.3 to 16 liters) that typically run on diesel. The HFI unit uses
distilled water, runs for 65 hours between fills, and incorporates a number
of safety features the most salient of which is the fact that no hydrogen is
stored on-board since it is generated only on-demand.
An on-board digital controller monitors the device and also allows for two-
way wireless connection, via satellite, along with full GPS capability.
Software updates and monitoring can be performed remotely. Additional
revenue streams might be possible by leveraging this communications ability
as a complementary business, both as a fleet management service and as a
personal communications service.
Competition
- -----------
With the primary focus at HYHY being on the Heavy Goods Vehicle and light
truck markets, the principle competition comes from manufacturers of
"passive" emissions control technologies. There are a variety of advanced
exhaust treatment products, including diesel particulate filters and diesel
oxidation catalysts but, while they offer comparable emissions reductions to
HFI, in every case they increase fuel consumption (by increasing back
pressure on the engine) by an average of 3.5%-as contrast to the 10% fuel
savings achieved by HFI. The existing market for these devices is literally
billions of dollars, with companies such as Arvin Meritor, Johnson Matthey,
and Delphi.
12
The credible competitor for HYHY is Hy-Drive. They market a product that is
based on similar technology, but which is less sophisticated than HYHY HFI
models and has only limited application on certain heavy-duty diesel engines.
Their primary market is North America for long-haul trucking and above-ground
mining equipment, they claim to have secured sales agents in the UK and
Australia as well.
There is an extensive list of private companies attempting to develop
technologies involving the addition of fractional amounts of hydrogen to
fossil fuel engines. To date, none has reached the point of having any real
presence in the marketplace.
Hythane Ltd. produces a gas that mixes hydrogen and natural gas before it is
pumped into a vehicle gas tank; in other words, doing off-board what HYHY
does on-board. With their system, there are the obvious issues related to
the storage of large volumes of compressed gas, as well as the sourcing of
large volumes of pure hydrogen.
Finally, there are manufacturers of very large electrolysers, used primarily
to supply hydrogen for cooling turbines in electrical power generating
stations. The two largest North American manufacturers are GE and
Hydrogenics, and it is conceivable that after HYHY demonstrates the potential
for smaller electrolysers, particularly in applications that have never
utilized electrolysis previously, these companies might expand their product
lines to include competition for the various HFI models.
Indirect Competition
- --------------------
Indirect competition would include technologies such as fuel cells, battery-
powered vehicles, hybrid vehicles, alternative fuels, and other emission
reduction alternatives, such as diesel oxidation catalysts and diesel
particulate filters. Of these, the only truly price-competitive products are
the diesel particulate filters, but their use on HGVs while accomplishing the
goal of reducing PM comes with the financial penalty of reducing fuel
efficiency by 3.5 - 4% and does nothing to reduce CO2. Diesel oxidation
catalysts, similarly, reduce engine efficiency, and the emissions benefits
come with equipment costs on par with an HFI HT.
Hybrid vehicles are gaining customer acceptance, but are not, in fact, a
competitor to the HFI system since the HFI system can be regarded as a
complementary technology. "Hybrid" may soon refer to the hybrid of hydrogen-
hydrocarbon, not gasoline-electric. Alternative fuels, such as ethanol,
again can be seen as complementary technologies since the HFI device can be
used in conjunction with them. As part of its long-term vision, HYHY plans
to develop partnerships with companies in the bio-fuel industry to develop
hydrogen blends that will make those fuels even cleaner and less expensive.
Battery-powered vehicles-which do not eliminate emissions, but merely
displace them-are not a likely viable alternative, and all but a handful of
niche manufacturers have ceased any development work in this field.
13
Results of Operations for the quarter ended December 31, 2008
- -------------------------------------------------------------
For its first quarter ending December 31, 2008, the Company generated $133,625
in revenues as compared to $68,980 for the same period last year. During
quarter ending December 31, 2008, the Company generated net income from
operations of $38,766 as compared to a net loss of $(19,305) for the same
period last year. The net income for the quarter ending December 31, 2008 is
offset by a loss in foreign currency translation of $126,518. This resulted in
a net comprehensive loss of $(87,752) for the quarter ending December 31, 2008
as compared to a net comprehensive loss of $(52,558) for the same period last
year. The company's operating expenses for the quarter ending December 31,
2008 was $72,631 as compared to $41,437 for the same period last year. Since
inception, the Company has experienced a net loss of $(4,440,814).
In our September 30, 2008 year-end financials, and our December 31, 2008
quarter-end financials our auditor issued an opinion that our financial
condition raises substantial doubt about the Company's ability to continue
as a going concern.
Revenues
- --------
For the first quarter year ending December 31, 2008, the Company generated
$133,625 in revenues as compared to $68,980 for the same period last year.
Gross profit for the quarter year ending December 31, 2008 was $133,625 as
compared to $22,132 for the same period last year.
Going Concern
- -------------
The financial conditions evidenced by the accompanying financial statements
raise substantial doubt as to our ability to continue as a going concern. Our
plans include obtaining additional capital through debt or equity financing.
The financial statements do not include any adjustments that might be necessary
if we are unable to continue as a going concern.
14
Summary of any product research and development that we will perform for the
term of our plan of operation.
- -----------------------------------------------------------------------------
The Company designs and produces on-board hydrogen generating and injections
systems for the Original Equipment Manufacturer, car and light truck markets
globally. For the fiscal year ending September 30, 2008, the company spent
$983 in product development as compared to $182,131 for the same period last
year. The Company did not spend any monies on product development for the
quarter December 31, 2008. Management believes that they have developed their
fuel injection systems. Management does not anticipate expending additional
funds on product research and development at this time.
Expected purchase or sale of plant and significant equipment.
- -------------------------------------------------------------
We do not anticipate the purchase or sale of any plant or significant
equipment; as such items are not required by us at this time.
Significant changes in the number of employees.
- -----------------------------------------------
As of December 31, 2008, we did not have any employees. We are dependent upon
our sole officer and major shareholders for our future business development,
and we rely on outside consultants as required. As our operations expand we
anticipate the need to hire additional employees, consultants and
professionals; however, the exact number is not quantifiable at this time.
Liquidity and Capital Resources
- -------------------------------
Our balance sheet as of December 31, 2008 reflects current assets of $15,827
and $1,140,952 in current liabilities. This compares to current assets of
$25,380 and $1,397,651 in current liabilities for the year ending
September 30, 2008.
Cash and cash equivalents from inception to date have been sufficient to
provide the operating capital necessary to operate to date. Notwithstanding,
we anticipate generating losses and therefore we may be unable to continue
operations in the future. We anticipate we will require additional capital
and we would have to issue debt or equity or enter into a strategic
arrangement with a third party. We intend to try and raise capital through
a private offering. There can be no assurance that additional capital will
be available to us and there can be no assurance that our shares will be
quoted on the Over the Counter Bulletin Board. We currently have no
agreements, arrangements or understandings with any person to obtain funds
through bank loans, lines of credit or any other sources.
15
Future Financings
- -----------------
Hydrogen Hybrid Technology has made an initial estimate of its capital needs
for its market entry stage and believes it will need between $15-$45 million
in additional capital. Furthermore, if Hydrogen Hybrid Technology decides to
expand the business beyond what is currently planned; additional capital
beyond what is anticipated in our current business plan will be required.
We anticipate the sale of our common shares in order to continue to fund
our business operations. Issuances of additional shares will result in
dilution to our existing shareholders. There is no assurance that we will
achieve any of additional sales of our equity securities or arrange for
debt or other financing to fund our exploration and development activities.
Off-Balance Sheet Arrangements
- ------------------------------
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results or operations,
liquidity, capital expenditures or capital resources that is material
to investors.
Critical Accounting Policies and Estimates
- ------------------------------------------
Revenue Recognition: We recognize revenue from product sales once all of the
following criteria for revenue recognition have been met: pervasive evidence
that an agreement exists; the services have been rendered; the fee is fixed
and determinable and not subject to refund or adjustment; and collection of
the amount due is reasonable assured.
New Accounting Standards
- ------------------------
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements". This statement amends ARB 51 to establish
accounting and reporting standards for the non-controlling (minority) interest
in a subsidiary and for the de-consolidation of a subsidiary. It clarifies
that a non-controlling interest in a subsidiary is equity in the consolidated
financial statements. SFAS No. 160 is effective for fiscal years and interim
periods beginning after December 15, 2008. The adoption of SFAS 160 is not
expected to have a material impact on the Company's financial position,
results of operation or cash flows.
16
As of January 1, 2008 we adopted SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
allows the company to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings. The adoption
of SFAS 159 has not had a material impact on our financial position, results
of operation or cash flows.
As of January 1, 2008 we adopted SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value and provides guidance for
measuring and disclosing fair value. The adoption of SFAS 157 has not had a
material impact on our financial position, results of operation or cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4T. Controls and Procedures
Evaluation of disclosure controls and procedures
- ------------------------------------------------
Management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness
of those internal controls. As defined by the SEC, internal control over
financial reporting is a process designed by our principal executive
officer/principal financial officer, who is also the sole member of our Board
of Directors, to provide reasonable assurance regarding the reliability of
financial reporting and the reparation of the financial statements in
accordance with U. S. generally accepted accounting principles.
As of the end of the period covered by this report, we initially carried out
an evaluation, under the supervision and with the participation of our
President (who is also our principal financial and accounting officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our President and chief financial
officer initially concluded that our disclosure controls and procedures were
not effective.
17
Management's Report On Internal Control Over Financial Reporting
- ----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers and effected by the company's board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that:
- - Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
company;
- - Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
- - Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. All internal
control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Because of the inherent limitations of internal control, there
is a risk that material misstatements may not be prevented or detected on a
timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process.
Therefore, it is possible to design into the process safeguards to reduce,
though not eliminate, this risk.
18
As of December 31, 2008 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this
report, such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below.
This was due to deficiencies that existed in the design or operation of our
internal controls over financial reporting that adversely affected our
internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective
oversight in the establishment and monitoring of required internal controls
and procedures; (2) inadequate segregation of duties consistent with control
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were
identified by our President in connection with the review of our financial
statements as of December 31, 2008.
Management believes that the material weaknesses set forth in items (2) and
(3) above did not have an effect on our financial results. However,
management believes that the lack of a functioning audit committee and the
lack of a majority of outside directors on our board of directors results in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures, which could result in a material misstatement in our
financial statements in future periods.
This annual report does not include an attestation report of the Corporation's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Corporation's registered public accounting firm pursuant to temporary rules of
the SEC that permit the Corporation to provide only the management's report in
this annual report.
Management's Remediation Initiatives
- ------------------------------------
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
19
We will create a position to segregate duties consistent with control
objectives and will increase our personnel resources and technical accounting
expertise within the accounting function when funds are available to us. And,
we plan to appoint one or more outside directors to our board of directors who
shall be appointed to an audit committee resulting in a fully functioning audit
committee who will undertake the oversight in the establishment and monitoring
of required internal controls and procedures such as reviewing and approving
estimates and assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the
lack of a functioning audit committee and a lack of a majority of outside
directors on our Board.
We anticipate that these initiatives will be at least partially, if not
fully, implemented by September 30, 2009. Additionally, we plan to test our
updated controls and remediate our deficiencies by September 30, 2009.
Changes in internal controls over financial reporting
- -----------------------------------------------------
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
20
PART II. OTHER INFORMATION
Item 1 -- 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.
A shareholder complaint has been filed in Ontario, Canada concerning a dispute
over Company shares owned by a shareholder. Management intends to contest the
case vigorously. Although it is difficult to predict the outcome of such
disputes, management is hopeful for a favorable outcome.
Item 1A - Risk Factors
See Risk Factors set forth in Part I, Item 1A of the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2008 and the
discussion in Item 1, above, under "Financial Condition - Liquidity and Capital
resources.
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds
We did not issue any equity securities during the quarter ending December 31,
2008.
We did not repurchase any of our equity securities during the quarter ended
December 31, 2008.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of our security holders during the
first quarter ending December 31, 2008.
Item 5 -- Other Information
None.
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Item 6 -- Exhibits
Incorporated by reference
-------------------------
Filed Period Filing
Exhibit Exhibit Description herewith Form ending Exhibit date
- ------------------------------------------------------------------------------
3.1 Articles 10-K 3.1 1/13/09
of Incorporation in effect
- ------------------------------------------------------------------------------
3.2 Bylaws as currently 10-K 3.2 1/13/09
in effect
- ------------------------------------------------------------------------------
3.3 Articles of Merger 8-K 3.3 4/20/06
- ------------------------------------------------------------------------------
3.4 Amended Articles of 8-K 3.4 6/28/07
incorporation in effect
- ------------------------------------------------------------------------------
2.1 Acquisition and Plan of Merger 8-K/A 2.1 4/18/06
dated April 14, 2006
- ------------------------------------------------------------------------------
2.2 Acquisition and Plan of Merger 8-K 2.2 4/04/07
dated March 30, 2007
- ------------------------------------------------------------------------------
10.1 Employee Stock Option Plan S-8 10.1 10/17/08
dated February 1, 2005
- ------------------------------------------------------------------------------
31.1 Certification of President X
and Principal Financial
Officer, pursuant to Section
302 of the Sarbanes-Oxley
Act
- ------------------------------------------------------------------------------
31.2 Certification of President X
and Principal Financial
Officer, pursuant to Section
906 of the Sarbanes-Oxley
Act
- ------------------------------------------------------------------------------
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hydrogen Hybrid Technologies, Inc.
----------------------------------
Registrant
Date: February 13, 2009 By: /s/ Ira Lyons
----------------- -------------------------
Ira Lyons
President and
Director
23