As
filed with the Securities and Exchange Commission on August
29,
2008
Registration
No. 333-150556
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 2 TO FORM S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
POWER
EFFICIENCY CORPORATION
(Exact
name of Company as specified in its charter)
DELAWARE
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22-3337365
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(State
or other jurisdiction of incorporation of organization)
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|
(I.R.S.
Employer Identification Number)
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|
3960
HOWARD HUGHES PARKWAY
SUITE
460
LAS
VEGAS, NV 89169
(702)
697-0377
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(Address,
including zip code, and telephone number,
including
area code, of Company's principal executive
offices)
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STEVEN
Z. STRASSER
CHAIRMAN
AND CHIEF EXECUTIVE OFFICER
POWER
EFFICIENCY CORPORATION
3960
HOWARD HUGHES PARKWAY
SUITE
460
LAS
VEGAS, NV 89169
TEL:
(702) 697-0377
FAX:
(702) 697-0379
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(Name,
address, including zip code, and telephone number,
including
area code, of agent for service of
process)
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Copy
to:
BARRY
GROSSMAN, ESQ.
ADAM
S. MIMELES, ESQ.
ELLENOFF
GROSSMAN & SCHOLE LLP
150
EAST 42ND
STREET,
11TH
FLOOR
NEW
YORK, NEW YORK 10017
TEL:
(212) 370-1300
FAX:
(212) 370-7889
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Approximate
date of commencement of proposed sale to the public: From time to time after
the
effective date of this Registration Statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
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|
Amount
to be
Registered(1)
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|
Proposed
Maximum
Offering
Price Per
Share
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Proposed
Maximum Aggregate Offering Price(2)
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Amount
of Registration Fee
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|
|
|
|
|
|
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Common
Stock, par value $.001 per share
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8,140,000
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$
0.325 (2)
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$
2,645,500
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$
156.34
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Common
Stock, par value $.001 per share (3)
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6,120,000
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$
0.60 (4)
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$
3,672,000
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$
144.31
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Total
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14,260,000
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|
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$
6,317,500
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$
300.65
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(1) Pursuant
to Rule 416, there are also being registered such indeterminable additional
securities as may be issued to prevent dilution as a result of stock splits,
stock dividends or similar transactions.
(2) Estimated
solely for the purpose of computing the registration fee pursuant to
Rule 457(c) under the Securities Act.
(3) Represents
shares issuable upon conversion of obligations underlying a common stock
purchase warrant issued to the selling stockholders.
(4) Represents
the higher of: (i) the exercise or conversion price of the convertible security
and (ii) the offering price of securities of the same class as the common stock
underlying the convertible security calculated in accordance with Rule 457(c)
under the Securities Act, for the purpose of calculating the registration fee
pursuant to 457(g) under the Securities Act.
Pursuant
to Rule 429 under the Securities Act of 1933, as amended, the prospectus filed
as part of this registration statement also constitutes a prospectus for
registration statement Nos. 333-142366 and 333-129233; the 45,794,423
shares of common stock that remain unsold under such registration statements
are
being combined with the shares of common stock to be registered pursuant to
this
registration statement to enable the Selling Stockholders listed in the combined
prospectus included herein to offer an aggregate of 59,687,619 shares of common
stock pursuant to the combined prospectus.
THE
COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. Neither
we
nor the selling stockholders may sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and neither we nor the
selling stockholders are soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
This
Registration Statement on Form S-1 amends the Registration Statements on Form
SB-2, as amended, File Nos. 333-142366 and 333-129233, that were filed by the
Registrant. The prospectus contained in this Registration Statement will, upon
effectiveness, supersede the prospectuses dated May 18, 2007 and filed pursuant
to Rule 424(b). All filing fees payable in connection with the registration
of
the securities covered hereby were previously paid in connection with the filing
of the original registration statements.
SUBJECT
TO COMPLETION, DATED AUGUST 29, 2008
PROSPECTUS
POWER
EFFICIENCY CORPORATION
59,687,619
SHARES OF COMMON STOCK
This
prospectus relates to 59,687,619 shares of our common stock that may be sold
from time to time by the Selling Stockholders listed under the caption "Selling
Stockholders". We will not receive any of the proceeds from the sale of the
common stock sold. The Selling Stockholders may sell those shares from time
to
time in the public securities market. The Selling Stockholders may determine
the
prices at which they will sell the common stock, which prices may be at market
prices prevailing at the time of such sale or some other price. See "Plan of
Distribution".
Our
Common Stock is traded on the National Association of Securities Dealers
Over
The Counter Bulletin Board (the "OTC Bulletin Board") under the symbol "PEFF."
On August 27, 2008, the closing bid price of our Common Stock as reported
on the
OTC Bulletin Board was $0.24.
THE
SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IT IS
LIKELY THAT THE COMMON STOCK WILL BE SUBJECT TO "PENNY STOCK" RULES, WHICH
GENERALLY REQUIRE THAT A BROKER OR DEALER APPROVE A PERSON'S ACCOUNT FOR
TRANSACTIONS IN PENNY STOCK AND THE BROKER OR DEALER RECEIVE FROM THE INVESTOR
A
WRITTEN AGREEMENT TO THE TRANSACTIONS SETTING FORTH THE IDENTITY AND QUANTITY
OF
THE PENNY STOCKS TO BE PURCHASED BEFORE A TRADE INVOLVING A PENNY STOCK IS
EXECUTED. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date
of this Prospectus is August 29,
2008
TABLE
OF
CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
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1
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PROSPECTUS
SUMMARY
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1
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THE
OFFERINGS
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1
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THE
COMPANY
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2
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RISK
FACTORS
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4
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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11
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USE
OF PROCEEDS
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12
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PRICE
RANGE OF COMMON STOCK
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12
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DIVIDEND
POLICY
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12
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BUSINESS
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17
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MANAGEMENT
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24
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. |
33 |
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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34
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SELLING
STOCKHOLDERS
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35
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DESCRIPTION
OF SECURITIES
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47
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PLAN
OF DISTRIBUTION
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51
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LEGAL
MATTERS
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53
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EXPERTS
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53
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WHERE
YOU CAN FIND MORE INFORMATION
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54
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FINANCIAL
STATEMENTS
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F-i
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ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement we have filed with the SEC which
registers 59,687,619 shares of common stock owned or issuable to certain selling
stockholders and amends the registration statements on Form SB-2, as amended,
File Nos. 333-142366 and 333-129233. Under this registration statement, the
selling stockholders referred to in this prospectus may offer and sell from
time
to time up to 24,450,016 currently outstanding shares of our common stock,
8,140,000 shares of our common stock issuable upon the conversion of the
Company’s Series B Preferred Stock, 17,928,347 shares of our common stock
issuable upon the exercise of warrants outstanding at an weighted average
exercise price of $0.47 per share and held by the selling stockholders as of
the
date of this prospectus and 9,169,256 shares of our common stock issuable upon
the exercise of options and warrants issued to employees, consultants, vendors
and noteholders.
This
prospectus does not cover the issuance of any shares of common stock by us,
and
we will not receive any of the proceeds from any sale of shares by the selling
stockholders. We have agreed to pay all expenses incurred in connection with
the
registration of the shares of common stock covered by this registration
statement.
Information
about the selling stockholders may change over time. Any changed information
given to us by the selling stockholders will be set forth in a prospectus
supplement if and when necessary. Further, in some cases, the selling
stockholders will also be required to provide a prospectus supplement containing
specific information about the terms on which they are offering and selling
our
common stock. If a prospectus supplement is provided and the description of
the
offering in the prospectus supplement varies from the information in this
prospectus, you should rely on the information in the prospectus
supplement.
PROSPECTUS
SUMMARY
This
section highlights selected information only and may not contain all of the
information that may be important to you. Please read this entire prospectus
before making your investment decision. This summary, including the summary
financial information, is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus. Throughout this prospectus,
when we refer to “Power Efficiency” or the “Company” or when we speak of
ourselves generally, we are referring to Power Efficiency Corporation unless
the
context indicates otherwise or as otherwise noted.
THE
OFFERINGS
On
January 21, 2008, Power Efficiency Corporation issued an aggregate of 140,000
units, each unit consisting of one share of the Company’s Series B Preferred
Stock, par value $.001 per share, and a warrant to purchase 50 shares of the
Company’s common stock, receiving aggregate consideration of $7,000,000, which
included $5,150,000 of cash and the cancellation of $1,850,000 of debt. The
Series B Preferred Stock and warrants issued in the offering are convertible
or
exercisable, as applicable, into an aggregate of up to 18,360,000 shares of
the
Company’s common stock.
Each
share of Series B Preferred Stock is initially convertible into 100 shares
of
the Company’s common stock, subject to adjustment under certain circumstances.
The Series B Preferred Stock is convertible at the option of the holder at
any
time. The Series B Preferred Stock is also subject to mandatory conversion
in
the event the average closing price of the Company’s common stock for any ten
day period equals or exceeds $1.00 per share, such conversion to be effective
on
the trading day immediately following such ten day period. The Series B
Preferred Stock has an 8% dividend, payable annually in cash or stock, at the
discretion of the Company’s Board of Directors. Each warrant is exercisable for
up to 50 shares of common stock at an exercise price of $0.60 per share and
expires five years from the date of issuance.
On
November 30, 2006, January 19, 2007, March 2, 2007, March 7,
2007, March 30, 2007 and March 31, 2007, the Company issued and sold
an aggregate of 12,950,016 shares of its common stock and 8,287,508 common
stock
purchase warrants in a private offering for an aggregate of $4,235,000 in cash,
cancellation of indebtedness and in lieu of compensation owed to certain
employees, officers and directors of the Company. The per share purchase price
of the common stock was $0.30. The warrants have a per share exercise price
of
$0.40, are exercisable immediately and expire five years from the date of
issuance. The $4,235,000 investment consisted of $400,000 from the cancellation
of indebtedness, approximately $50,000 in lieu of compensation owed to certain
employees, officers and directors of the Company, and approximately $3,785,000
in new cash.
In
June,
July and August of 2005, we conducted a private offering of our common stock
and
warrants. We offered up to 50 units, at $50,000 each, to individuals or entities
who qualified as "accredited investors" as defined in Rule 501 of Regulation
D
promulgated under the Securities Act. Each such unit consisted of (a) 250,000
shares of common stock and
(b) a
warrant to purchase prior to the fifth (5th) anniversary following the closing
125,000 shares of common stock, at an exercise price of $0.40. The placement
closed on August 31, 2005 and resulted in gross proceeds of $2,900,000.
THE
COMPANY
Our
Business
Power
Efficiency produces products that reduce energy costs in specific commercial
applications, utilizing patented improvements upon motor controller technologies
developed by National Aeronautics Space Administration (“NASA”), as well as
technologies based solely on the Company’s inventions. The Company has branded
these collective patented and patent pending technologies as E-SAVE
Technology(TM)
and
has filed for a trademark on this name. Our products are solid-state motor
controllers which reduce the amount of power consumed by alternating current
(AC) induction motors operating at constant speeds and under variable loads.
Our
products were previously marketed as the Performance Controller and the Power
Genius, but have recently been re-branded as Motor Efficiency Controllers
(“MEC”). The MEC reduces energy consumption on electrical equipment by
electronically sensing and controlling the amount of energy the motor consumes
on certain applications. The energy savings can range up to 35%, while the
life
of the motor is extended because of both the reduced motor operating
temperatures and the reduced mechanical stress provided by its “soft start”
technology. The efficiency of the MEC has been tested by Excel Energy, Nevada
Power Company, and the Los Angeles Department of Water and Power, independent
third parties, with positive results.
We
market
our products directly under the brand name MEC, and through other companies
under names such as Power Commander(R) and EcoStart(TM). Customers include
large
elevator and escalator manufacturers such as Otis Elevator Co. (a subsidiary
of
United Technologies, Inc.) and KONE Inc.
There
are
over one billion AC motors in operation in the U.S. alone. Alternating current
induction motors are commonly found in industrial and commercial facilities
throughout the world. Customers for the MEC are typically in a high electricity
cost environment, may have local utility or governmental incentives to save
energy, has energy usage as a significant operating cost, uses constant speed
induction motors that are lightly or cyclically loaded, and has motors that
run
continuously or have frequent on/off cycles. This customer base represents
a
market which includes target sectors such as elevators, escalators, granulators,
oil pump jacks, conveyors and other industrial applications.
We
are
focused on creating distribution channels to take advantage of opportunities
given the current conditions in the energy market and how our product meets
these needs. Management believes this multi-channel distribution strategy,
if
successful, will allow Power Efficiency to achieve sustainable revenue
growth.
Highlights
Demonstrated
Energy Savings
- Over
1,000 units have been installed at facilities throughout the U.S. The products
have demonstrated the ability to reduce the energy consumption of AC induction
motors, by up to 35% in appropriate applications.
Patented
Technology
- Our
products incorporate technology developed and patented by NASA. Our own patent
encompasses a number of improvements on the NASA technology made by our
engineers. We recently filed five provisional patents and two utility patents
on
additional technological advancements.
Extensive
Engineering
- Our
products incorporate trade secret and engineering know-how, which we believe
enables them to operate effectively over a broad range of
conditions.
Large
Potential Market
- The
United States consumes over $200 billion of electricity annually. A study for
the United States Department of Energy estimates that motor driven systems
consume 23% of all electricity in the U.S. and 64% of all the electricity used
in the manufacturing sector. Based on our own in-house testing, our product
can
save up to 35% of the energy consumed by electric AC induction motors in
appropriate applications. These applications include most motors that work
at
constant speed but are variably loaded, such as the AC motors found on many
elevators, escalators, granulators, saw mills, stamping presses and other
manufacturing equipment.
New
Products
- We
have developed and received certifications for digital versions of our 30 and
80
amp products. We are currently in the process of developing and seeking
certification for larger amp units. We have also developed a prototype unit
for
small motors such as those found in residential and light commercial equipment
and appliances.
Limited
Competition
- We are
not aware of any products on the market today that have been certified by CE
(Conformity European) CSA (Canadian Standards Association), and UL (Underwriters
Laboratories, Inc.), and offer the same energy-saving and soft start
characteristics as our products.
International
Distribution
-
International markets, such as those in Europe and Asia, often have higher
prices for electricity than in the U.S. Therefore, we believe international
markets provide a significant opportunity in the future.
A
detailed description of our business strategy is provided under the heading
“Business” below.
Our
headquarters is located at 3960 Howard Hughes Parkway, Suite 460, Las Vegas,
NV
89169, and our telephone number is 702-697-0377.
Selling
Stockholders
The
shares of common stock covered by this prospectus that are being offered by
the
selling stockholders consist of up to 59,687,619 shares issued or to be issued
(the "Securities") to the selling stockholders within 60 days of the date
hereof. The full name, address and control persons of the selling stockholders
are set forth beginning on page 33 of this prospectus.
RISK
FACTORS
An
investment in the Company’s common stock involves a high degree of risk. You
should carefully consider the risks below, together with the other information
contained in this prospectus, before you decide to purchase the shares offered
hereby. If any of the following risks occur, our business, results of operations
and financial condition could be harmed, the trading price of our common stock
could decline, and you could lose all or part of your investment. The risks
and
uncertainties described below are intended to be the material risks that are
specific to us and to our industry. New risk factors emerge from time to time
and it is not possible for us to predict all such risk factors, nor can we
assess the impact of all such risk factors on our business or the extent to
which any factor, or combination of factors, may cause future actual results
to
differ materially from those contained in any historical or forward-looking
statements.
RISKS
RELATED TO OUR BUSINESS
Unless
The Company Achieves Profitability and Related Positive Cash Flow, It May Not
Be
Able To Continue Operations, And Its Auditors Have Questioned Its Ability To
Continue As A "Going Concern".
The
Company has suffered recurring losses from operations, and experienced
approximately a $2,851,000 deficiency of cash from operations for the year
ended
December 31, 2007. For the years ended December 31, 2007 and December 31,
2006, we had net losses of $3,891,795 and $5,020,775, respectively. In our
Auditor’s Report dated March 25, 2008 on our December 31, 2007 financial
statements included in this report, our auditors have stated that these factors
raise substantial doubt about our ability to continue as a “going concern”. Our
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount of
liabilities that might be necessary should we be unable to continue in
existence.
The
Company’s continuation as a “going concern” is dependent upon achieving
profitable operations and related positive cash flow and satisfying our
immediate cash needs by external financing until we are profitable. Our plans
to
achieve profitability include developing new products, obtaining new customers
and increasing sales to existing customers.
The
Company Has A Limited Operating History, Has Experienced Recurring Losses And
Has Limited Revenue.
To
date,
and due principally to a lack of working capital, our operations have been
limited in scale. Although we have an arrangement with an outsourced production
facility to manufacture our products, have established relationships with
suppliers, and have received contracts for our products, we may experience
difficulties in production scale-up, product distribution, and obtaining and
maintaining working capital until such time as our operations have been
scaled-up to normal commercial levels. We have not had a profitable quarter
in
the past three years and we cannot guarantee we will ever operate profitably.
In
addition, we have limited revenue. For the year ended December 31, 2007, our
total revenues were $490,510, and for the year ended December 31, 2006, our
total revenues were $188,811.
The
Company Does Not Have A Bank Line Of Credit.
At
the
present time, the Company does not have a bank line of credit, which further
restricts its financial flexibility.
The
Company Will Require Additional Funds To Meet Its Cash Operating Expenses And
Achieve Its Current Business Strategy.
The
Company continues to have limited working capital and will be dependent upon
additional financing to meet capital needs and repay outstanding debt. We cannot
guarantee additional financing will be available on acceptable terms, if at
all.
We also need additional financing to raise the capital required to fully
implement our business plan. Our current fixed operating expense level is
approximately $250,000 to $300,000 per month. Although we currently have over
12
months of working capital, we may nevertheless need to issue additional debt
or
equity securities to raise required funds, and as a result existing equity
owners would be diluted.
When
our
operations require additional financing, if we are unable to obtain it on
reasonable terms, we would be forced to restructure, file for bankruptcy or
cease operations, any of which could cause you to lose all or part of your
investment in us.
The
Company’s Management Group Owns Or Controls A Significant Number Of The
Outstanding Shares Of Our Common Stock And Will Continue To Have Significant
Ownership Of Our Voting Securities For The Foreseeable
Future.
As
of the
date of this report, management controls approximately twenty one percent (21%)
of our issued and outstanding common stock and voting equivalents. As a result,
these persons will have the ability, acting as a group, to effectively control
our affairs and business, including the election of directors and, subject
to
certain limitations, approval or preclusion of fundamental corporate
transactions. This concentration of ownership of our common stock
may:
|
·
|
delay
or prevent a change in the control;
|
|
·
|
impede
a merger, consolidation, takeover or other transaction involving
the
Company; or
|
|
·
|
discourage
a potential acquirer from making a tender offer or otherwise attempting
to
obtain control of the Company.
|
Additionally, Summit
Energy Ventures, LLC (“Summit”) owns seventeen percent (17%) of our common
stock and voting equivalents, which is included in the above number. Summit
is
controlled by Steven Strasser, our Chairman and CEO, and he has the right to
vote all shares owned by Summit. The remaining equity in Summit is owned by
BJ
Lackland, our CFO. These relationships are discussed in more detail under
“Certain Relationships And Related Party Transactions” herein.
The
Company’s Business Depends Upon The Maintenance Of Its Proprietary Technology,
Which Relies, In Part, On Contractual Provisions To Protect Its Trade Secrets
And Proprietary Knowledge.
The
Company depends upon its proprietary technology, relying principally upon trade
secret and patent law to protect this technology. The Company also regularly
enters into confidentiality agreements with key employees, customers, potential
customers, and vendors and limits access to and distribution of trade secrets
and other proprietary information. However, these measures may not be adequate
to prevent misappropriation of its technology. Additionally, its competitors
may
independently develop technologies substantially equivalent or superior to
its
technology. In addition, the laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United States. The
Company is subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights of others.
Confidentiality
agreements to which we are party may be breached, and we may not have adequate
remedies for any breach. Our trade secrets may also be known without breach
of
such agreements or may be independently developed by competitors. Our inability
to maintain the proprietary nature of our technology and processes could allow
our competitors to limit or eliminate any competitive advantages we may
have.
We
Are Dependent On Third-Party Suppliers.
Although
we believe most of the key components required for the production of our
products are currently available in sufficient production quantities from
multiple sources, they may not remain so readily available. It is possible
that
other components required in the future may necessitate custom fabrication
in
accordance with specifications developed or to be developed by us. Also, in
the
event we, or our contract manufacturer, as applicable, are unable to develop
or
acquire components in a timely fashion, our ability to achieve production
yields, revenues and net income can be expected to be adversely affected.
Additionally, we are dependent on Sanmina-Sci to manufacture our higher volume
products. While we believe we would be successful in finding alternative
manufacturers should this manufacturer not be available to manufacture our
product, it could take substantial time and effort to locate such alternatives
and, depending on the timing of the loss of Sanmina-Sci, could result in
disruption in delivery schedules, harm to our clients and our reputation and
future prospects.
We
Are Developing And Commercializing New Energy Saving Technologies And Products
Which Will Involve Uncertainty And Risks Related To Product Development And
Market Acceptance.
Our
success is dependent, to a large degree, upon our ability to fully develop
and
commercialize our technology and gain industry acceptance of our products based
upon our technology and its perceived competitive advantages. Accordingly,
our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in connection with the establishment of a new business
in
a highly competitive industry, characterized by frequent new product
introductions. We anticipate we will incur substantial expense in connection
with the development and testing of our proposed products and expect these
expenses to result in continuing and significant losses until such time, if
ever, that we are able to achieve adequate levels of sales or license
revenues.
We
Have Expanded Our Marketing Strategy.
Our
products have been distributed primarily through OEMs. We are pursuing an
expanded distribution strategy designed to reduce our reliance on OEMs. Pursuant
to this strategy, we are increasing our direct sales efforts into new markets.
Our future growth and profitability will depend upon the successful development
of business relationships with additional OEMs, growth in direct sales, and
sales through select resellers and reps to penetrate the market with our
products.
The
Company Currently Depends On A Small Number Of Customers And Expects To Continue
To Do So.
The
Company currently does business with approximately 20 customers. Of this number,
three customers accounted for approximately 84% of our gross revenues in 2007.
We are, and may continue to be, dependent upon a small number of customers.
Accordingly, the loss of one or more of these customers is likely to have a
material adverse effect on our business, financial condition and future
operating prospects.
Most
Of The Company’s Current And Potential Competitors Have Greater Name
Recognition, Financial, Technical And Marketing Resources, And More Extensive
Customer Bases And Industry Relationships Than We Do, All Of Which Could Be
Leveraged To Gain Market Share To Our Detriment, Particularly In An Environment
Of Rapid Technological Change.
Although
we believe we have limited competition for our specific technology, we compete
against a number of companies for dollars in the electric motor energy savings
market, many of which have longer operating histories, established markets
and
far greater financial, advertising, research and development, manufacturing,
marketing, personnel and other resources than we currently have or may
reasonably expect to have in the foreseeable future. This competition may have
an adverse effect on our ability to expand our operations or operate profitably.
The motor control industry is also highly competitive and characterized by
rapid
technological change. Our future performance will depend in large part upon
our
ability to become and remain competitive and to develop, manufacture and market
acceptable products in these markets. Competitive pressures may necessitate
price reductions, which can adversely affect revenues and profits. If we are
not
competitive in our ongoing research and development efforts, our products may
become obsolete, or be priced above competitive levels. However, management
believes, based upon their performance and price, our products are attractive
to
customers. We cannot guarantee that competitors will not introduce comparable
or
technologically superior products, which are priced more favorably than our
products.
Changes
In Retail Energy Prices Could Affect Our Business.
We
have
found that a customer’s decision to purchase a Motor Efficiency Controller, or
MEC, (or similar product) is primarily driven by the payback on the investment
resulting from the increased energy savings. Although believe that current
retail energy prices support an attractive return on investment for our
products, the future retail price of electrical energy may not remain at such
levels, and price fluctuations reducing energy expense could adversely affect
demand for our products.
Loss
Of Key Personnel Could Have Significant Adverse
Consequences.
We
currently depend on the services of Steve Z. Strasser, and BJ Lackland, our
Chief Executive Officer and Chief Financial Officer, respectively. The loss
of
the services of either of these persons could have an adverse effect on our
business. As discussed under “Management”, we have entered into long-term
employment contracts with Messrs. Strasser and Lackland, but such contracts
do
not guarantee they will remain with us.
The
Company Does Not Have “Key Man” Life Insurance.
The
Company presently does not have any key man life insurance policies. As soon
as
practicable following the commencement of profitable operations (which may
never
occur), we intend to purchase key man life insurance on the life of our
principal executive officer, Steven Strasser. Upon purchase of such insurance,
we intend to pay the premiums and be the sole beneficiary. The lack of such
insurance may have a material adverse effect upon our business and financial
conditions.
Delaware
Law Limits The Liability Of Our Directors.
Pursuant
to our Certificate of Incorporation, the Company’s directors are not liable to
us or our stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of the duty of loyalty, for acts
or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law for dividend payments or stock repurchases illegal
under Delaware law or any transaction in which a director has derived an
improper personal benefit.
Potential
Product Liability Claims May Not Be Fully Covered By
Insurance.
The
Company may be subject to potential product liability claims that could, in
the
absence of sufficient insurance coverage, have a material adverse impact on
us.
Presently, we have general liability coverage that includes product liability
up
to $2,000,000 and umbrella liability up to $4,000,000. Any large product
liability suits occurring early in our growth may significantly and adversely
affect our ability to expand the market for our products.
RISKS
RELATED TO OUR COMMON STOCK AND CAPITAL STRUCTURE
Trading
In Our Common Stock Over The Last 12 Months Has Been Limited, So Investors
May
Not Be Able To Sell As Many Of Their Shares As They Want At Prevailing
Prices.
Shares
of
our common stock are traded on the OTC Bulletin Board. Approximately 94,000
shares were traded on an average daily trading basis for the 12 months ended
December 31, 2007. If limited trading in our common stock continues, it may
be
difficult for stockholders to sell their shares on terms acceptable to them,
if
at all. Also, the sale of a large block of our common stock could depress the
market price to a greater degree than a company that typically has a higher
volume of trading of its securities.
The
Limited Public Trading Market May Cause Volatility In The Company's Stock
Price.
The
Company’s common stock is currently traded on the OTC Bulletin Board under the
symbol “PEFF”. The quotation of our common stock on the OTC Bulletin Board does
not assure that a meaningful, consistent and liquid trading market currently
exists, and in recent years such market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many smaller
companies like us. Our common stock is thus subject to this volatility. Sales
of
substantial amounts of our common stock, or the perception that such sales
might
occur, could adversely affect prevailing market prices of our common
stock.
An
Active And Visible Trading Market For Our Common Stock May Not
Develop.
We
cannot
predict whether an active market for our common stock will develop in the
future. In the absence of an active trading market:
|
·
|
Investors
may have difficulty buying and selling or obtaining market
quotations;
|
|
·
|
Market
visibility for our common stock may be limited;
and
|
|
·
|
Such
a lack of visibility for our common stock may have a depressive effect
on
the market price for our common
stock.
|
The
OTC
Bulletin Board is an inter-dealer, over-the-counter market that provides
significantly less liquidity than NASDAQ, and quotes for stocks included on
the
OTC Bulletin Board are not listed in the financial sections of newspapers,
as
are those for the NASDAQ Stock Market. The trading price of the common stock
is
expected to be subject to significant fluctuations in response to variations
in
quarterly operating results, changes in analysts’ earnings estimates,
announcements of innovations by the Company or its competitors, general
conditions in the industry in which we operate and other factors. These
fluctuations, as well as general economic and market conditions, may have a
material or adverse effect on the market price of our common stock.
Penny
Stock Regulations May Impose Certain Restrictions On Marketability Of The
Company's Securities.
The
SEC
has adopted regulations which generally define a “penny stock” to be any equity
security that has a market
price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
our common stock is subject to rules that impose additional requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with net worth in excess
of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make
a
special suitability determination for the purchase of such securities and have
received the purchaser’s written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document relating to the penny stock market. The broker-dealer must
also disclose the commission payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer’s presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the “penny stock” rules may restrict the ability of broker-dealers
to sell the Company’s securities and may affect the ability of investors to sell
the Company’s securities in the secondary market and the price at which such
purchasers can sell any such securities.
Stockholders
should be aware that, according to the Commission, the market for penny stocks
has suffered in recent years from patterns of fraud and abuse. Such patterns
include:
|
·
|
Control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
|
|
·
|
Manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases;
|
|
·
|
"Boiler
room" practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
|
·
|
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
·
|
The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
inevitable collapse of those prices with consequent investor
losses.
|
The
Company’s management is aware of the abuses that have occurred historically in
the penny stock market.
We
May Never Pay Cash Dividends On Our Common Stock.
We
have
not paid or declared any dividends on our common stock and do not anticipate
paying or declaring any cash dividends on our common stock in the foreseeable
future.
Sales
Of Common Stock Under Rule 144 May Adversely Affect The Market Price Of Our
Common Stock.
Possible
Resales under Rule 144.
Of the
40,486,441 shares of the Company’s common stock outstanding on the date of this
registration statement, 27,676,701 shares are freely trading in the market
place
(the “Free Trading Shares”). The Free Trading Shares are comprised mostly of
shares (1) originally issued in private offerings of common stock from June
through March 2007, that were later registered in the Company’s SB-2
Registration Statements, both declared effective on May 14, 2007 and (2)
shares
originally issued in transactions exempt from registration under the Securities
Act.
The
remaining 12,806,740 shares of our common stock outstanding are restricted
securities as defined in Rule 144 and under certain circumstances may be
resold
without registration pursuant to Rule 144. These shares include the 8,320,569
shares held by Summit and Steven Strasser in the aggregate, and 4,486,171
shares
held by other directors, insiders and investors.
In
addition, the Company had approximately 29,704,968 common stock purchase
warrants outstanding and approximately 13,884,896 common stock purchase options
outstanding as of the date of this report, including the warrants issued in
connection with the offer and sale of the Series B Preferred Stock units. The
shares issuable on exercise of the options and warrants may, under certain
circumstances, be available for public sale in the open market under this
Registration Statement or pursuant to Rule 144, subject to certain
limitations.
In
general, pursuant to Rule 144, after satisfying a six month holding period:
(i)
affiliated stockholder (or stockholders whose shares are aggregated) may, under
certain circumstances, sell within any three month period a number of securities
which does not exceed the greater of 1% of the then outstanding shares of common
stock or the average weekly trading volume of the class during the four calendar
weeks prior to such sale and (ii) non-affiliated stockholders may sell without
such limitations, provided we are current in our public reporting obligations.
Rule 144 also permits the sale of securities by non-affiliates that have
satisfied a one year holding period without any limitation or restriction.
Any
substantial sale of the common stock pursuant to Rule 144 may have an adverse
effect on the market price of the Company’s shares.
Exercise
Of Outstanding Options And Warrants Will Dilute Ownership Of Outstanding
Shares.
As
of the
date of this report, the Company has reserved 71,429 shares of common stock
for
issuance upon exercise of stock options or similar awards which may be granted
pursuant to the 1994 Plan, of which no options are outstanding. Furthermore,
we
have reserved 20,000,000 shares of our common stock for issuance upon exercise
of stock options or similar awards which may be granted pursuant to the 2000
Plan, of which options to purchase an aggregate of 13,884,896 shares are
outstanding. The outstanding options under the 2000 Plan have a weighted average
exercise price of $0.36. As of the date of this report, we have issued warrants
exercisable for 29,704,968 shares of common stock to financial consultants,
investors, former employees and other business partners, having a weighted
average exercise price of $0.45 and expiring on various dates from October
2009
to January 2013. Exercise of these options and warrants in the future will
reduce the percentage of common stock held by the public stockholders.
Furthermore, the terms on which we could obtain additional capital during the
life of the options and warrants may be adversely affected, and it should be
expected that the holders of the options and warrants would exercise them at
a
time when we would be able to obtain equity capital on terms more favorable
than
those provided for by such options and warrants.
Our
Issuance Of “Blank Check” Preferred Stock Could Adversely Affect Our Common
Stockholders.
Our
Certificate of Incorporation authorizes the issuance of “blank check” preferred
stock with such designations, rights and preferences as may be determined from
time to time by our Board of Directors. Accordingly, our Board of Directors
is
empowered, without stockholder approval, to issue preferred stock with
dividends, liquidation, conversion, voting or other rights that could adversely
affect the relative voting power or other rights of the holders of our common
stock. In the event of issuance, the preferred stock could be used as a method
of discouraging, delaying or preventing a change in control of the Company,
which could have the effect of discouraging bids for the Company and thereby
prevent stockholders from receiving the maximum value for their shares.
Following the creation of the Series B Preferred Stock, there are 10,000,000
shares of “blank check” preferred stock available for designation.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events, our future financial performance,
growth of our target market and related worldwide markets, future demand for
our
products, retail electrical energy demand and prices and similar expectations.
These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity, performance
or
achievements to differ materially from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements. You can identify forward-looking statements by terminology such
as
"may," "will," "should," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "continues" or the negative
of
these terms or other comparable terminology. These risks and other factors
include those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance
on
any forward-looking statements as they reflect our management's view only as
of
the date of this prospectus. We will not update any forward-looking statements
to reflect events or circumstances that occur after the date on which such
statement is made.
This
prospectus contains statistical data that we obtained from industry sources.
These sources generally indicate that they have obtained their information
from
sources believed to be reliable, but do not guarantee the accuracy or
completeness of the information. Although we believe that the industry sources
are reliable, we have not independently verified their data.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sale of the shares of common stock
by
the Selling Stockholders. If and when the warrants held by Selling Stockholders
are exercised, we will receive the proceeds from the exercise of those warrants.
If all of these warrants are exercised in full, we will receive approximately
$11,000,000, which we intend to use for working capital and other general
corporate purposes.
We
anticipate we will need at least $250,000 to $300,000 per month to continue
our
current operations, not including non-cash expenses and payments to certain
creditors, including accrued expenses. As discussed in "Risk Factors" above,
we
will need to make payments toward accrued liabilities out of our cash flow
for
the foreseeable future. Overall, our satisfaction of our cash requirements
depends on our ability to raise money from external financing sources and to
generate future sales.
PRICE
RANGE OF COMMON STOCK
The
Company’s common stock is thinly traded on the National Association of
Securities Dealers’ Over the Counter Bulletin Board (“OTCBB”) under the symbol
“PEFF”.
The
following table sets forth the high and low bid information for quarterly
periods in the six month period ended June 30, 2008 and the two twelve month
periods ended December 31, 2007 and December 31, 2006.
Six
months Ended June 30, 2008
|
|
High
|
|
Low
|
|
January
1, 2008 — March 31, 2008
|
|
$
|
0.54
|
|
$
|
0.30
|
|
April
1, 2008 to June 30, 2008
|
|
|
0.39
|
|
|
0.26
|
|
Twelve months Ended December 31, 2007
|
|
High
|
|
Low
|
|
October
1, 2007 — December 31, 2007
|
|
$
|
0.70
|
|
$
|
0.37
|
|
July
1, 2007 — September 30, 2007
|
|
|
0.75
|
|
|
0.20
|
|
April
1, 2007 — June 30, 2007
|
|
|
0.26
|
|
|
0.20
|
|
January
1, 2007 — March 31, 2007
|
|
|
0.30
|
|
|
0.18
|
|
Twelve months Ended December 31, 2006
|
|
High
|
|
Low
|
|
October
1, 2006 — December 31, 2006
|
|
$
|
0.40
|
|
$
|
0.21
|
|
July
1, 2006 — September 30, 2006
|
|
|
0.30
|
|
|
0.18
|
|
April
1, 2006 — June 30, 2006
|
|
|
0.43
|
|
|
0.20
|
|
January
1, 2006 — March 31, 2006
|
|
|
0.40
|
|
|
0.20
|
|
As
of
August 27, 2008 there were 162 stockholders of record of the Company’s common
stock.
DIVIDEND
POLICY
We
have
never declared or paid cash dividends on our capital stock and have no present
intention of paying cash dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our Board of Directors and
will
depend on our financial condition, results of operations, capital requirements
and such other factors as the Board of Directors deems relevant. It is the
intention and present policy of our board to retain all earnings to provide
for
our future growth.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The
following discussion should be read in conjunction with our financial statements
and the related notes included elsewhere in this prospectus. In addition to
historical information, this discussion includes forward-looking information
that involves risks and assumptions which could cause actual results to differ
materially from management's expectations. See "Special Note Regarding
Forward-Looking Statements" on page 10 of this prospectus.
OVERVIEW
The
Company generates revenues from a single business segment: the design,
development, marketing and sale of Motor Efficiency Controllers (“MEC”), which
are proprietary solid state electrical motor controls designed to reduce
energy
consumption in alternating current induction motors.
The
Company began generating revenues from sales of its patented MEC line
of motor
controllers in late 1995. As of June 30, 2008, the Company had total
stockholders’ equity of $5,687,296 primarily due to (i) the Company’s sale of
140,000 shares of Series B Convertible Preferred Stock in a private offering
from October of 2007 through January of 2008, (ii) the Company’s sale of
12,950,016 shares of common stock in a private stock offering from November
of
2006 through March of 2007, (iii) the Company’s sale of 14,500,000 shares of
common stock in a private stock offering in July and August of 2005,
(iv) the
Company’s sale of 2,346,233 shares of Series A-1 Convertible Preferred Stock
to
Summit Energy Ventures, LLC in June of 2002 and (v) the conversion of
notes
payable of approximately $1,047,000 into 982,504 shares of Series A-1
Convertible Preferred Stock in October of 2003.
RESULTS
OF OPERATIONS: FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND
2007.
REVENUES
Total
revenues for the three months ended June 30, 2008 were approximately
$165,000,
compared to $230,000 for the three months ended June 30, 2007, a decrease
of
$65,000 or 28%. This decrease is mainly attributable to sales to a local
transit authority, for the use on elevators and escalators, which totaled
approximately $150,000 during the three months ended June 30, 2007. No
such
singularly large sales occurred during the three months ended June 30,
2008.
This decrease was partially offset by an increase in sales to OEMs during
the
three months ended June 30, 2008 totaling approximately $109,000, compared
to
$48,000 for the three month period ending June 30, 2007.
Total
revenues for the six months ended June 30, 2008 were approximately $298,000,
compared to $267,000 for the six months ended June 30, 2007, an increase
of
$31,000 or 12%. This increase is mainly attributable to an increase in
sales in the elevator and escalator market segment. Specifically, sales
in the
first six months of 2008 included approximately $59,000 to major transit
facilities, approximately $10,000 to retail facilities and approximately
$32,000
to convention centers.
COST
OF SALES
Total
cost of sales, which includes material, direct labor, overhead, and inventory
obsolescence for the three months ended June 30, 2008 were approximately
$157,000, compared to $154,000 for the three months ended June 30, 2007,
an
increase of $3,000 or 2%. As a percentage of sales, total cost of sales
increased to approximately 95% of revenue for the three months ended
June 30,
2008, compared to approximately 67% of revenue for the three months ended
June
30, 2007. The increase in the costs as a percentage of sales was primarily
due
the Company’s replacement of 40 Platform E MECs with more feature rich and
expensive Platform 1 MECs at no additional charge to the customer. This
transaction added approximately $22,000 to the Company’s cost of sales for the
three months ended June 30, 2008. All of the Platform E MECs returned
to the
Company were not installed, and were in good working condition. However,
with
the release of the Company’s new digital line of MECs, we determined that the
Platform E units that were returned were obsolete, and therefore did
not record
the units back into inventory. During the three months ended June 30,
2008, the
Company also wrote off the remaining Platform E components held in its
inventory. In total, the Company recorded an inventory obsolescence charge
of
approximately $25,000 for the three months ended June 30, 2008. Excluding
the
inventory obsolescence charge of $25,000 and the $22,000 charge from
replacing
Platform E units with Platform 1 units, the Company’s cost of sales was
approximately $110,000, or 67% of revenue for the three months ended
June 30,
2008.
Total
manufacturing cost of sales, which includes material and direct labor
and
overhead for the six months ended June 30, 2008 were approximately $255,000
compared to approximately $188,000 for the six months ended June 30,
2007, an
increase of $67,000 or 36%. As a percentage of sales, total cost of sales
increased to approximately 86% for the six months ended June 30, 2008,
compared
to approximately 71% for the six months ended June 30, 2007. The increase
in the
costs as a percentage of sales was primarily due to the Company’s replacement of
40 Platform E MECs with Platform 1 MECs, as well as the inventory obsolescence
charges, as described above.
GROSS
MARGIN
Gross
margin for the three months ended June 30, 2008 was approximately $8,000
compared to approximately $76,000 for the three months ended June 30,
2007, a
decrease of $68,000 or 89%. This decrease was primarily due to the Company’s
replacement of 40 Platform E MECs with Platform 1 MECs, and the inventory
obsolescence charges, as described above.
Gross
margin for the six months ended June 30, 2008 was approximately $43,000
compared
to approximately $78,000 for the six months ended June 30, 2007, a decrease
of
$35,000 or 45%. This decrease was primarily due to the Company’s replacement of
40 Platform E MECs with Platform 1 MECs, and the inventory obsolescence
charge,
as described above. This decrease was partially offset by a higher volume
of
sales during the first six months of 2008 and lower per unit production
costs
due to the Company bringing the majority of its manufacturing
in-house.
OPERATING
EXPENSES
Research
and Development Expenses
Research
and development expenses were approximately $265,000 for the three months
ended
June 30, 2008, as compared to approximately $138,000 for the three months
ended
June 30, 2007, an increase of $127,000 or 92%. This increase is mainly
attributable to the Company’s continued research and development efforts on its
digital controller for both its single-phase and three-phase products.
Specifically, the increased costs include additional personnel in the
Company’s
research and development department, which resulted in higher salaries
and
related payroll costs, as well as the costs associated with the Company’s
research and development center, and new product certification
expenses.
Research
and development expenses were approximately $426,000 for the six months
ended
June 30, 2008, as compared to approximately $233,000 for the six months
ended
June 30, 2007, an increase of $193,000 or 83%. This increase is mainly
attributable to the Company’s continued research and development efforts on its
digital controller for both its single-phase and three-phase products.
Specifically, the increased costs include additional personnel in the
Company’s
research and development department, which resulted in higher salaries
and
related payroll costs, as well as the opening of a research and development
center, and new product certification expenses.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were approximately $799,000 for the
three
months ended June 30, 2008, as compared to $621,000 for the three months
ended
June 30, 2007, an increase of $178,000 or 29%. The increase in selling,
general
and administrative expenses compared to the prior year was primarily
due to an
increase in payroll, and payroll related costs, as well as increases
in sales
travel expenses, marketing, tradeshows and advertising expenses, and
sales
related legal and consulting expenses. The increases in payroll expenses
were
due to the growth of the Company’s sales personnel.
Selling,
general and administrative expenses were approximately $1,588,000 for
the six
months ended June 30, 2008, as compared to $1,296,000 for the six months
ended
June 30, 2007, an increase of $292,000 or 23%. The increase in selling,
general
and administrative expenses compared to the prior year was primarily
due to an
increase in payroll, and payroll related costs, as well as increases
in sales
travel expenses, marketing, tradeshows and advertising expenses, and
sales
related legal and consulting expenses. The increases in payroll expenses
were
due to the growth of the Company’s sales personnel.
Financial
Condition, Liquidity, and Capital Resources: For the Six Months Ended
June 30,
2008 and 2007
Since
inception, the Company has financed its operations primarily through
the sale of
its equity and debt securities and using available bank lines of credit.
As of
June 30, 2008, the Company had cash of $3,602,868.
Cash
used
for operating activities for the six months ended June 30, 2008 was $1,629,344,
which consisted of: a net loss of $1,935,330; less depreciation and amortization
of $33,060, and warrants and options issued in connection with the issuance
of
debt securities, and to employees and consultants of $389,342; offset
by
increases in accounts receivable of $23,504, inventory of $86,941, prepaid
expenses of $34,922, and deferred rent of $312, and decreases in deposits
of
$74,039, accounts payable of $43,795, and customer deposits of
1,605.
Cash
used
for operating activities for the six months ended June 30, 2007 was $1,280,869,
which consisted of: a net loss of $1,759,375; less depreciation and amortization
of $20,589, amortization of deferred financing costs of $6,737, amortization
of
debt discount related to the issuance of debt securities of $158,087,
and
warrants and options issued in connection with the issuance of debt securities
and to employees and consultants of $360,503; offset by increases in
accounts
receivable of $134,783, other accounts receivable of $20,000 and deposits
of
$4,736, and decreases in inventory of $35,097, prepaid expenses and other
assets
of $19,222, and accounts payable and accrued expenses of $37,793.
Net
cash
used for investing activities for the six months ended June 30, 2008
was
$114,811. The amount consisted of the purchase of property and equipment
of
$90,156, and investments in patents of $24,655.
Net
cash
used for investing activities for the six months ended June 30, 2007
was
$44,886. The entire amount consisted of the purchase of property and
equipment.
Net
cash
provided by financing activities for the six months ended June 30, 2008
was
$260,645. The entire amount consisted of the net proceeds from the issuance
of
equity securities.
Net
cash
provided by financing activities for the six months ended June 30, 2007
was
$1,013,685, which consisted of the proceeds from the issuance of equity
securities of $1,024,796, offset by repayments of notes payable of $11,111.
The
Company expects to experience growth in its operating expenses, particularly
in
research and development and selling, general and administrative expenses,
for
the foreseeable future in order to execute its business strategy. As a result,
the Company anticipates that operating expenses will constitute a material
use
of any cash resources.
Although
we currently have over 12 months of working capital, management may need to
sell
additional equity or debt securities in order to continue to finance the
Company’s operations. The Company believes it can raise additional funds through
private placements of equity or debt. However, there are no assurances that
sufficient capital can be raised.
RESULTS
OF OPERATIONS: FISCAL YEAR 2007 COMPARED TO FISCAL YEAR
2006
REVENUES
Revenues
for the year ended December 31, 2007 were $490,510 compared to $188,811 for
the
year ended December 31, 2006, an increase of $301,699, or 160%. This increase
is
mainly attributable to an increase in sales in the elevator and escalator market
segment. Specifically, sales increased due to wider acceptance by a number
of
OEMs, sales to large transit authorities, and acceptance by utilities.
COST
OF REVENUES
Cost
of
revenues for the year ended December 31, 2007 were $340,468 compared to $136,240
for the year ended December 31, 2006, an increase of $204,228 or 150%. As a
percentage of product revenues, total costs of product revenues decreased to
approximately 69% for the year ended December 31, 2007 compared to approximately
72% for the year ended December 31, 2006. The decrease in the costs as a
percentage of product revenues was due to a higher volume of sales in 2007,
which resulted in lower per unit production costs, as well as charging higher
prices in 2007, which resulted in higher margins.
GROSS
MARGIN
Gross
margin for the year ended December 31, 2007 was $150,042 compared to $52,571
for
the year ended December 31, 2006, an increase of $97,471 or 185%. This increase
was primarily due to a higher volume of sales in 2007 and charging higher prices
in 2007.
OPERATING
EXPENSES
Research
and Development Expenses
Research
and development expenses were $667,786 for the year ended December 31, 2007
compared to $567,591 for the year ended December 31, 2006, an increase of
$100,195 or 18%. This increase is mainly attributable to the Company’s continued
research and development efforts on its digital controller for its single-phase
and three-phase products, including additional personnel in the Company’s
research and development department, which resulted in higher salaries and
related payroll costs.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were $2,721,284 for the year ended December
31, 2007, compared to $3,118,233 for the year ended December 31, 2006, a
decrease of $396,949 or 13%. The decrease in selling, general and administrative
expenses over the prior year was due primarily to a decrease in payroll and
payroll related costs, including SFAS 123R expenses (see Note 12 to the
Financial Statements), and to decreases in financing costs.
Interest
expense was approximately $679,306 for the year ended December 31, 2007, as
compared to $1,354,195 for the year ended December 31, 2006, a decrease of
$674,889 or 50%. The decrease in interest expense is primarily related to
non-cash finance charges related to the value of stock warrants issued in
connection with debt securities issued by the Company in 2006. These debts
securities were paid off in full during 2007, resulting in the elimination
of
the non-cash charges by the end of 2007. Total non-cash interest expense for
the
year ended December 31, 2007 was $431,087, compared to $1,109,815 for the year
ended December 31, 2006, a decrease of $678,728 or 61%.
Financial
Condition, Liquidity, and Capital Resources For the Years Ended December 31,
2007 and December 31, 2006
Since
inception, the Company has financed its operations primarily through the sale
of
its securities. In 2007, the Company received approximately $7,745,000 in gross
proceeds from a private placement of its preferred stock, common stock and
warrants to purchase common stock, as to which the Company is required to file
a
registration statement on Form S-1 or other relevant registration statement.
Of
this amount, $1,850,000 was converted from existing debt securities. Also in
2007, the Company grossed approximately $680,000 in cash from the exercise
of
warrants. As of December 31, 2007, the Company has received a total of
approximately $20,305,000 from public and private offerings of its equity
securities, received $300,000 from a bridge note with a stockholder (which
was
converted into 3,000,000 shares of common stock and 1,500,000 warrants with
an
additional investment of $300,000 on July 8, 2005), received approximately
$445,386 under a bank line of credit (which was repaid during 2002), and
received $1,000,000 under a line of credit with a stockholder (which was
converted into Series A-1 Preferred Convertible shares during 2003). As of
December 31, 2007 the Company had cash of $5,086,378 and has no outstanding
debt
securities.
Net
cash
used for operating activities for the year ended December 31, 2007 was
$2,850,927 which primarily consisted of: a net loss of $3,891,795, less bad
debt
expense of $16,934, depreciation and amortization of $47,036, loss on disposal
of fixed assets of $3,516, amortization of debt discounts of $419,859,
amortization of deferred financing costs of $11,228, deferred rent of
$12,063, warrants and options issued in connection with settlements,
services from consultants, vendors, the forgiveness of indebtedness, the
issuance of debt, and to employees and consultants of $655,392, decreases in
inventory of $25,090 and prepaid expenses of $29,173, increases in accounts
receivable of $93,994, and deposits of $88,388. These amounts were partially
offset by increases in accounts payable and accrued expenses of $1,354, and
customer deposits of $1,605.
Net
cash
used for operating activities for the year ended December 31, 2006 was
$2,756,724 which primarily consisted of: a net loss of $5,020,775; less bad
debt
expense of $11,470, depreciation and amortization of $34,028, loss on disposal
of fixed assets of $585, amortization of debt discounts of $1,039,451,
amortization of deferred financing costs of $70,364, warrants and options issued
in connection with settlements, services from consultants, vendors, the
forgiveness of indebtedness, the issuance of debt, and to employees and
consultants of $1,074,848, common stock issued for consulting services of
$90,000, decreases in accounts receivable of $26,464, and inventory of $14,487,
increases in prepaid expenses of $3,206, deposits of $33,875, and restricted
cash related to a note payable of $4,688. In addition, these amounts were
partially offset by decreases in accounts payable and accrued expenses of
$55,454, customer deposits of $5,105 and an increase in accrued salaries and
payroll taxes of $4,682.
Net
cash
used in investing activities for fiscal year 2007 was $92,537, compared to
$90,567 in fiscal year 2006. The amount for 2007 consisted of the purchase
of fixed assets of $85,610, and costs related to patent applications of $6,927.
The amount for 2006 consisted of the purchase of fixed assets.
Net
cash
provided by financing activities for fiscal year 2007 was $6,336,258 which
consisted of proceeds from the issuance of equity securities, net of costs,
of
$8,347,369. This amount was offset by payments on notes payable of
$2,011,111.
Net
cash
provided by financing activities for fiscal year 2006 was $3,531,755 which
primarily consisted of proceeds from the issuance of equity securities, net
of
costs, of $3,180,000, proceeds from the issuance of debt securities of
$2,000,000 and proceeds from a line of credit of $1,500,000. These amounts
were
offset by payments on notes payable of $1,648,245 and payments on a line of
credit of $1,500,000.
The
Company expects to increase its operating expenses, particularly in research
and
development and selling, general and administrative expenses, for the
foreseeable future in order to execute its business strategy. As a result,
the
Company anticipates that operating expenses will constitute a material use
of
any cash resources.
Cash
Requirements and Need for Additional Funds
The
Company anticipates a substantial need for cash to fund its working capital
requirements. It is the opinion of management that approximately $3.0 - $3.6
million will be required to cover operating expenses, including, but not limited
to, marketing, sales, research and operations during the next twelve months.
Although we currently have over 12 months of working capital, we may
nevertheless need to issue additional debt or equity securities to raise
required funds. If the Company is unable to obtain funding on reasonable terms
or finance its needs through current operations, the Company will be forced
to
restructure, file for bankruptcy or cease operations.
Recent
Accounting Pronouncements
See
“Note
2 - Summary of Significant Accounting Policies” to the Financial Statements for
an explanation of recent accounting pronouncements impacting the
Company.
BUSINESS
General
Background
We
design, develop and market energy efficiency technologies and products for
electric motors. Until recently these products were called the “Power
Genius(TM)”. We recently re-branded the product as the "MEC". Our new digital
technology is called “E-SAVE
Technology(TM)”.
Our products reduce the amount of power consumed by lightly loaded alternating
current induction motors that operate at a constant speed. Utilizing patented
improvements upon NASA-developed motor diagnostic technologies, our products
provide energy cost savings to the user of as much as 35%. We market our
products directly under the brand name MEC, and through other companies under
names such as Power Commander(R) and EcoStart(TM). These companies include
the
leading elevator/escalator manufacturers in the world, such as Otis Elevator
Co
(a division of United Technologies) and KONE, Inc.
Description
of Business
Formation
Power
Efficiency Corporation was incorporated in Delaware on October 19, 1994. From
inception through 1997, the Company was a development stage entity engaged
in
the design, development, marketing and sale of proprietary solid state
electrical components designed to reduce energy consumption in alternating
current induction motors.
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Business
of the Company
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The
Company’s Principal Products and Technology
In
the
late 1990s, the Company commenced the sale of its principal and proprietary
product that reduces energy consumption in alternating current induction motors
in certain applications. This product has been known by several names, including
the Power
Commander(R)
and
Power
Genius.
Going
forward, the company has chosen to call its product MEC.
The
Company has developed patented and patent-pending technologies for effectively
controlling the energy usage of an electric motor. The Company’s first United
States Patent was granted in 1998. Over the past two years, the Company has
undertaken extensive study and computer modeling of motors and their energy
use,
and has developed digital technologies for its controllers. In the process,
the
Company has discovered what it believes are significant innovations and has
completed numerous patent filings around these new inventions. The Company
has
branded these collective patented and patent pending technologies as
E-SAVE
Technology(TM)
and
has
filed for a trademark on this name.
The
Company has developed technologies and products for use on three phase and
single phase motors. Three phase motors are generally found in industrial and
commercial buildings for larger applications than single phase
motors.
The
Company’s marketing efforts have been initially focused on the three-phase
version. The Company’s three phase MEC is designed to provide a soft start for
the motor, bringing it gradually from rest to full speed, and save energy when
the motor is at full speed but is less than fully loaded
We
believe the MEC is unique, in part, because of its energy savings capabilities.
The product reduces energy consumption in electric motors by electronically
sensing and controlling the amount of energy the motor consumes. A motor with
an
MEC installed only uses the energy it needs to perform its work task, thereby
increasing its efficiency. The result is a reduction of energy consumption
of up
to 35% in applications that do not always run at peak load levels.
The
Company’s management believes its Motor Efficiency Controllers offer certain
advantages over competing products for the following reasons:
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·
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Motor
and Equipment Life: The MEC extends motor life by reducing the stress
and
strain on the motor and surrounding equipment, and reduces the amperage
to
the motor, which results in cooler running
temperatures.
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·
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Successful
Utility and Customer Tests: The MEC has been successfully tested
by
numerous electric utilities and customers. For example, Paragon Consulting
Services, a contractor for Nevada Power Company, the electric utility
for
southern Nevada, performed 8 field tests on escalators and one on
an
elevator in major Las Vegas casinos. The tests resulted in average
energy
savings of over 30% on the escalators and 20% on the elevator.
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·
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Utility
Incentive Financing: The product has qualified for rebate incentive
financing, most frequently called “rebates”, from many electric utilities.
This financing is generally paid to the end user of the MEC as an
incentive to invest in energy saving products. As such, this financing
effectively decreases the cost of the Company’s MEC for end users. The
utilities that have approved the Company’s products for incentive
financing include: Nevada Power Company, the Los Angeles Department
of
Water and Power, Sierra Pacific Power, Southern California Edison,
the New
York Power Authority, Excel Energy, Sacramento Municipal Utility
District
and San Diego Gas and Electric.
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·
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Acceptance
by Original Equipment Manufacturers: The Company’s products have been
approved and installed by numerous original equipment manufacturers
(“OEMs”) in the escalator and granulator
industries.
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Three-Phase
MEC
The
Company initially focused its marketing efforts for the three-phase MEC in
the
elevator and escalator industry, although the Company is also actively marketing
this product to other industries such as recycling, mining, plastics and
manufacturing. Industries that operate equipment such as conveyor systems,
crushing equipment, stamping presses, granulators, grinders, shredders and
other
motor driven equipment with varying loads, are believed to be viable target
markets for the three-phase MEC. The Company is seeking to target markets with
appropriate applications and market access, using direct sales, OEMs and select
resellers and representatives to address these markets.
Single-Phase
Product
Like
the
Company’s three-phase product described above, the Company’s single-phase
product reduces
energy consumption in electric motors by sensing and controlling the amount
of
energy the motor consumes. Many motors commonly used in home appliances and
other consumer goods are single-phase AC motors. Since the single-phase product
is much smaller, has a much lower price point and can be incorporated directly
into a broad variety of applications, the Company believes it is a product
most
suitable for installation at the OEM level.
Product
Development
The
Company has devoted significant time and resources in the past several years
toward developing “digital” versions of its three-phase and single-phase
products. Through this process, the Company has transformed its technology
so
its key technological breakthroughs are primarily incorporated in algorithm
and
software on a microchip. The Company believes the digital versions of its
products have several distinct advantages over the older analog versions,
including:
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·
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Increased
ease of installation and reduced technical support requirements.
For
example, instead of approximated and manual adjustments during
installation, which can require technical support from the Company,
the
digitized unit will allow more simplified and precise adjustments
by
customers and third party installers.
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·
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Reduced
product size, which is important for many
installations.
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·
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Input-output
communications capabilities, so the device can communicate with external
control systems.
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·
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Increased
functionality. The Company expects to be able to add new functionality
to
the products. These new functions may include such things as:
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o
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Recording
and reporting of actual energy savings;
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o
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Prediction
of maintenance problems by reading and reporting on changes in the
motor’s
operating characteristics; and
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o
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More
secure intellectual property protection through the use of secured
chips
and software.
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Marketing
and Sales
The
Company’s marketing efforts have historically been concentrated in the elevator
and escalator industry, primarily to OEMs of elevator and escalator equipment
and end users that own this equipment. The Company is also focused on the mining
and aggregate industry and the plastics industry. End users of the Company’s
products include retail chains, hotels, airports, transit systems and mining
and
manufacturing companies.
The
Company sells products primarily through direct sales and with OEM resellers.
The Company is currently focused on penetrating markets through direct sales.
Once market penetration and traction is achieved, the Company will then work
with OEMs and other resellers to achieve higher volume sales. The Company’s
longer term goal is to be a high value supplier of technologies, with numerous
OEMs and other resellers engaged with high volume sales and/or licensing
agreements.
Manufacturing
and Distribution
The
Company’s products are manufactured internally and by a multi-billion dollar
global contract manufacturer, Sanmina SCI (“Sanmina”). The Company’s strategy is
to manufacture internally products that sell at lower volumes, such as MECs
for
very large motors, and to have Sanmina manufacture higher volume products,
such
as smaller units and circuit boards. The Company believes this strategy allows
for high quality production, cost efficiencies, and the capability to rapidly
increase production volumes. Management believes this strategy has the ability
to meet the Company’s production needs and the Company would be successful in
finding alternative manufacturers should Sanmina not be available to manufacture
our product.
Competition
Power
Efficiency believes the principal competitive factors in the Company’s markets
include innovative product development, return on investment from energy
savings, product quality, product performance, utility rebate acceptance,
established customer relationships, name recognition, distribution and
price.
Three-Phase
Competition.
The
Company’s three phase MEC’s principal capabilities include being a motor
starter, providing a soft start for the motor, and reducing the motor’s
electricity consumption once the motor is at full speed. The Company believes
its products are unique primarily because of the last capability - energy
savings.
The
first
two capabilities are commonly found in existing motor control products. There
are billions of dollars of motor starters and soft starts sold every year.
These
products are typically manufactured and marketed by large motor control
companies, many of which have longer operating histories, established markets
and far greater financial, advertising, research and development, manufacturing,
marketing, personnel and other resources than the Company currently has or
may
reasonably be expected to have in the foreseeable future. This competition
may
have an adverse effect on the ability of the Company to commence and expand
its
operations or operate in a profitable manner.
There
are
also several small companies that reportedly make products that combine motor
starting, soft starting and energy savings. The Company is unaware of any large
company that makes a product of this nature. Although the Company has not
completed any formal market study, the Company believes its three-phase
MEC has
the
following competitive advantages over other products:
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·
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It
combines soft start features with energy savings features in a single
integrated unit that is CSA and CE certified and achieves energy
savings
levels of up to 15% to 35% in independent, third party
testing;
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·
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Its
circuitry is proprietary, protected by one patent. Numerous other
patent
filings on new innovations are pending approval of the U.S. Patent
and
Trademark Office;
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·
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It
has been tested extensively by utilities with documented energy savings
and approval for incentive financing rebates;
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·
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It
is accepted by OEMs in the escalator and granulator
industries.
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Single-Phase
Competition.
There have been several companies that have, with different technologies,
attempted to exploit this market due to the enormous opportunity in single-phase
motor applications. These products include among others, “Green Plug” (voltage
clamping), “Power Planner” (digital microchip) and “Econelectric” (power factor
control). The Company has made numerous innovations in the past two years it
believes overcome many of the problems with these and the Company’s earlier
designs. The Company has filed for patents on these innovations and has a well
developed prototype that it has successfully tested on various single phase
motors and applications.
High
Efficiency Motors.
Motors are rated by their efficiency at full load. However, when motors,
including “high efficiency motors” are lightly loaded, they become very
inefficient. Management believes that the energy savings gain attributable
to
high efficiency motors is materially lower than that of its MEC on underloaded
motor applications. Furthermore, the Company’s products are able to save energy
on underloaded high efficiency motors, so that such motors and the Company’s
technology are not mutually exclusive.
Source
of Supply and Availability of Raw Materials
The
MEC
has been designed to use standard, off-the-shelf, easily acquired components,
except for the custom made circuit boards. Such off-the-shelf components are
basic items readily available worldwide at competitive prices. They come in
standard and miniature versions and offer the Company latitude in product design
and production. Although the Company believes most of the key components
required for the production of its products are currently available in
sufficient production quantities from multiple sources, there can be no
assurance they will remain so readily available or at comparable
prices.
Customers
The
Company currently does business with approximately 20 customers. Of this number,
three customers presently account for approximately 84% of the Company’s gross
revenues. These customers and their respective gross revenue percentages are
KONE, Inc. - 41%; Los Angeles Metropolitan Transit Authority - 32%;
and Matrix Energy Services, Inc. - 11%. In light of the Company’s
intentions to focus its business on a limited number of markets, the Company
is,
and may continue to be, dependent upon a limited number of customers.
Accordingly, the loss of one or more of these customers may have a material
adverse effect upon the Company’s business.
Patents
and Proprietary Rights
The
Company currently relies on a combination of trade secrets, non-disclosure
agreements and patent protection to establish and protect its proprietary rights
in its products. There can be no assurance these mechanisms will provide the
Company with any competitive advantages. Furthermore, there can be no assurance
others will not independently develop similar technologies, or duplicate or
“reverse engineer” the proprietary aspects of the Company’s
technology.
The
Company has one U.S. patent issued with respect to its products. The “Balanced
and Synchronized Phase Detector for an AC Induction Motor Controller,” No.
5,821,726, was issued on October 13, 1998 and expires in 2017. This patent
covers improvements to the technology under the NASA License Agreement
(described below), which were developed by the Company. Management believes
this
patent protects the Company’s intellectual property position beyond the
expiration of the NASA License Agreement.
The
Company has obtained U.S. Trademark registration of the Power
Commander(R)
mark
and has filed for a trademark on E-Save
Technology(TM).
The
Company has filed five provisional patents and one utility patent on new
inventions associated with the development of its digital products. The Company
anticipates filing additional utility patents in the coming months. In addition,
the Company is continually making improvements to its products and technologies,
and anticipates making additional patent filings on new inventions when
warranted.
NASA
License Agreement
The
Company had been the exclusive United States licensee of certain power factor
controller technology owned by the United States of America, as represented
by
NASA. This license agreement covered the United States and its territories
and
possessions and did not require the Company to pay royalties to NASA in
connection with the Company’s sale of products employing technology utilizing
the licensed patents. The Company’s rights under the license agreement were
non-transferable and were not to be sublicensed without NASA’s consent. The
license agreement terminated on December 16, 2002 upon expiration of all of
the
licensed patents.
The
Company believes its products and other proprietary rights do not infringe
any
proprietary rights possessed by third parties. There can be no assurance,
however, that third parties will not assert infringement claims in the future,
the defense costs of which could be substantial.
Government
Regulation
The
Company is not required to be certified by any government agencies. However,
most of the Company’s products are manufactured to comply with specific codes
that meet industry accepted safety standards. Presently, many of the Company’s
products comply with UL 508 Industrial Control Equipment and the Company has
also received certification meeting CSA B44.1/ASME-17.5 Elevator and Escalator
Electrical Equipment for many of the Company’s products. Many of the Company’s
products are also CE marked. The Department of Commerce does not require the
Company’s technology to be certified for export. The Company’s industrial code
is 421610 and the SIC code is 5063.
Deregulation
of Electrical Energy
Sales
of
the Company’s product are not dependent on deregulation of the electrical energy
market as the Company’s product can be sold in regulated and deregulated
markets.
Research
and Development
The
Company intends to continue its research and development effort to introduce
new
products based on its energy saving technology. Towards this end, the Company
spent $667,786 and $567,591 in fiscal years 2007 and 2006, respectively, on
research and development activities, virtually none of which was borne by
customers. A major focus of the Company’s foreseeable research and development
activities will be on completing larger versions of the digital MEC. The Company
also anticipates the possibility of working with OEMs that make or purchase
motor control equipment, in order to develop products with features or
specifications they require.
Effect
of Environmental Regulations
The
Company is not aware of any federal, state or local provisions regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment with which compliance by the Company has had,
or
is expected to have, a material effect upon the capital expenditures, earnings,
or competitive position of the Company.
Employees
At
the
date of this prospectus, the Company employs eighteen people on a full time
basis. Of this number, one is engaged in accounting and finance, three in
operations and general management, eight in sales and marketing, and six in
product research and development, engineering and manufacturing. At such time
as
business conditions dictate, the Company may hire additional personnel for
various positions, as and when needed. The Company has no collective bargaining
agreements and considers its relationship with its employees to be good. The
Company utilizes consultants in the areas of marketing, product and technology
development and finance on a regular basis.
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Reports
to Security Holders
|
The
Company is a smaller reporting company, and as such files Annual Reports on
Form
10-K, Quarterly Reports on Form 10-Q under the scaled disclosure requirements
and Current Reports on Form 8-K on a regular basis with the SEC.
The
public may read and copy any materials the Company files with the SEC at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at
http://www.sec.gov.
Description
of Property
The
Company’s corporate office space is located at 3960 Howard Hughes Pkwy, Suite
460, Las Vegas, Nevada 89169. The office lease calls for rent of $11,292 per
month, plus annual increases equal to 3%, through the end of the lease term
in
February 2011.
The
Company leases office space at 6380 South Valley View Blvd., Suite 412, Las
Vegas, Nevada 89118. The lease calls for rent of $1,995 plus common area
maintenance charges, per month, through the end of the lease term in August
2010. This space is used primarily for research and development.
The
Company leases office space at 6380 South Valley View Blvd., Suite 402, Las
Vegas, Nevada 89118. The lease calls for rent of $1,605 plus common area
maintenance charges, per month, through the end of the lease term in August
2010. This space is used primarily for manufacturing and
warehousing.
Legal
Proceedings
We
are
not presently involved in any litigation.
MANAGEMENT
INFORMATION
ABOUT THE COMPANY'S EXECUTIVE OFFICERS AND DIRECTORS
The
following table lists the current executive officers and directors and, in
the
case of directors, their length of service on the board. Each director is
elected to hold office for a term expiring at the first annual meeting of
stockholders held following such director's election and until his successor
has
been elected and qualified, or until his prior resignation or removal. All
of
the Company's current directors were either appointed by the plurality of votes
cast by the holders of our common stock present, or represented, at the last
Annual Meeting of the Stockholders in June, 2007, or elected by the board.
Name
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Age
|
|
Director
Since
|
|
Position
|
Steven
Z. Strasser
|
|
60
|
|
2002
|
|
Chairman,
Chief Executive Officer
|
John
(BJ) Lackland
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37
|
|
2002
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|
Director,
Chief Financial Officer, and Secretary
|
Raymond
J. Skiptunis
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65
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2002
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Director,
Chairman of the Audit Committee
|
George
Boyadjieff
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69
|
|
2006
|
|
Director,
Senior Technical Advisor
|
Douglas
M. Dunn
|
|
65
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|
2006
|
|
Director
|
Richard
Morgan
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|
62
|
|
2007
|
|
Director
|
Gary
Rado
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|
68
|
|
2005
|
|
Director
|
Steven
Strasser -
Chairman and Chief Executive Officer. Prior to becoming the Company’s CEO in
October 2004, Mr. Strasser was the Managing Director, founder and majority
owner
of Summit Energy Ventures LLC, currently the largest shareholder in Power
Efficiency Corporation. Summit is a private equity firm focused on investments
in companies with energy efficiency technologies. At Summit, Mr. Strasser spent
four years, from 2001 through 2005, evaluating and investing in energy
technology companies and serving on the boards of portfolio companies. Mr.
Strasser has been a director since August 2002.
From
1984
through 2000, Mr. Strasser was the founder and CEO of Northwest Power
Enterprises. Over its seventeen-year history, Northwest Power Enterprises and
its predecessor companies were involved in multiple aspects of the energy
development business. Mr. Strasser received law degrees from McGill
University, Montreal, Canada and the University of Washington, Seattle,
Washington.
John
(BJ) Lackland
-
Director, Chief Financial Officer, and Secretary. Mr. Lackland became the
Company’s CFO in October 2004. Mr. Lackland has been the Vice President and
Director Summit Energy Ventures since 2001, a private equity firm that is the
largest shareholder in Power Efficiency Corporation. Summit focuses on
investments in companies with energy efficiency technologies. At Summit, Mr.
Lackland evaluated and invested in energy technology companies and served on
the
boards of portfolio companies. Prior to joining Summit, Mr. Lackland was
the Director of Strategic Relations at Encompass Globalization, where he was
in
charge of strategic alliances and mergers and acquisitions. Prior to Encompass,
he was the Director of Strategic Planning and Corporate Development at an
Internet business development consulting company, where he was in charge of
strategic planning and investor relations. Mr. Lackland has been an
independent consultant to Fortune 1,000 companies and startups.
Mr. Lackland also worked at The National Bureau of Asian Research, an
internationally acclaimed research company focusing on U.S. policy toward Asia,
where he led economic and political research projects for Microsoft, Dell,
Compaq and U.S. government agencies. Mr. Lackland has been a director since
August 2002.
Mr. Lackland
earned an M.B.A. from the University of Washington Business School, an M.A.
in
International Studies (Asian Studies) from the University of Washington’s
Jackson School of International Studies, and a B.A. in Politics, Philosophy
and
Economics from Claremont McKenna College.
Raymond
J. Skiptunis
- Mr.
Skiptunis was a director at TAG Entertainment, a movie production company from
2004 until January, 2007. Until September 2006, Mr. Skiptunis also served
as an executive consultant at TAG Entertainment, from 2004. Prior to TAG
Entertainment, Mr. Skiptunis was a self employed business consultant from
2003 to 2005. From November of 2001 through October of 2003, Mr. Skiptunis
worked with the Company in various capacities, including consultant, CFO and
interim CEO. From 1990 to 1996, Mr. Skiptunis served as Vice Chairman and
CEO of Teamstaff, Inc., a professional employer organization. Prior to his
time
with Teamstaff, Inc., Mr. Skiptunis was the Chairman and President of
Venray Management Corp, a venture capital firm, from 1983 to 1990, and the
Vice
President, CFO and a board member of Biosearch Medical Products from 1978 to
1983. Mr. Skiptunis earned a Bachelor of Science in Accounting from Rutgers
University.
George
Boyadjieff — Director
and Senior Technical Advisor. Mr. Boyadjieff has been a director of the Company
since May 2006, and Senior Technical Advisor of the Company since April 2005.
Mr. Boyadjieff is the retired CEO of the former Varco International, a New
York
Stock Exchange traded oil service company with over $1.3 billion in annual
revenues at the time of Mr. Boyadjieff’s retirement. Varco has recently merged
with National Oil Well to become National Oil Well Varco (NOV). Mr. Boyadjieff
joined Varco in 1969 as Chief Engineer and was appointed CEO in 1991. Currently
Mr. Boyadjieff is a director of Southwall Technologies, a Silicon Valley hi-tech
firm. Mr. Boyadjieff joined Southwall in December 2004.
Mr.
Boyadjieff holds over 50 US patents related to oil and gas well drilling
equipment. Mr. Boyadjieff holds BS and MS degrees in Mechanical Engineering
from
the University of California at Berkeley and is a graduate of the University
of
California at Irvine executive program.
Dr.
Douglas Dunn —
Dr. Dunn
has had an extensive career in research, business and academic leadership.
Dr.
Dunn served as dean of Carnegie Mellon University's Graduate School of
Industrial Administration (now the Tepper School of Business) from July 1996
through June 2002, after which he retired. He began his career AT&T Bell
Laboratories, and his corporate experienced culminated in senior positions
as a
corporate officer leading Federal Regulatory Matters, Regional Government
Affairs, and Visual Communications and Multimedia Strategy for AT&T. Dr.
Dunn is a board member of Universal Stainless & Alloy Products, Inc.
(NasdaqNM: USAP) and Solutions Consulting, a technology consulting firm, which
is wholly owned by Perot Systems, Inc. He holds a Ph.D. in business from the
University of Michigan, an MS in industrial management and a BS in physics
from
the Georgia Institute of Technology.
Richard
Morgan -
Mr.
Morgan is currently of counsel to the law firm of Lionel, Sawyer & Collins,
and is the Dean Emeritus and a former Professor of Law at the William S. Boyd
School of Law at the University of Nevada, Las Vegas, a position he held from
September 1, 1997 through June 30, 2007. Mr. Morgan is an experienced legal
educator, having served as dean at both the Arizona State University College
of
Law and the University of Wyoming College of Law. Mr. Morgan earned his B.A.
in
Political Science at the University of California, Berkeley in 1967. In 1971
he
received his J.D. from UCLA, where he was an editor of the UCLA Law Review.
He
practiced with the Los Angeles law firm of Nossaman, Krueger & Marsh in the
corporate/securities areas from 1971 to 1980. He was a professor at the Arizona
State University College of Law from 1980 to 1987 and served as associate dean
from 1983 to 1987. He was dean at the University of Wyoming College of Law
from
1987 to 1990 and returned to the Arizona State University College of Law in
1990, where he served as dean and professor of law until 1997. He currently
serves as chair of the ABA Standards Review Committee.
Gary
Rado
-Mr. Rado retired in 2002 after being the President of Casio Inc. USA.
Before joining Casio Inc. in 1996, Mr. Rado was with Texas Instruments Inc.
for 21 years. He moved from District Sales Manager to Area Sales Manager to
National Sales Manager of the Consumer Products Division. This division was
responsible for home computer, calculator and educational products such as
Speak
and Spell. Mr. Rado was then promoted to Division Manager of Consumer
Products worldwide and VP of marketing and sales. He ran the division for 7
years, with two years of running the division while based in Europe.
Mr. Rado earned a Bachelors of Science in Business Administration from
Concord College in 1963.
Significant
Employees
In
addition to Mr. Strasser, and Mr. Lackland, we have two significant employees,
Brian Taylor, and Brian Chan. Below is biographical information for these
two
employees.
Brian
Taylor - Vice
President Product Management. Prior to joining Power Efficiency Corporation,
Mr.
Taylor was a Business Manager for Standard Drives at Rockwell Automation and
was
responsible for the $360 million global standard drives business. In Mr.
Taylor’s 19 years with Rockwell Automation, he held various positions of
increasing responsibility, including management positions in Rockwell
Automation’s Industrial Controls and Presence Sensing Businesses. Mr. Taylor
started his career with Rockwell Automation in 1988 as a software engineer.
Mr.
Taylor earned a bachelor’s degree in Computer Engineering from Case Western
Reserve University and a MBA from Northeastern University.
Brian
Chan -
Treasurer & Controller . Before joining Power Efficiency Corporation, Mr.
Chan was a staff accountant at Johnson Jacobson Wilcox, a Las Vegas CPA firm
specializing in privately held construction and real estate companies. Prior
to
Johnson Jacobson Wilcox, Mr. Chan was a staff accountant at Kafoury, Armstrong
and Company, a Las Vegas CPA firm that mainly serviced non-profit and
governmental entities. Mr. Chan began his career with Smith, Lange and Phillips,
a prominent San Francisco CPA firm, where he worked with a variety of small
business and high net worth individuals. Mr. Chan is a licensed CPA in
California (inactive), and has a Bachelor of Arts in Business Economics with
an
emphasis in Accounting from U.C. Santa Barbara.
Director
Independence
Although
our securities are not currently quoted on American Stock Exchange, for purposes
of assessing director independence, the Board of Directors uses the definition
of “independence” contained in current Section 121(A) of the American Stock
Exchange (“AMEX”) Constitution and Rules. Our board has reviewed all
relationships between the Company and members of the board and affirmatively
has
determined that all directors are independent except Messrs. Strasser, Lackland
and Boyadjieff, who are employed by the Company. In addition, each of the
members of the audit committee meets the heightened criteria for independence
applicable to members of audit committees under AMEX listing
standards.
Board
of Directors and Committees of the Board
Our
business affairs are conducted under the direction of our Board of Directors.
The role of our Board of Directors is to effectively govern our affairs for
the
benefit of our stockholders and, to the extent appropriate under governing
law,
of other constituencies, which include our employees, customers, suppliers
and
creditors. Our board strives to ensure the success and continuity of our
business through the selection of a qualified management team. It is also
responsible for ensuring that our activities are conducted in a responsible
ethical manner. Our Board of Directors has two standing committees, an audit
committee and a compensation committee.
Our
Board
of Directors met seven times in 2007 and fourteen times in 2006. None of the
current directors missed more than three meetings during the period for which
they have been a director and the meetings held by committees of the Board
of
Directors on which they serve.
We
do not
have a policy that requires directors to attend our annual meeting of
stockholders. However, all directors attended the 2007 Meeting of Stockholders
on June 8, 2007.
Audit
Committee
Our
Audit
Committee acts pursuant to our Audit Committee charter, last amended July,
2006.
Raymond
Skiptunis, Douglas Dunn and Gary Rado currently serve as our audit committee.
Messrs. Skiptunis, Dunn and Rado are each independent directors as required
by
Section 301 of the Sarbanes-Oxley Act of 2002, Rule 10A(3)(b)(1) of the
Securities Exchange Act of 1934 and Section 121(A) of the American Stock
Exchange Constitution and Rules. Raymond Skiptunis, the Chairman of our audit
committee, qualifies as a financial expert. Our audit committee, among other
things:
|
• |
selects
the independent auditors, considering independence and
effectiveness;
|
|
•
|
discusses
the scope and results of the audit with the independent auditors
and
reviews with management and the independent auditors our interim
and
year-end operating results;
|
|
• |
considers
the adequacy of our internal accounting controls and audit
procedures;
|
|
•
|
reviews
and approves all audit and non-audit services to be performed by
the
independent auditors; and
|
|
• |
administers
the whistleblower policy.
|
Our
independent auditors are responsible for auditing our financial statements
and
management’s assessment of internal control over financial reporting and
expressing its opinion as to the fairness of the financial statement
presentation in accordance with generally accepted accounting principles, the
fairness of management’s assessment of our internal control over financial
reporting, and the effectiveness of our internal control over financial
reporting. As such, the audit committee has the sole and direct responsibility
to appoint, oversee and review these processes; as well as the responsibility
to
appoint, evaluate and retain our independent auditors.
Compensation
Committee
Raymond
Skiptunis and Douglas Dunn currently function as our compensation committee.
Messrs. Skiptunis and Dunn are independent directors as required by SEC Rules
and as defined in Section 121(A) of the American Stock Exchange Constitution
and
Rules. Our compensation committee, among other things:
|
• |
recommends
to the Board of Directors the compensation level of the executive
officers;
|
|
• |
reviews
and makes recommendations to our Board of Directors with respect
to our
equity incentive plans; and
|
|
• |
establishes
and reviews general policies relating to compensation and benefits
of our
employees.
|
Committee
Interlocks and Insider Participation
None
of
our executive officers currently serves as a member of the Board of Directors
or
compensation committee of any entity that has one or more executive officers
serving on our Board of Directors or compensation committee.
CODE
OF ETHICS
The
Company has not adopted a code of ethics. The Company has been focused on
developing technology, generating sales and raising capital to support
operations and consequently has not focused on adopting a code of ethics. In
early 2006, the Company developed and implemented an official Employee Manual
that requires ethical behavior from its employees, and defines the consequences
of unethical behavior by its employees.
Executive
Compensation
The
following table summarizes compensation information for the last two fiscal
years for (i) Mr. Steven Z. Strasser, our Principal Executive Officer and (ii)
John (BJ) Lackland, our Principal Financial Officer, who were serving as
executive officers at the end of the fiscal year and who we refer to
collectively, the Named Executive Officers.
SUMMARY
COMPENSATION TABLE
|
|
Name
and principal position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards ($)
|
|
Option
Awards ($)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Nonqualified
Deferred Compensation Earnings ($)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
|
Steven
Z. Strasser(1)
|
|
2007
|
|
$
|
297,172
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
297,172
|
|
Chairman
and Chief
|
|
2006
|
|
$
|
288,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
288,750
|
|
Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
(BJ) Lackland (2)
|
|
2007
|
|
$
|
189,109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
189,109
|
|
Director
and Chief
|
|
2006
|
|
$
|
183,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
183,750
|
|
Financial
Officer
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Narrative
Disclosure to Summary Compensation Table
During
2004, we hired the following officers: Steven Strasser, Chief Executive Officer,
and John (BJ) Lackland, Chief Financial Officer. These two individuals comprise
our current executive officers. Effective June 1, 2005, the Company entered
into
employment agreements with the above officers. The term of each agreement is
five years. In the event of a defined change in control of the Company, each
agreement will provide for accelerated vesting of stock options and a cash
severance payment equal to 2.99 times the executive's then current salary and
previous year's bonus.
The
following table sets forth the material financial terms of the agreements for
each of our executives as of December 31, 2007:
Name
|
|
Salary
(1)
|
|
Bonus(4)
|
|
Common
Stock Options(5)
|
|
Steven
Strasser
|
|
$
|
275,000(2)
|
|
|
|
|
|
3,000,000
|
|
BJ
Lackland
|
|
$
|
175,000(3)
|
|
|
|
|
|
1,800,000
|
|
_________________
(1)
|
To
be increased annually by at least 5% of base
salary.
|
(2)
|
First
year's salary to be paid $60,000 in cash and options to purchase
1,612,500
shares of Common Stock at an average exercise price equal to $0.21
per
share in lieu of remaining cash vesting quarterly over one
year.
|
(3)
|
First
year's salary to be paid $120,000 in cash and options to purchase
412,500
shares of Common Stock at an exercise price equal to $0.20 per share
in
lieu of remaining cash vesting quarterly over one year.
|
(4)
|
At
the Board's discretion.
|
(5)
|
Vesting
evenly and quarterly beginning on August 31, 2005 and ending on May
28,
2010.
|
Outstanding
equity awards
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|
OPTION
AWARDS
|
|
STOCK
AWARDS
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested
(#)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested
(#)
|
|
Steven
Strasser
|
|
|
1,590,972
|
|
|
971,817
|
|
|
-
|
|
$
|
0.22
|
|
|
5/31/2010
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
1,521,588
|
|
|
518,183
|
|
|
-
|
|
$
|
0.20
|
|
|
5/31/2015
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
600,000
|
|
|
-
|
|
|
-
|
|
$
|
0.65
|
|
|
11/28/2015
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BJ
Lackland
|
|
|
1,252,500
|
|
|
960,000
|
|
|
-
|
|
$
|
0.20
|
|
|
5/31/2015
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
$
|
0.65
|
|
|
11/28/2015
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Stock
Option Plan Narrative Disclosure
As
of
December 31, 2007, we had an aggregate of 14,309,896 shares of common stock
available for issuance under our stock option plans. The following is a
description of our plans.
2000
Stock Option and Restricted Stock Plan, or the 2000 Plan
The
2000
Plan was adopted by our Board of Directors and our stockholders in 2000. On
June
8, 2007, the 2000 Plan was amended and restated. As of December 31, 2007, no
restricted shares of common stock have been issued, and 100,000 of the
outstanding options to purchase shares of our common stock have been exercised
pursuant to the 2000 Plan. There are 14,309,896 options outstanding under the
2000 Plan as of December 31, 2007.
Share
Reserve.
Under
the 2000 Plan, we have initially reserved for issuance an aggregate of
20,000,000 shares of common stock.
Objectives.
The
purpose of the 2000 Plan is to advance the interests of the Company and its
stockholders by encouraging and facilitating ownership of the Company’s common
stock by persons performing services for the Company in order to enhance the
ability of the Company to attract, retain and reward such persons and motivate
them to contribute to the growth and profitability of the Company.
Administration.
The
2000 Plan is administered by the Board of Directors. The stock option awards
qualify as "performance-based-compensation" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, or the Code, with two
or more outside directors within the meaning of Section 162(m) of the Code.
The
Board of Directors has the power to determine the terms of the awards, including
the exercise price, the number of shares subject to each award, the
exercisability of the awards and the form of consideration payable upon
exercise.
Eligibility.
Awards
under the 2000 Plan may be granted to any of our employees, directors or
consultants or those of our affiliates.
Options.
With
respect to non-statutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code and incentive
stock options, the exercise price must be at least equal to the fair market
value of our common stock on the date of grant. In addition, the exercise price
for any incentive stock option granted to any employee owning more than 10%
of
our common stock may not be less than 110% of the fair market value of our
common stock on the date of grant. The term of any stock option may not exceed
ten years, except that with respect to any participant who owns 10% or more
of
the voting power of all classes of our outstanding capital stock, the term
for
incentive stock options must not exceed five years.
Stock
Awards.
The
administrator may determine the number of shares to be granted and impose
whatever conditions to vesting it determines to be appropriate, including
performance criteria. The criteria may be based on financial performance,
personal performance evaluations and/or completion of service by the
participant. The administrator will determine the level of achievement of
performance criteria. Unless the administrator determines otherwise, shares
that
do not vest typically will be subject to forfeiture or to our right of
repurchase, which we may exercise upon the voluntary or involuntary termination
of the participant's service with us for any reason, including death or
disability.
Tax
Consequences. An
employee or director will not recognize income on the awarding of incentive
stock options and nonstatutory options under the Plan. An optionee will
recognize ordinary income as the result of the exercise of a nonstatutory stock
option in the amount of the excess of the fair market value of the stock on
the
day of exercise over the option exercise price.
An
employee will not recognize income on the exercise of an incentive stock option,
unless the option exercise price is paid with stock acquired on the exercise
of
an incentive stock option and the following holding period for such stock has
not been satisfied. The employee will recognize long-term capital gain or loss
on a sale of the shares acquired on exercise, provided the shares acquired
are
not sold or otherwise disposed of before the earlier of:
|
(i) |
two
years from the date of award of the option, or
|
|
(ii) |
one
year from the date of
exercise.
|
If
the
shares are not held for the required period of time, the employee will recognize
ordinary income to the extent the fair market value of the stock at the time
the
option is exercised exceeds the option price, but limited to the gain recognized
on sale. The balance of any such gain will be a short-term capital gain.
Exercise of an option with previously owned stock is not a taxable disposition
of such stock. An employee generally must include in alternative minimum taxable
income the amount by which the price such employee paid for an incentive stock
option is exceeded by the option’s fair market value at the time his or her
rights to the stock are freely transferable or are not subject to a substantial
risk of forfeiture.
Adjustments
upon Merger or Change in Control.
The
2000 Plan provides that in the event of a merger with or into another
corporation or a "change in control," including the sale of all or substantially
all of our assets, and certain other events, our Board of Directors (or a
committee of the Board of Directors) may, in its discretion, provide for some
or
all of:
|
·
|
assumption
or substitution of, or adjustment to, each outstanding
award;
|
|
·
|
acceleration
of the vesting of options and stock appreciation
rights;
|
|
·
|
termination
of any restrictions on stock awards or cash awards;
or
|
|
·
|
cancellation
of awards in exchange for a cash payment to the
participant.
|
Amendment
and Termination.
The
Board of Directors has the authority to amend, alter or discontinue the 2000
Plan, subject to the approval of the stockholders, but no amendment will impair
the rights of any award, unless mutually agreed to between the participant
and
the administrator.
Compensation
of Directors Summary Table
DIRECTOR
COMPENSATION
|
|
Name
(a)
|
|
Fees
Earned or Paid in Cash
($)
|
|
Stock
Awards ($)
|
|
Option
Awards ($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Non-Qualified
Deferred Compensation Earnings
($)
|
|
All
Other
Compensation ($)
|
|
Total
($)
|
|
Raymond
J. Skiptunis
|
|
$
|
12,000
|
|
|
-
|
|
$
|
40,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
52,200
|
|
George
Boyadjieff
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
Douglas
M. Dunn
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
Richard
Morgan
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
Gary
Rado
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
26,800
|
|
Narrative
to Director Compensation
In
January 2007, non-employee directors received options to purchase 100,000 shares
of common stock per year for their board service, pro-rated for the quarters
in
the year they served. Employee directors do not receive compensation for serving
on the Board of Directors. The Chairman of the Audit Committee receives an
additional 50,000 options per year, pro-rated for the quarters in the year
he
served, and $1,000 per month. The remaining members of the audit committee
receive an additional 25,000 options per year, pro-rated for the quarters in
the
year they served. Depending on the anticipated workload and organization, the
Board of Directors may elect to increase the compensation for committee members
and/or all non-executive board members.
Limitation
of Liability and Indemnification of Directors and Officers
Our
certificate of incorporation provides that the personal liability of our
directors shall be limited to the fullest extent permitted by the provisions
of
Section 102(b)(7) of the General Corporation Law of the State of Delaware,
or the DGCL. Section 102(b)(7) of the DGCL generally provides that no
director shall be liable personally to us or our stockholders for monetary
damages for breach of fiduciary duty as a director, provided that our
certificate of incorporation does not eliminate the liability of a director
for
(i) any breach of the director's duty of loyalty to us or our stockholders;
(ii) acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) any transaction from which such director derives
improper personal benefit. The effect of this provision is to eliminate our
rights and the rights of our stockholders through stockholders' derivative
suits
on our behalf, to recover monetary damages against a director for breach of
her
or his fiduciary duty of care as a director including breaches resulting from
negligent or grossly negligent behavior except in the situations described
in
clauses (i) through (iv) above. The limitations summarized above,
however, do not affect our or our stockholders' ability to seek non-monetary
remedies, such as an injunction or rescission, against a director for breach
of
her or his fiduciary duty.
In
addition, our certificate of incorporation and bylaws provide that we shall,
to
the fullest extent permitted by Section 145 of the DGCL, indemnify all
directors and officers who we may indemnify pursuant to Section 145 of the
DGCL. Section 145 of the DGCL permits a company to indemnify an officer or
director who was or is a party or is threatened to be made a party to any
proceeding because of his or her position, if the officer or director acted
in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of such company and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. We have entered into indemnification agreements with our directors
and
officers consistent with indemnification to the fullest extent permitted under
the DGCL.
We
maintain a directors' and officers' liability insurance policy covering certain
liabilities that may be incurred by our directors and officers in connection
with the performance of their duties. The entire premium for such insurance
is
paid by us.
Insofar
as indemnification for liabilities arising under the Securities Act, our
directors and officers, and persons controlling us pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act
and
is therefore unenforceable.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial
Ownership
The
following table sets forth information as to our shares of common stock
beneficially owned as of August 27, 2008 by
(i)
each person known by us to be the beneficial owner of more than five percent
of
our outstanding common stock, (ii) each of our directors, (iii) each of our
executive officers named in the Summary Compensation Table and (iv) all of
our
directors and executive officers as a group.
|
|
Name
and Address of
|
|
|
|
Percent
of
|
Title
of Class
|
|
Beneficial
Owner(1)
|
|
Shares
Owned
|
|
Shares
Owned(10)
|
Common
Stock
|
|
Steven
Strasser, CEO, Chairman of the Board
|
|
19,617,169(2)
|
|
38.12%
|
Common
Stock
|
|
John
(BJ) Lackland, CFO, Director
|
|
2,060,500(3)
|
|
4.87%
|
Common
Stock
|
|
Raymond
J. Skiptunis, Director
|
|
471,039(4)
|
|
1.15%
|
Common
Stock
|
|
Gary
Rado, Director
|
|
587,500(5)
|
|
1.43%
|
Common
Stock
|
|
George
Boyadjieff, Director
|
|
2,775,000(6)
|
|
6.58%
|
Common
Stock
|
|
Douglas
Dunn, Director
|
|
387,500(7)
|
|
Less
than 1%
|
Common
Stock
|
|
Richard
Morgan, Director
|
|
150,000(8)
|
|
Less
than 1%
|
Common
Stock
|
|
Summit
Energy Ventures, LLC
|
|
8,803,901(2)
|
|
20.76%
|
Common
Stock
|
|
Sarkowsky
Family L.P.
|
|
7,136,981
|
|
16.14%
|
Common
Stock
|
|
Ron
Boyer
|
|
8,935,769
|
|
18.77%
|
Common
Stock
|
|
Michael
J. Goldfarb Enterprises LLC
|
|
2,300,001
|
|
5.49%
|
Common
Stock
|
|
Byron
LeBow Revocable Family Trust
|
|
2,700,003
|
|
6.41%
|
Common
Stock
|
|
Marathon
Resource Partners 1, L.P.
|
|
3,450,000
|
|
8.16%
|
Common
Stock
|
|
Commerce
Energy Group
|
|
4,464,376(9)
|
|
10.72%
|
Common
Stock
|
|
All
Executive Officers and Directors as a Group (7 persons)
|
|
26,298,708
|
|
45.92%
|
(1)
|
Information
in this table regarding directors and executive officers is based
on
information provided by them. Unless otherwise indicated in the footnotes
and subject to community property laws where applicable, each of
the
directors and executive officers has sole voting and/or investment
power
with respect to such shares. The address for each of the persons
reported
in the table other than Commerce Energy Group is in care of Power
Efficiency Corporation at 3960 Howard Hughes Pkwy, Ste 460, Las Vegas,
Nevada 89169.
|
(2)
|
Includes
8,803,901 common shares and common shares subject to options and
warrants
exercisable within 60 days of the date hereof held by Summit, in
which
Steven Strasser is one of two members, 1,760,000 common shares subject
to
the conversion of 17,600 shares of Series B Preferred Stock, and
9,053,268
common shares and common shares subject to options and warrants which
are
presently exercisable or will become exercisable within 60 days of
the
date hereof. Mr. Strasser was also granted an additional 1,200,000
common shares subject to options and warrants which will become
exercisable after 60 days of the date hereof. Mr. Strasser’s options and
warrants expire on various dates from May, 2010 through November,
2015.
|
(3)
|
Includes
2,060,500 common shares and common shares subject to options and
warrants
presently exercisable or will become exercisable within 60 days of
the
date hereof. Mr. Lackland was also granted an additional 720,000
common
shares subject to options which will become exercisable after 60
days of
the date hereof. Mr. Lackland’s options and warrants expire on various
dates from May, 2010 through November,
2015.
|
(4)
|
Includes
471,039 common shares and common shares subject to options and warrants
presently exercisable or will become exercisable within 60 days of
the
date hereof. Mr. Skiptunis was also granted an additional 75,000
common
shares subject to options which will become exercisable after 60
days of
the date hereof. Mr. Skiptunis’ options and warrants expire on various
dates from October, 2014 through March,
2018.
|
(5)
|
Includes
200,000 common shares subject to the conversion of 2,000 shares of
Series
B Preferred Stock, and 387,500 common shares subject to options presently
exercisable or will become exercisable within 60 days of the date
hereof.
Mr. Rado’s options expire on various dates from September, 2015 through
March, 2018.
|
(6)
|
Includes
400,000 common shares subject to the conversion of 4,000 shares of
Series
B Preferred Stock, and 2,375,000 common shares subject to options
and
warrants presently exercisable or will become exercisable within
60 days
of the date hereof. Mr. Boyadjieff was also granted an additional
1,050,000 common shares subject to options and warrants which will
become
exercisable after 60 days of the date hereof. Mr. Boyadjieff’s options and
warrants expire on various dates from April, 2010 through March,
2018.
|
(7)
|
Includes
100,000 common shares subject to the conversion of 1,000 shares of
Series
B Preferred Stock, and 287,500 common shares subject to options presently
exercisable or which will become exercisable within 60 days of the
date
hereof. Mr. Dunn was also granted an additional 62,500 common shares
subject to options exercisable after 60 days of the date hereof.
Dr.
Dunn’s options expire on various dates from May 2016 through March,
2018.
|
(8)
|
Includes
150,000 common shares subject to options presently exercisable or
which
will become exercisable within 60 days of the date hereof. Mr. Morgan
was
also granted an additional 50,000 common shares subject to options
which
will become exercisable after 60 days of the date hereof. Mr. Morgan’s
options expire March, 2018.
|
(9)
|
Includes
400,000 common shares subject to the conversion of 4,000 shares of
Series
B Preferred Stock, and 815,327 common shares subject to warrants
presently
exercisable or which will become exercisable within 60 days of the
date
hereof, as well as 3,249,049 common shares owned by Commerce’s wholly
owned subsidiary, Commonwealth Energy Corporation. Commerce’s warrants
expire on various dates from October 2009 through November
2011.
|
(10)
|
The
percentage for common stock includes all common shares subject to
options
and warrants exercisable within 60 days of the date
hereof.
|
________________________________
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationship
with EMTUCK, LLC and Northwest Power Management, Inc
On
April
20, 2006 and May 19, 2006, we issued a total of $1,500,000 in senior secured
debt to EMTUCK, LLC (“EMTUCK”), of which Northwest Power Management, Inc.
(“NPM”) a management company wholly owned by Mr. Strasser, was the managing
member. In connection with this transaction, we issued to the members of EMTUCK
2,647,572 warrants to purchase our common stock, of which Mr. Strasser received
1,323,786 warrants. The $1,500,000 in senior secured notes was paid off in
full
on November 30, 2006.
Relationship
with Steven Strasser and Summit
Mr.
Strasser, our CEO, owns 99.5% of Summit. As of December 31, 2007, Summit owned
6,803,901 shares of our common stock and 2,000,000 warrants to purchase common
stock. The total voting power currently represented by Summit's ownership of
our
common stock and voting equivalents is 17%. In addition, Mr. Strasser owns
beneficially 10,613,268 shares of common stock issued or issuable on the
exercise of options and warrants exercisable within 60 days of December 31,
2007.
On
October 29, 2007, Mr. Strasser purchased 16,000 units, resulting in the issuance
of 16,000 shares of Series B Preferred Stock and 800,000 warrants to purchase
the Company’s common stock, for $250,000 in cash and the conversion of a
$550,000 promissory note owned by the Company to Mr. Strasser.
Relationship
with John (BJ) Lackland
Mr.
Lackland, our CFO, owns 0.5% of Summit. Additionally, Mr. Lackland beneficially
owns 1,920,500 shares of common stock issued or issuable on the exercise of
options and warrants exercisable within 60 days of December 31,
2007.
Agreements
with Officers and Directors
We
will
enter and expect to continue to enter into indemnification agreements with
our
directors and officers. Generally, these agreements attempt to provide the
maximum protection permitted by law with respect to indemnification. See
"Management — Limitation of Liability and Indemnification of Directors and
Officers."
SELLING
STOCKHOLDERS
The
following table provides certain information with respect to the selling
stockholders' beneficial ownership of our common stock as of June 4, 2008 and
as
adjusted to give effect to the sale of all of the shares of common stock offered
by this prospectus. We do not know when or in what amounts the selling
stockholders may offer for sale the shares of common stock pursuant to this
prospectus. The selling stockholders may choose not to sell any of the shares
offered by this prospectus. For purposes of this table, we have assumed the
selling stockholders will have sold all of the shares covered by this prospectus
upon the completion of the offering.
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a selling stockholder and the
percentage of ownership of that selling stockholder, shares of common stock
underlying outstanding shares of our Series B Preferred Stock, convertible
debentures, options or warrants held by that selling stockholder that are
convertible or exercisable, as the case may be, within 60 days from the
date of this prospectus are included. Those shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other
selling stockholder. Each selling stockholder's percentage of ownership in
the
following table is based upon 40,486,441 shares of common stock outstanding
as
of August 20, 2008. We will not receive any of the proceeds from the sale
of our
common stock by the selling stockholders.
Except
as
noted below, none of these selling stockholders are, or are affiliates of,
a
broker-dealer registered under the Exchange Act.
Except
as
described below, to our knowledge, none of the selling stockholders within
the
past three years has had any material relationship with us or any of our
predecessors or affiliates:
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
Number
of
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
Shares
|
|
Percent
|
|
Ron
Boyer (2)
|
|
|
8,935,769
|
|
|
5,935,769
|
|
|
3,000,000
|
|
|
7
|
%
|
1132
SW 19th Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portland,
OR 97205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarkowsky
Family L.P. (3)
|
|
|
7,136,981
|
|
|
6,086,981
|
|
|
1,100,000
|
|
|
3
|
%
|
Herman
Sarkowsky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
5th Avenue, Suite 1600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seattle,
WA 981045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
LeMarque Family Trust
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
-
|
|
|
-
|
|
Hector
LeMarque TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
Shadow Hills Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren
and Cathy Smith Trustees
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
of
the Warran and Cathy Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revocable
Trust U.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1648
E. Mira Vista
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flagstaff,
AZ 86001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
R. Butler
|
|
|
1,050,000
|
|
|
1,050,000
|
|
|
-
|
|
|
-
|
|
600
108th Street, #242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bellevue,
WA 98004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brett
Goldfarb (4)
|
|
|
200,001
|
|
|
200,001
|
|
|
-
|
|
|
-
|
|
1420
5th Ave., #2625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seattle,
WA 98101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
J. Goldfarb Enterprises LLC (4)
|
|
|
2,300,001
|
|
|
2,300,001
|
|
|
-
|
|
|
-
|
|
Michael
J. Goldfarb |
|
|
|
|
|
|
|
|
|
|
|
|
|
1420
5th Ave., #2625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seattle,
WA 98101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irwin
Helford Family Trust
|
|
|
1,800,000
|
|
|
1,800,000
|
|
|
-
|
|
|
-
|
|
Irwin
Helford TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Hughes Center Drive, #1804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce
Energy Group, Inc. (5)
|
|
|
4,465,276
|
|
|
777,088
|
|
|
3,688,188
|
|
|
9
|
%
|
J.
Robert Hopps, Interim CFO |
|
|
|
|
|
|
|
|
|
|
|
|
|
600
Anton Blvd, 20th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costa
Mesa, CA 92626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. Saltman and Sonja
Saltman
|
|
|
800,001
|
|
|
800,001
|
|
|
-
|
|
|
-
|
|
1997
Family Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. Saltman TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Hughes Center Drive, #1830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Byron
LeBow Revocable
|
|
|
2,700,003
|
|
|
2,700,003
|
|
|
-
|
|
|
-
|
|
Family
Trust (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Byron
LeBow TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Hughes Center Drive #1104N
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerome
F. Snyder
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
8628
Scarsdale Dr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCP
Operating LLC
|
|
|
750,000
|
|
|
750,000
|
|
|
-
|
|
|
-
|
|
Phillip
C. Peckman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9525
Hillwood Dr., Suite 160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred
Chin
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
3230
South Plaris Avenue, Ste. 11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur
& Jayn Marshall
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
Family
Trust DTD 7/2/1973 (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur
Marshall TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Turmberry
Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2877
Paradise Road, No. 1701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
Marshall Revocable Trust
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
UAD
DTD 04/01/2003 (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
Marshall TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PO
Box 46470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cari
Marshall Trust UAD
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
DTD
01/09/1995 (7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cari
Marshal TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
Grouse Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George
Boyadjieff (8) (9)
|
|
|
2,775,000
|
|
|
3,550,000
|
|
|
275,000
|
|
|
*
|
|
18772
Colony Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Villa
Park, CA 92861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Douglas
M. and
|
|
|
387,500
|
|
|
150,000
|
|
|
237,500
|
|
|
*
|
|
Karen
M. Dunn Trustees;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dunn
Family Trust (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated
April 7, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11817
Oakland Hills Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alvin
Goldfarb (4)
|
|
|
450,000
|
|
|
450,000
|
|
|
-
|
|
|
-
|
|
4823
Lake Washington Blvd. NE #3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kirkland,
WA 98033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
G. Coyne
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
3230
South Polaris Avenue, Ste. 11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
Rado (8)
|
|
|
587,500
|
|
|
400,000
|
|
|
187,500
|
|
|
*
|
|
16
Chesterfield Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren,
NJ 07059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marathon
Resource Partners I, L.P. (10)
|
|
|
3,450,000
|
|
|
3,450,000
|
|
|
-
|
|
|
-
|
|
Robert
Mullin, Managing Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Ferry Building, Suite 255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Francisco, CA 94111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marathon
International
|
|
|
550,002
|
|
|
550,002
|
|
|
-
|
|
|
-
|
|
Master
Fund II, L.P. (10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Mullin, Managing Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Ferry Building, Suite 255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Francisco, CA 94111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
D. and Dorothy R. Snyder
|
|
|
400,002
|
|
|
400,002
|
|
|
-
|
|
|
-
|
|
Living
Trust 1989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
D. Snyder TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2824
High Sail Ct.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
Sitkin
|
|
|
60,000
|
|
|
60,000
|
|
|
-
|
|
|
-
|
|
1933
38th Avenue East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seattle,
WA 98112-3139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
& Mona Sher
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
3111
Bel Air Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burton
M Cohen Trust
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
Burton
M Cohen TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
3111
Bel Air Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit
14C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSSS
Family Partners, L.P.
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
Martin
D. Schaffer, General Partner |
|
|
|
|
|
|
|
|
|
|
|
|
|
1912
South Realeza Ct.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Richard A. Oshins
|
|
|
120,000
|
|
|
120,000
|
|
|
-
|
|
|
-
|
|
1995
Irrevocable Trust (12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Oshins & Jerry Engel, TTEEs |
|
|
|
|
|
|
|
|
|
|
|
|
|
1645
Village Center Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Richard A. Oshins
|
|
|
90,000
|
|
|
90,000
|
|
|
-
|
|
|
-
|
|
1990
Irrevocable Trust (11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Oshins, Family TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
1645
Village Center Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Ruth S. Oshins
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
2000
Irrevocable Trust (11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Oshins, Family TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
1645
Village Center Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
The
Benjamin Oshins
|
|
|
45,000
|
|
|
45,000
|
|
|
-
|
|
|
-
|
|
Bypass
Trust (11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Oshins & Ruth S. Oshins, Family TTEEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1645
Village Center Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Edward H. Oshins
|
|
|
120,000
|
|
|
120,000
|
|
|
-
|
|
|
-
|
|
Revocable
Trust (11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruth
S. Oshins, TTEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
59
John Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LUH,
Inc.
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
Thomas
Oden, CFO and Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
1001
Lakeside Ave., Suite 900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleveland,
OH 44114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Lionel Trust
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
Samuel
Lionel, Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1700
Bank of America Tower
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
South 4th Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Heerensperger
|
|
|
1,000,002
|
|
|
1,000,002
|
|
|
-
|
|
|
-
|
|
96
Cascade Key
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bellvue,
WA 98006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry
L. and Dana A. Wright Living
|
|
|
250,002
|
|
|
250,002
|
|
|
-
|
|
|
-
|
|
Trust
2001, Terry Wright TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2500
North Buffalo Drive, Suite 150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
"BJ" Lackland (8)(12)
|
|
|
2,060,500
|
|
|
2,737,500
|
|
|
43,000
|
|
|
*
|
|
3960
Howard Hughes Pkwy, Ste 460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Murray TTEE of the RMM
|
|
|
238,000
|
|
|
150,000
|
|
|
88,000
|
|
|
*
|
|
Living
Trust Dated 9/11/2006 (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3960
Howard Hughes Pkwy, Ste 460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sharon
Fay Strasser (13)
|
|
|
437,502
|
|
|
437,502
|
|
|
-
|
|
|
-
|
|
1
Hughes Center Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#1004-N
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada
Trust Company
|
|
|
250,002
|
|
|
250,002
|
|
|
-
|
|
|
-
|
|
As
Custodian F/B/O Mark L Fine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rollover
IRA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U/A
Dated September 24, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended
November 12, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4043
South Easter Ave.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89193-3685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
S. Boyd Trust II
|
|
|
250,002
|
|
|
250,002
|
|
|
-
|
|
|
-
|
|
William
S. Boyd TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2950
Industrial Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herbert
Soroca
|
|
|
174,052
|
|
|
101,965
|
|
|
72,087
|
|
|
*
|
|
Bear
Stearns Securities Corp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Metro Center
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn,
NY 11201-3859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Patricia
R. Schwarz (14)
|
|
|
101,965
|
|
|
101,965
|
|
|
-
|
|
|
-
|
|
740
Pinehurst Way
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palm
Beach Gardens, FL 33418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
H. Schwartz (14)
|
|
|
101,965
|
|
|
101,965
|
|
|
-
|
|
|
-
|
|
740
Pinehurst Way
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palm
Beach Gardens, FL 33418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yahia
Bagzhouz
|
|
|
24,000
|
|
|
24,000
|
|
|
-
|
|
|
-
|
|
4504
Maryland Parkway
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Box
454026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth
Dickey
|
|
|
100,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
6481
Wooded View Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boston
Heights, OH 44236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas
Anderson (8)
|
|
|
66,000
|
|
|
66,000
|
|
|
-
|
|
|
-
|
|
1536
208th Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayside,
NY 11360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.
Scott Caputo
|
|
|
4,285
|
|
|
4,285
|
|
|
-
|
|
|
-
|
|
1155
Colonial Way
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgewater,
NJ 08807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norbert
Mayer (8)
|
|
|
15,000
|
|
|
15,000
|
|
|
-
|
|
|
-
|
|
576
Grassy Hill Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orange,
CT 06477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Straka
|
|
|
14,284
|
|
|
14,284
|
|
|
-
|
|
|
-
|
|
Hitachi
America Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Prospect Ave
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tarrytown,
NY 10591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonard
Bellezza
|
|
|
89,927
|
|
|
81,284
|
|
|
8,643
|
|
|
*
|
|
79
Talltimber Rd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middletown,
NJ 07748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art
Marsh
|
|
|
1,428
|
|
|
1,428
|
|
|
-
|
|
|
-
|
|
Blue
Mountain Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7386
Fairway Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parker,
CO 80134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond
Skiptunis (8)
|
|
|
471,039
|
|
|
111,000
|
|
|
360,039
|
|
|
*
|
|
4459
Via Bianca Ave.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
Mataya
|
|
|
30,000
|
|
|
30,000
|
|
|
-
|
|
|
-
|
|
2
Locust Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helmetta,
NJ 08828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy
Franzen
|
|
|
7,143
|
|
|
7,143
|
|
|
-
|
|
|
-
|
|
260
E. Flamingo Road, #311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan
Dziena
|
|
|
1,214
|
|
|
1,214
|
|
|
-
|
|
|
-
|
|
865
UN Plaza, #16E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Koch
|
|
|
154,666
|
|
|
106,354
|
|
|
48,312
|
|
|
*
|
|
1604
Sound Watch Dr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilmington,
NC 28409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Leon
Mayer
|
|
|
50,000
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
547
McKinley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plymouth,
MI 48170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ron
Heagle
|
|
|
100,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
5533
Bilbao Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarasota,
FL 34238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick
Pulford
|
|
|
168,551
|
|
|
25,000
|
|
|
143,551
|
|
|
*
|
|
3000
Town Center, Suite 540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southfield,
MI 48075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don
Fields (8)
|
|
|
200,000
|
|
|
200,000
|
|
|
-
|
|
|
-
|
|
11642
Deer Forest Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reston,
VA 20194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nils
Weibull (8)
|
|
|
118,000
|
|
|
118,000
|
|
|
-
|
|
|
-
|
|
1689
W. Huron River Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann
Arbor, MI 48103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan
Koch
|
|
|
39,000
|
|
|
39,000
|
|
|
-
|
|
|
-
|
|
301
W 10th St, Apt 203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlotte,
NC 28202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Chan (8)
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
7594
Ironwood Knoll Ave
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las
Vegas, NV 89109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
Reifer
|
|
|
101,828
|
|
|
57,693
|
|
|
44,135
|
|
|
*
|
|
123
Fraleigh Hill Rd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millbrook,
NY 12545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herman
Gross
|
|
|
1,153,850
|
|
|
1,153,850
|
|
|
-
|
|
|
-
|
|
12
Jordan Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Neck, NY 11021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allan
Duffy
|
|
|
57,693
|
|
|
57,693
|
|
|
-
|
|
|
-
|
|
741
Bayshore Drive, Apt. 14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort
Lauderdale, FL 33304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin
Fisher
|
|
|
28,847
|
|
|
28,847
|
|
|
-
|
|
|
-
|
|
Bear
Stearns Security Corp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Metrotech Center North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn,
NY 11201-3859
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abacus
Solutions
|
|
|
100,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
Alan
Cohen |
|
|
|
|
|
|
|
|
|
|
|
|
|
745
5th Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Justin
Bellezza
|
|
|
1,000
|
|
|
1,000
|
|
|
-
|
|
|
-
|
|
500
Washington Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlstadt,
NJ 07072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Sacharoff
|
|
|
33,000
|
|
|
33,000
|
|
|
-
|
|
|
-
|
|
500
Washington Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlstadt,
NJ 07072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard
Geik
|
|
|
33,000
|
|
|
33,000
|
|
|
-
|
|
|
-
|
|
500
Washington Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlstadt,
NJ 07072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Domimick
Rizzitano
|
|
|
33,000
|
|
|
33,000
|
|
|
-
|
|
|
-
|
|
500
Washington Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlstadt,
NJ 07072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DB
Max
|
|
|
700
|
|
|
700
|
|
|
-
|
|
|
-
|
|
8520
Roundhill Ct.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saline,
MI 48176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reed
Smith LLP
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
Gerard
Difiore, Partner |
|
|
|
|
|
|
|
|
|
|
|
|
|
P.O.
Box 23416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newark,
NJ 07198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
A. Ackner
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
14643
Draft House Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellington,
FL 33414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Anderson
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
4409
Willow Creek Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bellbrook,
OH 45305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryan
Arakelian
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
7110
N. Fresno Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresno,
CA 93720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
F. Arnold &
|
|
|
100,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
Susan
L. Arnold JR WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
Fielding Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wakefield,
MA 01880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
J. Bargiel
|
|
|
112,500
|
|
|
112,500
|
|
|
-
|
|
|
-
|
|
100
West Monroe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL 60603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
J. Bender
|
|
|
300,000
|
|
|
300,000
|
|
|
-
|
|
|
-
|
|
2803
22nd Street S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lacrosse,
WI 54601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkowitz
and Garfinkel
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
D.D.S.,
P.A. Employees'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D/T/D
7/1/1972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Berkowitz & Eric
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garfinkel
Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Country Club Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marlboro,
NJ 07746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lester
B. Boelter
|
|
|
250,000
|
|
|
250,000
|
|
|
-
|
|
|
-
|
|
50
Shady Oak Court
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winona,
MN 55987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
H. Brackman
|
|
|
225,000
|
|
|
225,000
|
|
|
-
|
|
|
-
|
|
5309
Crave Avenue E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port
Orchard, WA 98366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Buhrdorf
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
4582
South Vister Steet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denver,
CO 80237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Davis
|
|
|
125,000
|
|
|
125,000
|
|
|
-
|
|
|
-
|
|
383
North West 112th Ave
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coral
Springs, FL 33071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
James
Demarco & Rose
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
Demarco
JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274
Rose Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staten
Island, NY 10306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
Dotter
|
|
|
112,500
|
|
|
112,500
|
|
|
-
|
|
|
-
|
|
3615
West Lawther Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas,
TX 75214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arun
Dua & Satish Dua
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
JT
WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
W. Houston ST. 28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
Duffy
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
178
Hanson Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Rochelle, NY 10804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ahsan
Farooqi
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
54
Kimberly Court
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Brunswick, NJ 08852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
L. Fox &
|
|
|
262,500
|
|
|
262,500
|
|
|
-
|
|
|
-
|
|
Lynne
Fox JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450
Music Mountain Rd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Falls
Village, CT 06031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernie
J. Gallas
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
5200
North Diversey Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milwaikee,
WI 53217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
T. Hellner
|
|
|
1,159,091
|
|
|
1,159,091
|
|
|
-
|
|
|
-
|
|
900
West Olive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merced,
CA 95348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Paul A. Kaye Family
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
Trust
D/T/D 10/06/93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Paul A. Kaye Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Diamonte Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rancho
Palos Verdes, CA 90275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
J. Keller &
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
Debra
M. Keller JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1246
130th Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Richmond, WI 54017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Kelly
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
1558
E. County Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
800
N.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ockans,
IN 47452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Kemp
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
2528
Boulder Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn
Hills, MI 48326
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
N. Kitchens &
|
|
|
175,000
|
|
|
175,000
|
|
|
-
|
|
|
-
|
|
Martha
M. Kitchens
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JT
WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Fox Vale Lane
|
|
|
|
|
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|
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|
|
Nashville,
TN 37221
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Lester
Krasno
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
400
North 2nd Steet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pottsville,
PA 17901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin
Kriel
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
2904
Pocock Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monkton,
MD 21111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
J. Lange
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
20800
Hunters Run
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookfield,
WI 53045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lind
Family Investments LP
|
|
|
100,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
1000
West Washington St.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
#502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL 60607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry
Lind Revocable Trust
|
|
|
500,000
|
|
|
500,000
|
|
|
-
|
|
|
-
|
|
Barry
Lind Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U/A/D
12/19/1989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1000
West Washinton St.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
#502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL 60607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National
Financial Services
|
|
|
600,000
|
|
|
600,000
|
|
|
-
|
|
|
-
|
|
LLC
As Custodian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FBO
Lance Lindsey IRA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7700
Blanding Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacksonville,
FL 32244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dwight
Long
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
406
Belle Glen Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brentwood,
TN 37027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
S. McCorstin
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
4750
Blue Mountain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yorba
Linda, CA 92887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen
Miskiewicz
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
Apt.
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Par-La-Ville Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hamilton
HM11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bermuda
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enrico
Monaco
|
|
|
125,000
|
|
|
125,000
|
|
|
-
|
|
|
-
|
|
2230
Ocean Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn,
NY 11229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natchez
Morice
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
12
A
West Bank Exwy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gretna,
LA 70056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSB
Family Trust
|
|
|
250,000
|
|
|
250,000
|
|
|
-
|
|
|
-
|
|
D/T/D
6/25/93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Blechman TTEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295
Shadowood Ln.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northfield,
IL 60093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Navarro Jr. &
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
Richard
Navarro JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2036
Highway 35 North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
Amboy, NJ 08879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National
Financial Services
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
LLC
As Custodian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FBO
Michael J. Radlove IRA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2748
Blackbird Hollow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati,
OH 452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Prahalathan
Rajasekaran
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
1
Grosvenor Place
|
|
|
|
|
|
|
|
|
|
|
|
|
|
London,
England SW1X7JJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gretchen
Kinstler
|
|
|
750,000
|
|
|
750,000
|
|
|
-
|
|
|
-
|
|
49-365
Rio Arenoso
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La
Quinto, CA 92253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
Silver
|
|
|
250,000
|
|
|
250,000
|
|
|
-
|
|
|
-
|
|
225
West Hubbard Suite 600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL 60610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
A. Snyder &
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
Beverly
J. Snyder JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27297
Forest Grove Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evergreen,
CO 80439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claire
Spooner
|
|
|
225,000
|
|
|
225,000
|
|
|
-
|
|
|
-
|
|
111
Seaview Court
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neptune,
NJ 07753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry
H. Strauss
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
12
Howard Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tappan,
NY 10983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Takacs
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
17073
Snyder Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bainbridge,
OH 44023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Terranova &
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
Vincent
Terranova TEN COM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349
Bartlett Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staten
Island, NY 10312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
S. Tyrrell
|
|
|
262,500
|
|
|
262,500
|
|
|
-
|
|
|
-
|
|
2711
Edgehill Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bronx,
NY 10463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herbert
Weisberger
|
|
|
112,500
|
|
|
112,500
|
|
|
-
|
|
|
-
|
|
2904
West Clay Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richmond,
VA 23230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darren
R. Williams
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
17280
Timothy Way
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gladstone,
OR 97027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
A. Yates
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
Shakeseare
No 15-1 Piso
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cuydad
De Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distrito
Federal 11590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Young
|
|
|
250,000
|
|
|
250,000
|
|
|
-
|
|
|
-
|
|
1750
Braeside Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northbrook,
IL 60062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan
Arnett
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
7
Longwood Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandspoint,
NY 11050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Elliot
Braun
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
C/O
Atlantic Beverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3775
Park Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edison,
NJ 08820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry
J. Buck
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
1624
Brandon Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hebron,
KY 41048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
H. Cooper
|
|
|
100,000
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
5840
De Claire Court
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta,
GA 30328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
Gurewitsch
|
|
|
112,500
|
|
|
112,500
|
|
|
-
|
|
|
-
|
|
930
5th Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apt.
3-G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio
Hernandez
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
1575
Bengal Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
El
Paso, TX 79935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Herron
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
601
Cleveland Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suite
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clearwater,
FL 33755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
W. Higginson
|
|
|
150,000
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
247-F
Rosario Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa
Fe, NM 87501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don
Jackler &
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
Alana
Jackler JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246
E. 51st Street Suite 8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
Mapes
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
532
Bellepoint Drive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St.
Pete Beach, FL 33706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
John McPhail
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
603
Beamon Steet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinton,
NC 28328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grace
Melton
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
1250
S. Beverly Glen Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los
Angeles, CA 90024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry
R. Nichols &
|
|
|
50,000
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
Janet
B. Nichols JT WROS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9348
Burning Tree Dr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Blanc, MI 48439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National
Financial Services
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
LLC
As Custodian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FBO
Michael J. Radlove IRA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2748
Blackbird Hollow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati,
OH 45244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry
Saxe
|
|
|
187,500
|
|
|
187,500
|
|
|
-
|
|
|
-
|
|
325
E. 41st Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Beneficially
Owned
|
|
Total
Number
|
|
|
|
|
|
|
|
|
|
Prior
to Offering
|
|
of
Shares of
|
|
|
Shares
of Common
|
|
|
|
(All
exercisable within
|
|
Common
|
|
|
Stock
Beneficially
|
|
|
|
60
days of Prospectus)
|
|
Stock
|
|
|
Owned
After Offering
|
|
Selling
|
|
Number
of
|
|
Registered
|
|
|
Number
of
|
|
|
|
|
Stockholder
|
|
Shares(1)
|
|
for
Sale
|
|
|
Shares
|
|
|
Percent
|
|
Theodore
Staahl
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
1329
Spanos Court
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modesto,
CA 95355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randolph
Stephenson
|
|
|
75,000
|
|
|
75,000
|
|
|
-
|
|
|
-
|
|
10316-300
Feld Farm Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlotte,
NC 28210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
Yodice
|
|
|
375,000
|
|
|
375,000
|
|
|
-
|
|
|
-
|
|
2443
Benson Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn,
NY 11214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USBX
Advisory Services, Inc.
|
|
|
210,000
|
|
|
210,000
|
|
|
-
|
|
|
-
|
|
2425
Olympic Blvd. Ste 500 East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa
Monica, CA 90404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooks
Dexter
|
|
|
90,000
|
|
|
90,000
|
|
|
-
|
|
|
-
|
|
2425
Olympic Blvd. Ste 500 East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa
Monica, CA 90404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony
Acone
|
|
|
45,000
|
|
|
45,000
|
|
|
-
|
|
|
-
|
|
44-489
Town Center Way #D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palm
Desert, CA 92260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Number of Shares of Common Stock Registered for Sale
|
|
59,687,619
|
|
|
|
|
|
|
|
* Less
than
1%
(1)
|
All
share numbers are based on information that these selling stockholders
supplied to us. The term “selling stockholders” also includes any
transferees, pledges, donees, or other successors in interest to
the
selling stockholders named in the table below. To our knowledge,
subject
to applicable community property laws, each person named in the table
has
sole voting and investment power with respect to the shares of Common
Stock set forth opposite such person's name, unless otherwise indicated
below. The inclusion of any shares in this table does not constitute
an
admission of beneficial ownership by the selling
stockholder.
|
(2)
|
Ron
Boyer owns over 4% of our currently outstanding common stock and
over 18%
of our common stock on a fully diluted basis, including upon conversion
of
our Series B Preferred Stock and upon conversion or exercise of
all
outstanding options and warrants within 60 days of the date hereof,
and
under certain definitions, may be considered an affiliate of our
company.
|
(3)
|
The
Sarkowsky Family L.P. owns over 8% of our outstanding common stock
and
over 16% of our common stock on a fully diluted basis, including
upon
conversion of our Series B Preferred Stock and upon conversion
or exercise
of all outstanding options and warrants within 60 days of the date
hereof,
and under certain definitions, may be considered an affiliate of
our
company.
|
(4)
|
Michael
J. Goldfarb Enterprises LLC owns over 2% of our outstanding common
stock
and over 5% of our common stock on a fully diluted basis, including
upon
conversion of our Series B Preferred Stock and upon conversion
or exercise
of all outstanding options and warrants within 60 days of the date
hereof,
and under certain definitions, may be considered an affiliate of
our
company. Michael J. Goldfarb, the managing member of Michael J.
Goldfarb
Enterprises LLC, is the father of Brett Goldfarb, and the brother
of Alvin
Goldfarb. Mr. Goldfarb disclaims beneficial ownership of Brett
Goldfarb’s
and Alvin Goldfarb’s shares.
|
(5)
|
Commerce
Energy Group owns over 8% of our outstanding common stock and over
10% of
our common stock on a fully diluted basis, including upon conversion
of
our Series B Preferred Stock and upon conversion or exercise of
all
outstanding options and warrants within 60 days of the date hereof,
and
under certain definitions, may be considered an affiliate of our
company.
|
(6)
|
The
Byron LeBow Revocable Family Trust owns over 2% of our outstanding
common
stock and over 6% of our common stock on a fully diluted basis,
including
upon conversion of our Series B Preferred Stock and upon conversion
or
exercise of all outstanding options and warrants within 60 days
of the
date hereof, and under certain definitions, may be considered an
affiliate
of our company.
|
(7)
|
Arthur
and Jayn Marshall, trustees of the Arthur and Jayn Marshall Family
Trust
DTD 7/2/1973, are the parents of Todd Marshall and Cari Marshall,
trustees
of the Todd Marshall Revocable Trust UAD DTD 04/01/2003 and the
Cari
Marshall Trust UAD DTD 01/09/1995, respectively. Arthur and Jayn
Marshall
disclaim beneficial ownership of Todd Marshall’s and Cari Marshall’s
beneficial shares.
|
(8)
|
Indicates
a person that has, within the past three years, served as an employee,
officer or director of the
company.
|
(9)
|
Mr.
Boyadjieff has been a Senior Technical Advisor of the Company since
April
2005 and a Director of the Company since May 2006. Mr. Boyadjieff
owns
over 2% of our outstanding common stock and over 6% of our common
stock on
a fully diluted basis, including upon conversion of our Series
B Preferred
Stock and upon conversion or exercise of all outstanding options
and
warrants within 60 days of the date hereof, and under certain definitions,
may be considered an affiliate of our company. Mr. Boyadjieff beneficially
owns a total of 3,825,000 commons shares, common shares issuable
upon the
exercise of stock options and warrants and common shares issuable
upon the
conversion of Series B Preferred
Stock.
|
(10)
|
Marathon
Resource Partners I, L.P. owns over 3% of our outstanding common
stock and
over 8% of our common stock on a fully diluted basis, including
upon
conversion of our Series B Preferred Stock, and upon conversion
or
exercise of all outstanding options and warrants within 60 days
of the
date hereof, and under certain definitions, may be considered an
affiliate
of our company. Marathon Resource Partners I, L.P. is an affiliate
of
Marathon International Master Fund II, L.P. and has the same managing
partner. Marathon Resource Partners I, L.P. disclaims beneficial
ownership
of Marathon International Master Fund II, L.P.’s shares.
|
(11)
|
Richard
A. Oshins, trustee of the Richard A. Oshins 1995 Irrevocable Trust
and the
Richard A. Oshins 1990 Irrevocable Trust, is married to Ruth S.
Oshins,
trustee of the Ruth S. Oshins 2000 Irrevocable Trust, and is the
father of
Benjamin Oshins and Edward H. Oshins, trustees of the Benjamin
Oshins
Bypass Trust and the Edward H. Oshins Revocable Trust, respectively.
Richard A. Oshins disclaims beneficial owners ship of Ruth S. Oshins’,
Benjamin Oshins’, and Edward H. Oshins’ beneficial
shares.
|
(12)
|
Mr.
Lackland has been a Director of the Company since August 2007 and
the
Chief Financial Officer of the Company since October 2004. Indicates
a
person that has, within the past three years, served as an employee,
officer or director of the company. Mr. Lackland beneficially owns
a total
of 2,780,500 commons shares and common shares issuable upon the
exercise
of stock options.
|
(13)
|
Sharon
Strasser is married to the Company’s Chief Executive Officer, Steven
Strasser. Mr. Strasser disclaims beneficial ownership of Mrs. Strasser’s
Shares.
|
(14)
|
Patricia
Schwartz is married to David Schwartz. Mrs. Schwartz disclaims
beneficial
ownership to Mr. Schwartz’s shares.
|
DESCRIPTION
OF SECURITIES
The
following is a summary of the rights of our common and preferred stock and
related provisions of our articles of incorporation and our bylaws, as will
be
in effect upon the closing of this offering. This summary is not complete.
For
more detailed information, please see our articles of incorporation, bylaws
and
related agreements, which are filed as exhibits or incorporated by reference
to
the registration statement of which this prospectus is a part.
Common
Stock
We
are
authorized to issue up to 140,000,000 shares of common stock. As of June
4,
2008, there were 40,486,441 shares of common stock issued and outstanding.
Each
holder of issued and outstanding shares of our common stock will be entitled
to
one vote per share on all matters submitted to a vote of our stockholders.
Holders of shares of our common stock do not have cumulative voting rights.
Therefore, the holders of more than 50% of the shares of our common stock
will
have the ability to elect all of our directors.
Holders
of our common stock are entitled to share ratably in dividends payable in cash,
property or shares of our capital stock, when, as and if declared by our Board
of Directors. We do not currently expect to pay any cash dividends on our common
stock. Upon our voluntary or involuntary liquidation, dissolution or winding
up,
any assets remaining after prior payment in full of all of our liabilities
and
after prior payment in full of the liquidation preference of any preferred
stock
would be paid ratably to holders of our common stock.
Options
to Purchase Common Stock
The
following table describes the options to purchase shares of our common stock
that are outstanding as of August 27, 2008, and that will be outstanding
immediately following the offering:
Description
|
|
Total
Number
of
Shares
Underlying
Options
Before
this Offering
|
|
Weighted
Average
Exercise
Price
Per
Share
Before
This Offering
|
|
Total
Number
of
Shares
Underlying
Options
After
This
Offering
|
|
Weighted
Average
Exercise
Price For
Shares
After this
Offering
|
|
2000
Stock Option and Restricted
Stock Plan
|
|
|
13,884,896
|
|
$
|
0.37
|
|
|
13,884,896
|
|
$
|
0.37
|
|
1994
Stock Option Plan
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
Total
|
|
|
13,884,896
|
|
$
|
0.37
|
|
|
13,884,896
|
|
$
|
0.37
|
|
The
options also contain provisions for the adjustment of the exercise price and
the
aggregate number of shares issuable upon exercise of the options in the event
of
stock dividends, stock splits, reorganization, reclassifications and
consolidation.
Warrants
to Purchase Common Stock
As
of the
date hereof, there are, and following this offering there will be, 29,704,968
warrants outstanding with exercise prices ranging from $0.20 to $2.17 with
expiration dates ranging from June 11, 2007 through May 11, 2013.
Certain
of the warrants have net exercise provisions under which their respective
holders may, in lieu of payment of the exercise price in cash, surrender the
warrant and receive a net amount of shares based on the fair market value of
our
common stock after deduction of the aggregate exercise price. These warrants
also contain provisions for the adjustment of the exercise price and the
aggregate number of shares issuable upon exercise of the warrants in the event
of stock dividends, stock splits, reorganization, reclassifications and
consolidations.
Preferred
Stock
We
are
authorized to issue 10,000,000 shares of preferred stock, $.001 par value per
share. As of June 4, 2008, 140,000 shares of preferred stock have been
designated as Series B Preferred and all such shares of Series B Preferred
Stock
are issued and outstanding.
The
Series B Preferred Stock is non-voting, and is entitled to dividends at a rate
of 8% per annum, payable in cash or common stock only when, or if, declared
by
our Board of Directors.
Each
share of Series B Preferred Stock is initially convertible into 100 shares
of
our common stock at any time at the option of the stockholder. The shares of
Series B Preferred Stock are automatically converted into common stock in the
event the average closing price of the common stock for any ten day period
equals or exceeds $1.00 per share.
The
Certificate of Designations of the Series B Preferred Stock provides that in
the
event we issue stock in connection with a dividend, distribution,
classification, merger or consolidation of the number of shares of common stock
that the Series B Stock is convertible into will be adjusted accordingly.
In
the
event of any dissolution or winding up of the Company, whether voluntary or
involuntary, holders of each outstanding share of Series B Preferred Stock
will
be entitled to be paid pari passu with any other series of preferred stock
equal
to the Series B Preferred Stock.
Registration
Rights
Pursuant
to the offering which terminated on January 21, 2008, we are obligated to (i)
use reasonable best efforts to register by March 21, 2008, the shares of common
stock issuable upon the conversion of our Series B Preferred Stock and warrants
in a registration statement to be filed by us with the Securities and Exchange
Commission and (ii) use our best efforts to cause such registration statement
to
be declared effective by the Commission by May 20, 2008 and to remain effective
without any lapse of 30 or more consecutive days.
Certain
Statutory and Charter Provisions Relating to a Change of
Control
We
are
subject to the provisions of Section 203 of the DGCL. In general, this provision
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder.
A
“business combination” includes a merger, asset sale, or other transaction
resulting in a financial benefit to the interested stockholder. An “interested
stockholder” is a person, other than the corporation and any direct or indirect
wholly-owned subsidiary of the corporation, who together with the affiliates
and
associates, owns or, as an affiliate or associate, within three years prior,
did
own 15% or more of the corporation's outstanding voting stock.
This
prohibition is lifted if:
|
·
|
prior
to such date, the corporation's Board of Directors approved either
the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
|
|
·
|
upon
consummation of the transaction that resulted in such person becoming
an
interested stockholder, the interested stockholder owned at least
85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the
number of
shares outstanding, shares owned by certain directors or certain
employee
stock plans; or
|
|
·
|
on
or after the date the stockholder became an interested stockholder,
the
business combination is approved by the corporation's Board of Directors
and authorized by the affirmative vote, and not by written consent,
of at
least two-thirds of the outstanding voting stock of the corporation
excluding that owned by the interested
stockholder.
|
Section
203 expressly exempts from the requirements described above any business
combination by a corporation with an interested stockholder who becomes an
interested stockholder in a transaction approved by the corporation's Board
of
Directors.
Rule
144
Of
the
40,486,441 shares of the Company’s common stock outstanding on the date of
prospectus, 27,676,701 shares are freely trading in the market place (the
“Free
Trading Shares”). The Free Trading Shares are comprised mostly of shares (1)
originally issued in private offerings of common stock from June through
March
2007, that were later registered in the Company’s SB-2 Registration Statements,
both declared effective on May 14, 2007 and (2) shares originally issued
in
transactions exempt from registration under the Securities
Act.
The
remaining 12,809,740 shares of our common stock outstanding are restricted
securities as defined in Rule 144 and under certain circumstances may be
resold
without registration pursuant to Rule 144. These shares include the 8,320,569
shares held by Summit and Steven Strasser in the aggregate, and 4,486,171
shares
held by other directors, insiders and investors.
In
addition, the Company had approximately 29,704,968 common stock purchase
warrants outstanding and approximately 13,884,896 common stock options
outstanding. The shares issuable on exercise of the options and warrants may,
under certain circumstances, be available for public sale in the open market
under the Registration Statement or pursuant to Rule 144, subject to certain
limitations.
In
general, pursuant to Rule 144, after satisfying a six month holding period:
(i)
affiliated stockholder (or stockholders whose shares are aggregated) may, under
certain circumstances, sell within any three month period a number of securities
which does not exceed the greater of 1% of the then outstanding shares of common
stock or the average weekly trading volume of the class during the four calendar
weeks prior to such sale and (ii) non-affiliated stockholders may sell without
such limitations, provided we are current in our public reporting obligations.
Rule 144 also permits the sale of securities by non-affiliates that have
satisfied a one year holding period without any limitation or restriction.
Any
substantial sale of the common stock pursuant to Rule 144 may have an adverse
effect on the market price of the Company’s shares.
Transfer
Agent and Registrar
The
transfer agent for our common stock is Continental Stock Transfer and Trust,
located at 17 Battery Place, New York, New York, 10004.
PLAN
OF DISTRIBUTION
Our
common stock is currently traded on the OTC Bulletin Board.
All
of
the shares of our common stock included in this prospectus are for sale by
the
selling stockholders. We will not receive any proceeds from the sale by the
selling stockholders of the shares of common stock pursuant to this prospectus
which are already owned by them, or which are to be issued to them upon their
conversion of shares of our convertible preferred stock. We will receive cash
proceeds from the issuance of shares to selling stockholders on exercise of
options or warrants, but not from the resale of any such shares.
The
selling stockholders and any of their pledgees, assignees and
successors-in-interest, may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed
or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the date of this prospectus;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
·
|
a
combination of any such methods of sale;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise; or
|
|
·
|
any
other method permitted pursuant to applicable law.
|
The
selling stockholders may also sell shares under Rule 144, if available,
rather than under this prospectus.
NASD
Notice to Members 88-101 states that in the event a selling shareholder intends
to sell any of the shares registered for resale in this Prospectus through
a
member of the NASD participating in a distribution of our securities, such
member is responsible for insuring that a timely filing is first made with
the
Corporate Finance Department of the NASD and disclosing to the NASD the
following:
|
·
|
it
intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
|
|
·
|
the
complete details of how the selling shareholders shares are and will
be
held, including location of the particular
accounts;
|
|
·
|
whether
the member firm or any direct or indirect affiliates thereof have
entered
into, will facilitate or otherwise participate in any type of payment
transaction with the selling shareholders, including details regarding
any
such transactions; and
|
|
·
|
in
the event any of the securities offered by the selling shareholders
are
sold, transferred, assigned or hypothecated by any selling shareholder
in
a transaction that directly or indirectly involves a member firm
of the
NASD or any affiliates thereof, that prior to or at the time of said
transaction the member firm will timely file all relevant documents
with
respect to such transaction(s) with the Corporate Finance Department
of
the NASD for review.
|
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. Each
selling stockholder does not expect these commissions and discounts relating
to
its sales of shares to exceed what is customary in the types of transactions
involved.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may, after the date of this prospectus, also sell shares of our
common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn
may
sell these securities. The selling stockholders may also enter into option
or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to
such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution
may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of
the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholders has informed
us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute our common stock. If any of the selling
stockholders enter into an agreement with an underwriter to do a firm commitment
offering of the shares of our common stock offered by such selling stockholder
through this prospectus, if we are aware of such underwriting agreement we
will
file a post-effective amendment to the registration statement of which this
prospectus is a part setting forth the material terms of such underwriting
agreement. The selling stockholder may not sell any of the shares in such firm
underwriting until such post-effective amendment becomes effective.
Because
selling stockholders may be deemed to be "underwriters" within the meaning
of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144
rather than under this prospectus. Each selling stockholder has advised us
that
they have not entered into any agreements, understandings or arrangements with
any underwriter or broker-dealer regarding the sale of the resale shares. There
is no underwriter or coordinating broker acting in connection with the proposed
sale of the resale shares by the selling stockholders.
The
resale shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to our common stock for a period of two business
days prior to the commencement of the distribution. In addition, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
selling stockholders or any other person. We will make copies of this prospectus
available to the selling stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time
of
the sale.
We
do not
know whether any selling stockholder will sell any or all of the shares of
common stock registered by the registration statement of which this prospectus
forms a part.
We
will
pay all expenses of the registration of the shares of common stock offered
pursuant to this prospectus including SEC filing fees and expenses of compliance
with state securities or "blue sky" laws, except that the selling stockholders
will pay any underwriting discounts and selling commissions for the sale of
their shares. We expect that our expenses for this offering, consisting
primarily of legal, accounting and printing expenses, will be approximately
$59,201.
We
will
indemnify the selling stockholders against liabilities, including some
liabilities under the Securities Act, in accordance with registration rights
and
other agreements entered into by us with the selling stockholders, or the
selling stockholders will be entitled to contribution.
Once
sold
under the registration statement, of which this prospectus forms a part, by
any
of the selling stockholders, the shares of common stock will be freely tradable
in the hands of persons other than our affiliates.
Certain
legal matters will be passed upon for us by Ellenoff, Grossman & Schole LLP,
New York, New York.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is a part of the registration statement filed on Form S-1 with the
SEC. The registration statement contains more information about us and our
Common Stock than this prospectus, including exhibits and schedules. You should
refer to the registration statement for additional information about us and
our
Common Stock being offered in this prospectus. Statements contained in this
prospectus as to the contents of any contract or other document referred to
in
this prospectus are not necessarily complete and, where that contract is an
exhibit to the registration statement, each statement is qualified in all
respects by reference to the exhibit to which the reference relates.
We
are
subject to the information and reporting requirements of the Exchange Act and,
in accordance therewith, file reports and other information with the SEC. You
may read and copy any document that we file at the SEC's public reference
facilities at 450 Fifth Street N.W., Room 1024, Washington, D.C. 20549. Please
call the SEC at 1-800-732-0330 for more information about its public reference
facilities. Our SEC filings are also available to you free of charge at the
SEC's web site at http://www.sec.gov. Information about us may be obtained
from
our website www.powerefficiencycorp.com. Copies of our SEC filings are available
free of charge on the website as soon as they are filed with the SEC through
a
link to the SEC's EDGAR reporting system. Simply select the "Investors" menu
item, then click on the "SEC Filings" link.
POWER
EFFICIENCY CORPORATION
FINANCIAL
STATEMENTS
MARCH
31, 2008 AND 2007
AND
DECEMBER
31, 2007 AND 2006
POWER
EFFICIENCY CORPORATION
MARCH
31, 2008 AND 2006
DECEMBER
31, 2007 AND 2006
INDEX
|
|
|
Page
|
Financial
Statements March 31, 2008:
|
|
|
|
Balance
Sheet
|
F-1
|
|
|
Statements
of Operations
|
F-2
|
|
|
Statements
of Cash Flows
|
F-3
|
|
|
Notes
to Financial Statements
|
F-4
- F-5
|
|
|
Financial
Statements December 31, 2007:
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-6
|
|
|
Balance
Sheet
|
F-7
|
|
|
Statements
of Operations
|
F-8
|
|
|
Statements
of Changes in Stockholders' Equity
|
F-9
|
|
|
Statements
of Cash Flows
|
F-10
|
|
|
Notes
to Financial Statements
|
F-11
- F-31
|
POWER
EFFICIENCY CORPORATION
CONDENSED
BALANCE SHEET
Unaudited
|
|
March
31, 2008
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
|
$
|
4,510,548
|
|
Accounts
receivable, net
|
|
|
129,032
|
|
Inventory
|
|
|
133,441
|
|
Prepaid
expenses and other current assets
|
|
|
113,777
|
|
Total
Current Assets
|
|
|
4,886,798
|
|
PROPERTY
AND EQUIPMENT, Net
|
|
|
133,271
|
|
OTHER
ASSETS:
|
|
|
|
|
Patents,
net
|
|
|
52,159
|
|
Deposits
|
|
|
80,833
|
|
Goodwill
|
|
|
1,929,963
|
|
Total
Other Assets
|
|
|
2,062,955
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
7,083,024
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
451,507
|
|
Accrued
salaries and payroll taxes
|
|
|
47,970
|
|
Total
Current Liabilities
|
|
|
499,477
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
Deferred
Rent
|
|
|
12,063
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
511,540
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
Series
B Convertible Preferred Stock, $.001 par value,
|
|
|
|
|
10,000,000
shares authorized, 140,000
|
|
|
|
|
issued
or outstanding
|
|
|
140
|
|
Common
stock, $.001 par value, 140,000,000 shares
|
|
|
|
|
authorized,
40,411,858 issued and outstanding
|
|
|
40,412
|
|
Additional
paid-in capital
|
|
|
34,228,852
|
|
Accumulated
deficit
|
|
|
(27,697,920
|
)
|
Total
Stockholders' Equity
|
|
|
6,571,484
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
7,083,024
|
|
Accompanying
notes are an integral part of the financial statements
POWER
EFFICIENCY CORPORATION
CONDENSED
STATEMENTS OF OPERATIONS
Unaudited
|
|
For
the three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
133,695
|
|
$
|
36,615
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
98,163
|
|
|
34,639
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
35,532
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
Research
and development
|
|
|
161,398
|
|
|
94,712
|
|
Selling,
general and administrative
|
|
|
789,573
|
|
|
675,455
|
|
Depreciation
and amortization
|
|
|
14,847
|
|
|
8,975
|
|
Total
Costs and Expenses
|
|
|
965,818
|
|
|
779,142
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(930,286
|
)
|
|
(777,166
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
42,130
|
|
|
12,320
|
|
Interest
expense
|
|
|
-
|
|
|
(156,897
|
)
|
Total
Other Income, net
|
|
|
42,130
|
|
|
(144,577
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(888,156
|
)
|
$
|
(921,743
|
)
|
|
|
|
|
|
|
|
|
BASIC
AND FULLY DILUTED LOSS
|
|
|
|
|
|
|
|
PER
COMMON SHARE
|
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES
|
|
|
|
|
|
|
|
OUTSTANDING,
BASIC
|
|
|
40,393,007
|
|
|
36,765,138
|
|
Accompanying
notes are an integral part of the financial statements
POWER
EFFICIENCY CORPORATION
CONDENSED
STATEMENTS OF CASH FLOWS
Unaudited
|
|
For
the three months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(888,156
|
)
|
$
|
(921,743
|
)
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
14,847
|
|
|
8,975
|
|
Amortization
on capitalized manufacturing costs
|
|
|
1,377
|
|
|
|
|
Debt
discount related to issuance of debt securities
|
|
|
-
|
|
|
79,555
|
|
Warrants
and options issued to employees and consultants
|
|
|
207,000
|
|
|
179,030
|
|
Amortization
of deferred financing costs
|
|
|
-
|
|
|
3,368
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, trade
|
|
|
(19,780
|
)
|
|
(3,047
|
)
|
Inventory
|
|
|
(1,679
|
)
|
|
2,798
|
|
Prepaid
expenses and other current assets
|
|
|
(73,858
|
)
|
|
(36,032
|
)
|
Deposits
|
|
|
41,430
|
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
(86,981
|
)
|
|
(68,875
|
)
|
Customer
Deposits
|
|
|
(1,605
|
)
|
|
|
|
Net
Cash Used for Operating Activities
|
|
|
(807,405
|
)
|
|
(755,971
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Costs
related to patent applications
|
|
|
(12,661
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(35,764
|
)
|
|
(36,780
|
)
|
Net
Cash Used for Investing Activities
|
|
|
(48,425
|
)
|
|
(36,780
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from issuance of equity securities
|
|
|
280,000
|
|
|
1,025,000
|
|
Payments
on notes payable
|
|
|
-
|
|
|
(8,332
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
280,000
|
|
|
1,016,668
|
|
|
|
|
|
|
|
|
|
(Decrease)
Increase in cash
|
|
|
(575,830
|
)
|
|
223,917
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
5,086,378
|
|
|
1,693,584
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
4,510,548
|
|
$
|
1,917,501
|
|
Accompanying
notes are an integral part of the financial statements
NOTE
1 - BASIS OF PRESENTATION
The
accompanying financial statements have been prepared by the Company, without
an
audit. In the opinion of management, all adjustments have been made, which
include normal recurring adjustments necessary to present fairly the condensed
financial statements. Operating results for the three months ended March 31,
2008 are not necessarily indicative of the operating results for the full year.
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. The Company
believes that the disclosures provided are adequate to make the information
presented not misleading. These unaudited condensed financial statements should
be read in conjunction with the audited financial statements and related notes
included in the Company’s Annual Report for the year ended December 31, 2007 on
Form 10-K and Form S-1.
The
preparation of condensed financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE
2 - GOING CONCERN:
The
accompanying financial statements have been prepared assuming the Company is
a
going concern, which assumption contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
suffered recurring losses from operations, a recurring deficiency of cash from
operations, including a cash deficiency of approximately $807,000 from
operations for the three months ended March 31, 2008. While the Company appears
to have adequate liquidity at December 31, 2007, there can be no assurances
that
such liquidity will remain sufficient.
These
factors raise substantial doubt about the Company's ability to continue as
a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amount
of liabilities that might be necessary should the Company be unable to continue
in existence. Continuation of the Company as a going concern is dependent upon
achieving profitable operations in the long-term and raising additional capital
to support existing operations for at least the next twelve months. Management's
plans to achieve profitability include developing new products, obtaining new
customers and increasing sales to existing customers.
NOTE
3 - MATERIAL AGREEMENTS
On
January 7, 2008, the Company entered into a consulting agreement with a European
sales and marketing consultant. The agreement calls for the consultant to assist
the Company in the business planning, and ultimately commercial development
and
marketing of the Company’s Motor Efficiency Controller (“MEC”) line of products
in Europe. For his services, the Company has agreed to pay the consultant 64,920
€ per year, which is approximately equivalent to $100,000 per year. In addition,
the Company will reimburse all reasonable and necessary expenses incurred by
the
consultant. The initial term of this agreement is for 5 years, and can be
terminated by either party upon 90 days written notice.
On
January 23, 2008, the Company signed an efficiency aggregation contract with
San
Diego Gas & Electric Company (“SDG&E”). Under the terms of this
contract, SDG&E will pay the Company $0.14 per kWh of energy saved in the
first year of operation of the MEC, for new installations of the MEC in
SDG&E’s service area. Payment to the Company is subject to certain
inspections, approvals and time restrictions. The term of this contract is
for 5
years, and either party may terminate this contract upon written
notice.
NOTE
4 - ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK
On
January 21, 2008, the Company issued and sold 5,600 units (the “Units”), each
Unit consisting of one share of the Company’s Series B Preferred Stock, par
value $.001 per share (“Series B Preferred Stock”), and a warrant to purchase 50
shares of the Company’s common stock, resulting in the sale and issuance of an
aggregate of 5,600 shares of Series B Preferred Stock and warrants to purchase,
initially, up to 280,000 shares of the Company’s common stock (the “Warrants”),
in a private offering for $280,000 in cash.
In
connection with the offering, the Company agreed to use its reasonable best
efforts to file a registration statement (the “Registration Statement”) to
register the common stock issuable upon conversion of the Series B Preferred
Stock issued, as well as the common stock issuable upon exercise of the
Warrants, not later than 60 days from the termination date of the Offering
(the
“Termination Date”), and must use its reasonable best efforts to have the
Registration Statement declared effective not later than 120 days from the
Termination Date.
Each
share of Series B Preferred Stock is initially convertible into 100 shares
of
the Company’s common stock, subject to adjustment under certain circumstances.
The Series B Preferred Stock is convertible at the option of the holder at
any
time. The Series B Preferred Stock is also subject to mandatory conversion
in
the event the average closing price of the Company’s common stock for any ten
day period equals or exceeds $1.00 per share, such conversion to be effective
on
the trading day immediately following such ten day period. The Series B
Preferred Stock has an 8% dividend, payable annually in cash or stock, at the
discretion of the Company’s board of directors. As such, none is accredited in
these financial statements.
The
offering was conducted pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Regulation
D, Section 4(2) and Rule 506 thereunder. No placement agent or underwriter
was
used in connection with the Offering and there is no commission, finder’s fee or
other compensation due or owing to any party.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
Power
Efficiency Corporation
Las
Vegas, Nevada
We
have
audited the accompanying balance sheet of Power Efficiency Corporation, (a
Delaware corporation) (the "Company") as of December 31, 2007, and the related
statements of operations, changes in stockholders' equity, and cash flows for
each of the years ended December 31, 2007 and 2006. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Power Efficiency Corporation at
December 31, 2007 and the results of its operations and its cash flows for
the
years ended December 31, 2007 and 2006 in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has suffered recurring losses from operations, and
the
Company has experienced a deficiency of cash from operations. These matters
raise substantial doubt as to the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/Sobel
& Co., LLC
Certified
Public Accountants
March
25,
2008
Livingston,
New Jersey
POWER
EFFICIENCY CORPORATION
|
|
|
|
BALANCE SHEET
|
|
|
|
DECEMBER 31, 2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
|
$
|
5,086,378
|
|
Accounts
receivable, net of allowance of $19,648
|
|
|
109,252
|
|
Inventories
|
|
|
131,762
|
|
Prepaid
expenses and other current assets
|
|
|
41,296
|
|
Total
Current Assets
|
|
|
5,368,688
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, Net
|
|
|
112,106
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
Deposits
|
|
|
122,263
|
|
Patents,
net
|
|
|
39,746
|
|
Goodwill
|
|
|
1,929,963
|
|
Total
Other Assets
|
|
|
2,091,972
|
|
|
|
|
|
|
|
|
$
|
7,572,766
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
538,488
|
|
Customer
deposits
|
|
|
1,605
|
|
Accrued
salaries and payroll taxes
|
|
|
47,970
|
|
Total
Current Liabilities
|
|
|
588,063
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
Deferred
Rent
|
|
|
12,063
|
|
Total
Long-Term Liabilities
|
|
|
12,063
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
600,126
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
Series
B Convertible Preferred Stock, $0.001 par value
|
|
|
|
|
10,000,000
shares authorized, 134,400 issued and outstanding
|
|
|
134
|
|
Common
stock, $0.001 par value, 140,000,000 shares
|
|
|
|
|
authorized,
40,367,523 shares issued and oustanding
|
|
|
40,368
|
|
Additional
paid-in capital
|
|
|
33,741,902
|
|
Accumulated
deficit
|
|
|
(26,809,764
|
)
|
Total
Stockholders' Equity
|
|
|
6,972,640
|
|
|
|
|
|
|
|
|
$
|
7,572,766
|
|
See
report of independent registered public accounting firm
|
|
|
|
|
|
|
|
and
notes to financial statements.
|
|
|
|
|
|
|
|
POWER
EFFICIENCY CORPORATION |
|
|
|
|
|
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
490,510
|
|
$
|
188,811
|
|
|
|
|
|
|
|
|
|
COMPONENTS
OF COST OF SALES:
|
|
|
|
|
|
|
|
Material,
labor and overhead
|
|
|
340,468
|
|
|
136,240
|
|
|
|
|
|
|
|
|
|
GROSS
MARGIN
|
|
|
150,042
|
|
|
52,571
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
Research
and development
|
|
|
667,786
|
|
|
567,591
|
|
Selling,
general and administrative
|
|
|
2,721,284
|
|
|
3,118,233
|
|
Depreciation
and amortization
|
|
|
47,036
|
|
|
34,028
|
|
Total
Costs and Expenses
|
|
|
3,436,106
|
|
|
3,719,852
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(3,286,064
|
)
|
|
(3,667,281
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
80,481
|
|
|
9,243
|
|
Interest
expense
|
|
|
(679,306
|
)
|
|
(1,354,195
|
)
|
Total
Other Expenses, Net
|
|
|
(598,825
|
)
|
|
(1,344,952
|
)
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR TAXES
|
|
|
(3,884,889
|
)
|
|
(5,012,233
|
)
|
|
|
|
|
|
|
|
|
PROVISION
FOR TAXES
|
|
|
(6,906
|
)
|
|
(8,542
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(3,891,795
|
)
|
$
|
(5,020,775
|
)
|
|
|
|
|
|
|
|
|
BASIC
AND FULLY DILUTED LOSS PER COMMON SHARE
|
|
$
|
(0.10
|
)
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
BASIC
|
|
|
38,541,012
|
|
|
25,150,386
|
|
See
report of independent registered public accounting firm
|
|
|
|
|
|
|
|
and
notes to financial statements.
|
|
|
|
|
|
|
|
POWER
EFFICIENCY CORPORATION
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
|
YEAR
ENDED DECEMBER 31, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
Preferred
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
Balance,
January 1, 2006
|
|
|
23,439,266
|
|
$
|
23,439
|
|
|
-
|
|
$
|
-
|
|
$
|
19,189,177
|
|
$
|
(17,897,194
|
)
|
$
|
1,315,422
|
|
Issuance
of common stock
|
|
|
11,000,008
|
|
|
11,000
|
|
|
-
|
|
|
-
|
|
|
3,199,300
|
|
|
-
|
|
|
3,210,300
|
|
Common
stock issued upon exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrants
|
|
|
602,735
|
|
|
603
|
|
|
-
|
|
|
-
|
|
|
(603
|
)
|
|
-
|
|
|
-
|
|
Warrants
and options issued in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
the issuance of common stock and debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
and to employees and consultants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,569,965
|
|
|
-
|
|
|
2,569,965
|
|
Expenses
related to issuance of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(30,000
|
)
|
|
-
|
|
|
(30,000
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,020,775
|
)
|
|
(5,020,775
|
)
|
Balance,
December 31, 2006
|
|
|
35,042,009
|
|
|
35,042
|
|
|
-
|
|
|
-
|
|
|
24,927,839
|
|
|
(22,917,969
|
)
|
|
2,044,912
|
|
Issuance
of common stock
|
|
|
3,416,672
|
|
|
3,417
|
|
|
-
|
|
|
-
|
|
|
1,021,583
|
|
|
-
|
|
|
1,025,000
|
|
Issuance
of preferred stock
|
|
|
-
|
|
|
-
|
|
|
134,400
|
|
|
134
|
|
|
6,719,866
|
|
|
-
|
|
|
6,720,000
|
|
Common
stock issued upon exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
and warrants
|
|
|
1,908,842
|
|
|
1,909
|
|
|
-
|
|
|
-
|
|
|
681,591
|
|
|
-
|
|
|
683,500
|
|
Warrants
and options issued with common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
and debt and to employees and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consultants,
including debt discount
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
472,153
|
|
|
-
|
|
|
472,153
|
|
Expenses
related to issuances of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
preferred
and common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(81,130
|
)
|
|
-
|
|
|
(81,130
|
)
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,891,795
|
)
|
|
(3,891,795
|
)
|
Balance,
December 31, 2007
|
|
|
40,367,523
|
|
$
|
40,368
|
|
|
134,400
|
|
$
|
134
|
|
$
|
33,741,902
|
|
$
|
(26,809,764
|
)
|
$
|
6,972,640
|
|
See
report of independent registered public accounting firm and notes
to
financial statements.
|
|
|
|
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS PROVIDED BY (USED FOR):
|
|
|
|
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,891,795
|
)
|
$
|
(5,020,775
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used
for operating activities:
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
16,934
|
|
|
11,470
|
|
Depreciation
and amortization
|
|
|
47,036
|
|
|
34,028
|
|
Loss
on disposition of fixed assets
|
|
|
3,516
|
|
|
585
|
|
Debt
discount related to issuance of debt securities
|
|
|
419,859
|
|
|
1,039,451
|
|
Amortization
of deferred financing costs
|
|
|
11,228
|
|
|
70,364
|
|
Deferred
rent
|
|
|
12,063
|
|
|
-
|
|
Warrants
and options issued in connection with settlements, services
from
|
|
|
|
|
|
|
|
consultants,
vendors, the forgiveness of indebtedness, the issuance
|
|
|
|
|
|
|
|
of
debt, and to employees and consultants
|
|
|
655,392
|
|
|
1,074,848
|
|
Common
Stock issued for consulting services
|
|
|
-
|
|
|
90,000
|
|
Changes
in certain assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(93,994
|
)
|
|
26,464
|
|
Inventory
|
|
|
25,090
|
|
|
14,487
|
|
Prepaid
expenses and other
|
|
|
29,173
|
|
|
(3,206
|
)
|
Deposits
|
|
|
(88,388
|
)
|
|
(33,875
|
)
|
Restricted
cash related to payment of indebtedness
|
|
|
-
|
|
|
(4,688
|
)
|
Accounts
payable and accrued expenses
|
|
|
1,354
|
|
|
(55,454
|
)
|
Customer
deposits
|
|
|
1,605
|
|
|
(5,105
|
)
|
Accrued
salaries and payroll taxes
|
|
|
-
|
|
|
4,682
|
|
Net
Cash Used for Operating Activities
|
|
|
(2,850,927
|
)
|
|
(2,756,724
|
)
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
Costs
related to patent applications
|
|
|
(6,927
|
)
|
|
-
|
|
Purchase
of property, equipment and other assets
|
|
|
(85,610
|
)
|
|
(90,567
|
)
|
Net
Cash Used for Investing Activities
|
|
|
(92,537
|
)
|
|
(90,567
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from issuance of equity securities, net of costs
|
|
|
8,347,369
|
|
|
3,180,000
|
|
Proceeds
from issuance of debt securities
|
|
|
-
|
|
|
2,000,000
|
|
Proceeds
from line of credit
|
|
|
-
|
|
|
1,500,000
|
|
Payments
on notes payable
|
|
|
(2,011,111
|
)
|
|
(1,648,245
|
)
|
Payments
on line of credit
|
|
|
-
|
|
|
(1,500,000
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
6,336,258
|
|
|
3,531,755
|
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH
|
|
|
3,392,794
|
|
|
684,464
|
|
|
|
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
1,693,584
|
|
|
1,009,120
|
|
|
|
|
|
|
|
|
|
End
of year
|
|
$
|
5,086,378
|
|
$
|
1,693,584
|
|
See
report of independent registered public accounting firm and notes
to
financial statements.
|
|
|
|
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
1 -
NATURE OF BUSINESS:
Power
Efficiency Corporation ("Power Efficiency" and/or the "Company"), is
incorporated in Delaware. Power Efficiency designs, develops, markets and
sells
proprietary solid state electrical devices designed to reduce energy consumption
in alternating current induction motors. Alternating current induction
motors
are commonly found in industrial and commercial facilities throughout the
world.
The Company currently has one principal and proprietary product: the three
phase
Motor Efficiency Controller, which is used in industrial and commercial
applications, such as rock crushers, granulators, and escalators. Additionally,
the Company has developed a digital single phase controller in pre-production
form, in preparation for working with Original Equipment Manufacturers
(“OEMs”)
to Incorporate the technology into their equipment..
The
Company's primary customers have been original equipment manufacturers
(OEM's)
and commercial accounts located throughout the United States of America
and
various countries.
Power
Efficiency formed Design Efficient Energy Services, LLC, a Delaware limited
liability company. This entity was formed to obtain energy grants and rebates
for customers of the Company from state governmental bodies. Design Efficient
Energy Services, LLC has been inactive since inception.
NOTE
2 -
SUMMARY OF 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 and disclosure of contingent assets and liabilities at the
date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those
estimates.
Inventories:
Inventories
are valued at the lower of cost (first-in, first-out) or market. The Company
reviews inventory for impairments to net realizable value whenever circumstances
arise. Such circumstances may include, but are not limited too, the
discontinuation of a product line or re-engineering certain components
making
certain parts obsolete. At December 31, 2007, inventories consisted primarily
of
raw materials. Management has determined a reserve for inventory obsolescence
is
not necessary at December 31, 2007.
Accounts
Receivable:
The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts and returns. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, based on
a
history of past write-offs and collections and current credit
conditions.
Research
and Development:
Research
and development expenditures are charged to expense as incurred.
Property,
Equipment and Depreciation:
Property
and equipment are stated at cost. Maintenance and repairs are expensed
as
incurred, while betterments are capitalized. Depreciation is computed using
the
straight-line method over the estimated useful lives of the assets, which
range
from 3 to 7 years.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Website:
Website
development, maintenance and hosting costs are charged to expense as
incurred.
Shipping
and Handling Costs:
The
Company bills customers for freight. Actual costs for shipping and handling
are
included as a component of cost of sales.
Deferred
Financing Costs:
Expenditures
incurred in conjunction with debt or equity capital issuances are deferred
as
other assets until the related offering is complete. Once the offering is
completed, costs related to equity issuances will be offset against equity
proceeds, and such costs related to debt issuances are amortized on a straight
line basis, over the life of the debt. Both equity and debt related costs are
expensed if the offering is not completed.
Patents:
Costs
associated with applying for U.S. patents based upon technology developed by
the
Company are capitalized. At the time the patent is awarded, the asset will
be
amortized on a straight line basis, over the remaining term of the patent.
If no
patent is issued, these costs will be expensed in the period when it is
determined that no patent will be issued.
Deferred
Rent:
The
Company accounts for rent expense on a straight-line basis for financial
reporting purposes. The difference between cash payments and rent expense is
included in deferred rent.
Revenue
Recognition:
Revenue
from product sales is recognized at the time of shipment, when all services
are
complete. Returns and other sales adjustments (warranty accruals, discounts
and
shipping credits) are provided for in the same period the related sales are
recorded.
Loss
Per Common Share:
Loss
per
common share is determined by dividing net loss available to common stockholders
by the weighted average number of common shares outstanding during the year.
Diluted loss per share is not presented since giving effect to potential common
shares would be anti-dilutive.
Accounting
for Stock Based Compensation:
The
Company accounts for employee stock options as compensation expense, in
accordance with SFAS No. 123R, “Share Based Payments.” SFAS No. 123R requires
companies to expense the value of employee stock options and similar awards,
and
applies to all outstanding and vested stock-based awards.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
In
computing the impact, the fair value of each option is estimated on the date
of
grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected remaining
lives of the awards. The assumptions used in calculating the fair value of
share-based payment awards represent management's best estimates, but these
estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, the Company’s stock-based compensation expense could be materially
different in the future. In addition, the Company is required to estimate the
expected forfeiture rate and only recognize expense for those shares expected
to
vest. In estimating the Company’s forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company’s actual forfeiture rate is materially different from its estimate, or
if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what we have recorded
in the current period. The impact of applying SFAS No. 123R approximated
$655,000 and $1,075,000 in additional compensation expense during the years
ended December 31, 2007 and 2006, respectively. Such amounts are included in
research and development expenses and selling, general and administrative
expense on the statement of operations.
Product
Warranties:
The
Company warrants its products for two years. Estimated product warranty expenses
are accrued in cost of sales at the time the related sale is recognized.
Estimates of warranty expenses are based primarily on historical warranty claim
experience. Warranty expenses include accruals for basic warranties for products
sold.
Provision
for Income Taxes:
The
Company utilizes the asset and liability method of accounting for income taxes
pursuant to SFAS No. 109, Accounting for Income Taxes". SFAS No. 109 requires
the recognition of deferred tax assets and liabilities for both the expected
future tax impact of differences between the financial statement and tax basis
of assets and liabilities, and for the expected future tax benefit to be derived
from tax loss and tax credit carryforwards. SFAS No. 109 additionally requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets.
The
provision for taxes represents state franchise taxes.
Goodwill:
SFAS
No.
142, “Goodwill and Other Intangible Assets” requires that goodwill shall no
longer be amortized. Goodwill is tested for impairment on an annual basis and
between annual tests on a quarterly basis, utilizing a two-step test, as
described in SFAS No. 142.
Advertising:
Advertising
costs are expensed as incurred. Advertising expenses were $7,504 and $1,733
for
the years ended December 31, 2007 and 2006, respectively.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
New
Accounting Pronouncements:
In
September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements.” SFAS
No.
157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. The adoption of SFAS No. 157 is not expected to have a
material impact on our financial condition, results of operations or cash
flows.
In
February 2007, the FASB issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities: Including
an
amendment of FASB Statement No. 115.” SFAS
No.
159 permits entities to measure many financial instruments and certain other
items at fair value with changes in fair value reported in earnings. The FASB
issued SFAS No. 159 to mitigate earnings volatility that arises when financial
assets and liabilities are measured differently, and to expand the use of fair
value measurement for financial instruments. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159
is
not expected to have a material impact on our financial condition, results
of
operations or cash flows.
In
May
2007, the FASB issued FASB Staff Position FIN 48-1, “Definition
of Settlement in FASB Interpretation No. 48”.
FIN
48-1 provides guidance on how to determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax benefits.
FIN
48-1 is effective retroactively to January 1, 2007. The implementation of FIN
48
and FIN 48-1 did not have a material impact on the Company’s financial position,
results of operations or cash flows.
Financial
Statement Reclassifications:
Certain
reclassifications have been made to the 2006 financial statements in order
for
them to conform to the 2007 financial statement presentation.
NOTE
3 -
GOING CONCERN:
The
accompanying financial statements have been prepared assuming the Company is
a
going concern, which assumption contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has
suffered recurring losses from operations, and the Company experienced a
$2,850,927 deficiency of cash from operations in 2007. While the Company appears
to have adequate liquidity at December 31, 2007, there can be no assurances
that
such liquidity will remain sufficient.
These
factors raise substantial doubt about the Company's ability to continue as
a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amount
of liabilities that might be necessary should the Company be unable to continue
in existence. Continuation of the Company as a going concern is dependent upon
achieving profitable operations. Management's plans to achieve profitability
include developing new products, obtaining new customers and increasing sales
to
existing customers. Management is seeking to raise additional capital through
equity issuance, debt financing or other types of financing (See Note 22).
However, there are no assurances that sufficient capital will be
raised.
On
January 21, 2008, the Company closed on a private offering of its Series B
Preferred Stock which grossed $280,000 (See Notes 18 and Note 22).
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
4 -
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
At
December 31, 2007, prepaid expenses and other current assets are comprised
as
follows:
Prepaid
insurance
|
|
$
|
19,705
|
|
Prepaid
expenses
|
|
|
87,958
|
|
Prepaid
expenses and other current assets
|
|
$
|
107,663
|
|
NOTE
5 -
PROPERTY AND EQUIPMENT:
At
December 31, 2007, property and equipment is comprised as follows:
Machinery
and equipment
|
|
$
|
151,497
|
|
Office
furniture and equipment
|
|
|
26,326
|
|
|
|
|
177,923
|
|
Less:
Accumulated depreciation
|
|
|
65,717
|
|
Property
and Equipment, Net
|
|
$
|
112,106
|
|
Depreciation
for the years ended December 31, 2007 and 2006 amounted to $46,044 and $29,778,
respectively.
NOTE
6 -
GOODWILL:
In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", previously
recognized intangible assets deemed to have indefinite useful lives were tested
by management for impairment during fiscal 2007 utilizing a two-step test.
An
annual
goodwill impairment test was performed by management in addition to quarterly
goodwill impairment tests.
The
first
part of the test is to compare the Company’s fair market value (the number of
the Company’s common shares outstanding multiplied by the closing stock price of
the date of the test), to the book value of the Company (the Company’s total
stockholders’ equity, as of the date of the test). If the fair market value of
the Company is greater than the book value, no impairment exists as of the
date
of the test. However, if book value exceeds fair market value, the Company
must
perform part two of the test, which involves recalculating the implied goodwill
by repeating the acquisition analysis that was originally used to calculate
goodwill, using purchase accounting as if the acquisition happened on the date
of the test, to calculate the implied goodwill as of the date of the
test.
The
Company’s most recent impairment analysis was performed on December 31, 2007, on
the Company’s single reporting unit. As of December 31, 2007, the Company’s fair
market value was $22,199,036, and the Company’s book value was $6,972,640. Based
on this, no impairment exists as of December 31, 2007.
Circumstances
may arise in which the Company will perform an impairment test in addition
to
its annual and quarterly tests. An example of one of these circumstances would
be a sudden sharp drop in the Company’s stock price.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
7 -
INTANGIBLE ASSETS:
Intangible
assets subject to amortization consists of the following for the year ended
December 31, 2007:
Patents
|
|
$
|
49,602
|
|
Less:
Accumulated amortization
|
|
|
9,856
|
|
Intangible
Assets, Net
|
|
$
|
39,746
|
|
Amortization
expense in 2007 and 2006 amounted to $992 and $4,205, respectively.
During
2007, the Company capitalized approximately $7,000 in expenses related to patent
filings. The Company will begin amortizing these costs over the life of the
patent, once the patent is approved by the appropriate authorities.
Amortization
expense expected in the succeeding five years for the Company’s existing patents
is as follows:
2008
|
|
$
|
992
|
|
2009
|
|
|
992
|
|
2010
|
|
|
992
|
|
2011
|
|
|
992
|
|
2012
|
|
|
992
|
|
Thereafter
|
|
|
34,786
|
|
|
|
$
|
39,746
|
|
NOTE
8 -
CONCENTRATIONS OF CREDIT RISKS:
Financial
instruments which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and temporary cash investments and accounts
receivables.
The
Company maintains cash balances which at times may be in excess of the insured
limits.
Sales
and
accounts receivable currently are from a relatively small number of customers
of
the Company's products. The Company closely monitors extensions of
credit.
Three
customers accounted for approximately 84% of 2007 sales and 70% of accounts
receivable at December 31, 2007. Four customers accounted for approximately
75%
of 2006 sales.
International
sales as a percentage of total revenues for the years ended December 31 are
as
follows:
County
|
2007
|
2006
|
Sweden
|
2%
|
3%
|
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
9 -
PRODUCT WARRANTIES
Accrued
warranty expenses at December 31, 2006 and 2007 consist of the
following:
|
|
|
|
Balance,
January 1, 2006
|
|
$
|
-
|
|
Additions
|
|
|
2,580
|
|
Deductions
|
|
|
(2,580
|
)
|
Balance,
December 31, 2006
|
|
|
-
|
|
Additions
|
|
|
4,151
|
|
Deductions
|
|
|
(742
|
)
|
Balance,
December 31, 2007
|
|
$
|
3,409
|
|
NOTE
10 - PROVISION FOR TAXES:
As
of
December 31, 2007 and 2006, the Company has available, on a federal tax basis,
net operating loss carryforwards of approximately $19,800,000 and $15,900,000,
respectively. These net operating losses expire at varying amounts through
2027.
The net operating loss carryforwards result in deferred tax assets of
approximately $6,700,000 and $5,400,000 at December 31, 2007 and 2006,
respectively; however, a valuation reserve has been recorded for the full amount
due to the uncertainty of realization of the deferred tax assets.
A
reconciliation of the statutory tax rates for the years ended December 31 is
as
follows:
|
|
2007
|
|
2006
|
|
Statutory
rate
|
|
|
(34
|
)%
|
|
(34
|
)%
|
State
income tax - all states
|
|
|
(6
|
)%
|
|
(6
|
)%
|
|
|
|
(40
|
)%
|
|
(40
|
)%
|
Current
year valuation allowance
|
|
|
40
|
%
|
|
40
|
%
|
Benefit
for income taxes
|
|
|
0
|
%
|
|
0
|
%
|
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
11 -
WARRANTS:
Warrant
activity during the years ended December 31, 2007 and 2006 follows:
|
|
Warrants
|
|
Average
Exercise
Price
|
|
Warrants
outstanding at January 1, 2006
|
|
|
13,252,217
|
|
$
|
0.45
|
|
Issued
during 2006
|
|
|
10,821,576
|
|
|
0.36
|
|
Exercised
during 2006
|
|
|
(1,701,063
|
)
|
|
0.20
|
|
Warrants
outstanding at December 31, 2006
|
|
|
22,372,730
|
|
|
0.42
|
|
Issued
during 2007
|
|
|
9,528,338
|
|
|
0.52
|
|
Exercised
during 2007
|
|
|
(2,143,659
|
)
|
|
0.40
|
|
Cancelled
and expired during 2007
|
|
|
(743,441
|
)
|
|
0.40
|
|
Warrants
outstanding at December 31, 2007
|
|
|
29,013,968
|
|
$
|
0.45
|
|
During
2007, the Company issued the following warrants: 100,000 warrants as consulting
fees to a sales consultant, which were valued at $15,458 and expensed and
included in selling, general and administrative expenses; 1,000,000 warrants
as
consulting fees to a technical consultant, which were valued at $228,200,
however, these warrants have special vesting provisions, therefore the Company
did not recognize an expense for these warrants in 2007; 1,708,338 warrants
to
investors, in connection with the Company’s private offering of common stock
(See Note 19), which were valued at $224,843 and recorded as additional paid
in
capital; 6,720,000 warrants to investors, in connection with the Company’s
private offering of its Series B preferred stock (See Note 19), which were
valued at $3,421,631 and recorded as additional paid in capital.
During
2006, the Company issued the following warrants: 300,000 warrants as consulting
fees to an investment bank, which were valued at $74,430 and expensed and
included in selling, general and administrative expenses; 24,000 warrants as
consulting fees to a technical consultant, which were valued at $1,098 and
expensed and included in research and development expenses; 2,647,572 warrants
to noteholders in connection with the Company’s issuance of debt securities,
which were valued at $1,104,383, recorded as a debt discount, and amortized
to
interest expense over the life of the notes; 7,850,004 warrants to investors,
in
connection with the Company’s private offering of common stock and debt
securities, which closed on November 30, 2006 (See Notes 16 and 19), which
were
valued at $1,344,456 and
recorded as additional paid in capital.
The
fair
value of each warrant is estimated on the date of grant based on the
Black-Scholes options-pricing model utilizing certain assumptions for a risk
free interest rate; volatility; and expected remaining lives of the awards.
The
assumptions used in calculating the fair value of share-based payment awards
represent management's best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. In addition, the
Company is required to estimate the expected forfeiture rate and only recognize
expense for those shares expected to vest. In estimating the Company’s
forfeiture rate, the Company analyzed its historical forfeiture rate, the
remaining lives of unvested options, and the amount of vested options as a
percentage of total options outstanding.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
The
fair
value of warrants granted is estimated on the date of grant based on the
weighted-average assumptions in the table below. The assumption for the expected
life is based on evaluations of historical and expected exercise behavior.
The
risk-free interest rate is based on the U.S. Treasury rates at the date of
grant
with maturity dates approximately equal to the expected life at the grant date.
The historical stock volatility of the Company’s common stock is used as the
basis for the volatility assumption.
|
|
Years
ended December 31,
|
|
|
2007
|
2006
|
Weighted
average risk-free rate
|
|
|
4.5
|
%
|
|
4.5
|
%
|
Average
expected life in years
|
|
|
3.6
|
|
|
3.5
|
|
Expected
dividends
|
|
|
None
|
|
None
|
Volatility
|
|
|
166
|
%
|
|
100
|
%
|
Forfeiture
rate
|
|
|
40
|
%
|
|
24
|
%
|
NOTE
12 -
STOCK OPTION PLAN:
Stock
Option Plan activity during the years ended December 31, 2007 and 2006
follows:
|
|
Shares
|
|
Average
Exercise
Price
|
|
Options
outstanding and exercisable at January 1, 2006
|
|
|
12,470,363
|
|
$
|
0.46
|
|
Granted
during 2006
|
|
|
5,587,500
|
|
|
0.24
|
|
Cancelled
during 2006
|
|
|
(3,259,592
|
)
|
|
0.45
|
|
Expired
during 2006
|
|
|
(63,375
|
)
|
|
14.00
|
|
Options
outstanding and exercisable at December 31, 2006
|
|
|
14,734,896
|
|
$
|
0.33
|
|
Granted
during 2007
|
|
|
3,725,000
|
|
|
0.35
|
|
Cancelled
during 2007
|
|
|
(4,050,000
|
)
|
|
0.23
|
|
Exercised
during 2007
|
|
|
(100,000
|
)
|
|
0.20
|
|
Options
outstanding and exercisable at December 31, 2007
|
|
|
14,309,896
|
|
$
|
0.36
|
|
Weighted
average remaining contractual life at December 31, 2007, for all options is
7.15
years.
In
2000,
the Company adopted the 2000 Stock Option and Restricted Stock Plan (the "2000
Plan"). On June 8, 2007, the 2000 Plan was amended and restated. The 2000 Plan,
as restated and amended, provides for the granting of options to purchase up
to
20,000,000 shares of common stock. 100,000 options have been exercised to date.
There are 14,309,896 options outstanding under the 2000 Plan.
During
2007, the Company granted 3,725,000 stock options to directors and employees
at
exercise prices approximating fair market value of the stock on the date of
each
grant. Such issuances to directors and employees were valued at $714,239,
utilizing similar factors as described below, which was expensed and is included
in research and development expenses and selling, general and administrative
expenses.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
During
2006, the Company granted 5,587,500 stock options to directors, officers and
employees at exercise prices approximating fair market value of the stock on
the
date of each grant. Such issuances to directors, officers and employees were
valued at $999,320, utilizing similar factors as described below, which was
expensed and is included in research and development expenses and selling,
general and administrative expenses.
In
1994,
the Company adopted a Stock Option Plan (the "1994 Plan"). The 1994 Plan
provides for the granting of options to purchase up to 71,429 shares of common
stock. No options have been exercised to date. There are no options outstanding
under the 1994 Plan, and the Company does not plan to issue any more options
under this plan.
Share
Based Compensation Payments:
During
the year ended December 31, 2007, the Board of Directors authorized the net
issuance of 3,725,000 stock options to directors, officers and employees. During
the year ended December 31, 2006, the Board of Directors authorized the net
issuance of 5,587,500 stock options to officers, employees and consultants.
The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: expected volatility of 166% and 100% for the years
ended December 31, 2007 and 2006, respectively; risk-free interest rate of
4.5%
for the years ended December 31, 2007 and 2006; and expected lives of
approximately 10.0 years.
The
Company accounts for employee stock options as compensation expense, in
accordance with SFAS No. 123R, “Share Based Payments.” SFAS No. 123R requires
companies to expense the value of employee stock options and similar
awards.
In
computing the impact, the fair value of each option is estimated on the date
of
grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected remaining
lives of the awards. The assumptions used in calculating the fair value of
share-based payment awards represent management's best estimates, but these
estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, the Company’s stock-based compensation expense could be materially
different in the future. In addition, the Company is required to estimate the
expected forfeiture rate and only recognize expense for those shares expected
to
vest. In estimating the Company’s forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company’s actual forfeiture rate is materially different from its estimate, or
if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what we have recorded
in the current period.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
13 -
COMMITMENTS AND CONTINGENCIES:
Leases:
The
Company leases office space, a manufacturing and warehousing facility, and
a
research and development facility in Las Vegas, Nevada. The office space lease
was assigned to the Company by the Chief Executive Officer, on the same terms
and conditions, effective February 24, 2006. The lease includes a payment of
$11,292 per month, plus annual increases of 3% per year, which includes all
cleaning and utilities, except phone and internet service. The term of the
lease
is five years.
On
July
1, 2007, the Company began leasing a research and development facility. The
lease includes a payment of $1,995, plus common area maintenance charges, per
month. The term of the lease is three years and one month. On November 1, 2007,
the Company amended the lease to include additional space, which it will utilize
for its manufacturing and warehousing facility. The amendment to the lease
calls
for an additional payment of $1,605, plus common area maintenance charges,
per
month, and carries the same terms and conditions as the original
lease.
Minimum
future rentals are as follows:
Year
|
|
|
|
2008
|
|
$
|
170,206
|
|
2009
|
|
|
190,664
|
|
2010
|
|
|
177,091
|
|
2011
|
|
|
12,688
|
|
|
|
$
|
550,649
|
|
Rent
expense, including base rent and additional charges, for the year ended December
31, 2007 and 2006 was $173,545 and $139,919, respectively.
Patent
License Agreements:
The
Company was an exclusive licensee pursuant to a patent license agreement of
certain power factor controller technology owned by the United States, as
represented by the National Aeronautics and Space Administration (NASA). This
license agreement covered the United States of America and its territories
and
possessions on an exclusive basis and foreign sales on a non-exclusive basis.
Such license agreement did not require the Company to pay royalties to NASA
in
connection with the Company's sale of products employing technology utilizing
the licensed patents. The agreement terminated on December 16, 2002 upon the
expiration of all of the licensed patents. The Company filed and received its
own patent (No. 5.821.726) that expires in 2017 that management believes
will protect the Company's intellectual property position.
Software
User License Agreements:
The
Company entered into an agreement to purchase software licenses for accounting,
manufacturing and CRM software. The total amount of the software license
agreement is approximately $66,000 and the software licenses begin in
2008.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
Litigation:
Presently,
the Company is not involved in any litigation.
On
March
19, 2007, the Company reached an agreement with GE Fanuc Automation North
America, Inc. (“GE Fanuc”) to cease using its Power Genius name for its
products. As consideration, GE Fanuc paid the Company $20,000.
Subcontractors:
During
2006, the Company utilized one subcontractor in Michigan and one subcontractor
in Nevada as turn-key manufacturers for its analog product. On March 15, 2006,
the Company terminated its agreement with its Livonia, Michigan subcontractor.
In December of 2007, the Company ceased using the Las Vegas, Nevada
subcontractor and began to manufacture its analog and some of its digital
product in-house.
The
Company directly sources its own analog circuit boards from a contract circuit
board manufacturer. Over the past year, the Company has primarily sourced analog
circuit boards from RMF Design and Manufacturing (“RMF”), based outside of
Toronto, Canada. The Company believes RMF has the ability to meet the Company’s
analog circuit board production needs and the Company would be successful in
finding alternative manufacturers should RMF not be available to manufacture
these circuit boards.
On
September 6, 2007, the Company entered into a manufacturing service agreement
with Sanima-Sci Corporation (“Sanmina-Sci”) for the production of digital units
and digital circuit boards. Pursuant to this agreement, the Company will
purchase an amount of digital units, subject to certain minimum quantities,
from
Sanima-Sci equal to an initial firm order agreed upon by the Company and
Sanima-Sci and subsequent nine-month requirements forecasts. The initial term
of
the contract is one year, and upon expiration of the initial term, the contract
will continue on a year to year basis until one party gives notice to
terminate. At
the
present time the Company is not able to determine if the actual purchases will
be in excess of these minimum commitments, or if any potential liability will
be
incurred. At December 31, 2007, the Company has approximately $100,000 in open
purchase orders with this subcontractor. Additionally, the Company is committed
for an additional $300,000 during the initial term of this agreement. At
December 31, 2007, the Company has approximately $81,000 on deposit with
Sanmina-Sci.
Investment
Advisory Agreements:
The
Company entered into a consulting agreement with an investment advisor on
December 1, 2004. The agreement calls for the investment advisor to assist
the
Company in devising financial and marketing strategies, and also to assist
the
Company in raising funds on a non-exclusive basis through the offering of debt
and/or equity securities. The agreement expired on November 30, 2005 and was
renewed on February 21, 2006. The company shall pay the investment advisor
the
amount of $4,000 per month, plus expenses approved by the Company and issue
300,000 options. The Company terminated the engagement with the consultant
for
non-performance on April 20, 2006. The Company paid the investment advisor
$35,000 during the year ended December 31, 2006, and the agreement has been
satisfied in full.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
On
January 2, 2006, the Company entered into a consulting agreement with an
investor relations firm. As
part
of the compensation, the Company granted 300,000
shares
of the Company’s common stock
having a
total value of $90,000, which such cost
is
expensed in selling, general and administrative expenses. This
consulting agreement expired on July 2, 2006 and was not renewed.
On
January 6, 2006, the Company entered into a marketing agreement with an
investment bank. In
connection with this
agreement, the Company issued a
five
year warrant to purchase up to 300,000 shares of Common Stock,
with an
exercise price of $0.25 per share.
The
total value of the 300,000 warrants issued to the investment bank approximates
$74,430 and is expensed in selling, general and administrative expenses. The
Company terminated this agreement on June 23, 2006,
however, the
warrants
remain exercisable for five
years
from the date of issuance.
The
Company entered into an agreement with an investment bank on October 13, 2006.
In accordance with this agreement, the investment bank served as the Company’s
non-exclusive placement agent for a private stock offering of 10,700,008 shares
of common stock and 5,350,004 warrants which closed on November 30, 2006 (See
Note 19). The investment bank was paid a retainer fee of $5,000, and the
agreement called for the investment bank to receive 5.5% of the total cash
invested by investors introduced by the investment bank upon closing. The
investment bank introduced no investors in the private stock offering which
closed on November 30, 2006. The Company subsequently terminated this agreement
on January 13, 2007.
NOTE
14 -
RELATED PARTY TRANSACTIONS:
During
the years ended December 31, 2007 and 2006, consulting fees of $12,000 and
$7,000 were paid to a director and stockholder of the Company, respectively.
These amounts are included in selling, general and administrative
expenses.
On
October 29, 2007, the Company entered into a financing transaction in which
it
issued 113,500 units, each unit consisting of one share of the Company’s series
B preferred stock and a warrant to purchase up to 50 shares of the Company’s
common stock for $3,825,000 in cash and the cancellation of $1,850,000 of debt
securities. In this transaction, Steven Strasser, the Company’s Chief Executive
Officer purchased 16,000 units for $250,000 in cash and the cancellation of
a
$550,000 note; George Boyadjieff, a director and senior technical advisor of
the
Company, purchased 4,000 units for $200,000 in cash; Douglas Dunn, a director
of
the Company, purchased 1,000 units for $50,000 in cash; Gary Rado, a director
of
the Company, purchased 2,000 units for $100,000 in cash (See Note
18).
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
On
November 30, 2006, the Company entered into a financing transaction in which
it
issued 10,700,008 shares of its common stock and 5,350,004 warrants to purchase
common stock for $3,210,000 and $2,000,000 in senior secured notes in a private
offering of equity and debt. In this transaction, Steven Strasser, the Company’s
Chief Executive Officer purchased 1,166,668 shares of common stock and 583,334
warrants for $350,000, and was issued a senior secured note for $550,000; John
(BJ) Lackland, the Company’s Chief Financial Officer purchased 100,000 shares of
common stock and 50,000 warrants for $30,000; Robert Murray, the Company’s
former Chief Operating Officer purchased 100,000 shares and 50,000 warrants
for
$30,000; George Boyadjieff, a director and senior technical advisor of the
Company was issued 1,000,000 shares of common stock and 500,000 warrants for
$300,000; and Commerce Energy Group was issued a $200,000 secured note and
250,000 warrants (See Notes 16 and 19). The $2,000,000 in senior secured notes
were paid off in full on October 29, 2007 (See Note 18).
On
April
19, 2006, the Company entered into a financing transaction in which it
issued a
$1,000,000 secured
convertible
note
(the "EMTUCK Note") to EMTUCK, LLC ("EMTUCK"), in which the managing member
is a
management company wholly owned and controlled by Steven
Strasser, the
Company's
CEO.
On May
19, 2006, the Note was increased to $1,500,000. This note was paid off in full
on November 30, 2006 (See Notes 16 and 19).
Interest
expense of approximately $665,000 and $440,000 for the years ended December
31,
2007 and 2006, respectively, was associated with related parties.
NOTE
15 -
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash
paid
during the year ended December 31, for:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Interest
|
|
$
|
248,219
|
|
$
|
314,750
|
|
|
|
|
|
|
|
|
|
Income/Franchise
Taxes
|
|
$
|
6,906
|
|
$
|
$8,542
|
|
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
16 -
NOTES PAYABLE:
On
November 30, 2006, the Company entered into a financing transaction in which
the
Company issued $2,000,000 of its two year, senior, secured promissory notes
(collectively the “Notes”, individually a “Note”). The Notes bear interest of
15% per annum. Interest due under the Notes is payable quarterly, with the
principal and final quarterly interest payment becoming due November 30, 2008.
The Notes have a first priority security interest in all of the assets of the
Company. Upon the occurrence of an “Event of Default” (as defined in the Note,
included herein as an exhibit) the holder may, upon written notice to the
Company, elect to declare the entire principal amount of the Note then
outstanding together with accrued unpaid interest thereon due and payable.
Upon
receipt of such notice, the Company shall have seven business days to cure
the
Event of Default, and if uncured on the eighth business day, all principal
and
interest shall become immediately due and payable. The Company also issued
with
2,500,000 warrants (the “Debt Warrants”) to purchase common stock of the Company
to the holders of the Notes. The Debt Warrants have a per share exercise price
of $0.40 and expire November 29, 2011. 1,250,000 of the Debt Warrants are
exercisable immediately, with the remaining 1,250,000 Debt Warrants becoming
exercisable in equal amounts over 24 months beginning December 29, 2006. The
common stock issuable upon exercise of the Debt Warrants has piggyback
registration rights, and can be included in the Company’s next registration
statement. The
Debt
Warrants have a cashless exercise provision, but only if the registration
statement on which the common stock issuable upon exercise of the Debt Warrants
is not then effective. The Notes were paid off in full on October 29, 2007
(See
Note 18.)
The
$2,000,000 loan consisted of $550,000 from Steven Strasser, the Company’s
Chairman, Chief Executive Officer and the Company’s largest beneficial
shareholder, $200,000 from Commerce Energy Group, Inc, the Company’s second
largest shareholder prior to the Offering, and $1,250,000 from individual
investors. $1,450,000 of these Notes came from the exchange of existing
promissory notes of the Company.
The
Company’s previously issued notes, including $1,464,306 issued on October 27,
2004, $125,000 issued on February 24, 2005 (collectively the “Pali Notes”) and
$1,500,000 issued to EMTUCK, were paid off in November 2006, and such paid
off
note holders no longer hold a security interest in the Company’s
assets.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
On
April
19, 2006, the Company entered into a financing transaction in which it issued
a
$1,000,000 secured convertible note to EMTUCK (See Note 14). On May 19, 2006,
the EMTUCK Note was increased to $1,500,000. The EMTUCK Note bears interest
of
10.75% per annum, with interest payments due quarterly, beginning July 19,
2006.
The EMTUCK Note's principal becomes due on January 19, 2007 (the "Maturity
Date"). The Company can draw on the Note, in increments of up to $200,000,
and
interest is calculated on the outstanding principal drawn. The EMTUCK Note
is
secured by a first lien and security interest in all of the Company's accounts
receivable and inventory now or hereafter acquired, and a second lien and
security interest in all other collateral, subordinate to the existing lien
and
security interest in favor of Pali Capital Corporation as representative of
the
holders the Pali Notes. In the event of default (as defined in the EMTUCK Note),
EMTUCK may, upon written notice to the Company, elect to declare the entire
principal amount of the Note then outstanding, together with accrued and unpaid
interest thereon due and payable. Upon receipt of such notice, the Company
shall
have seven business days to cure the event of default and if uncured on the
eighth business day, all principal and accrued interest shall become immediately
due and payable. The EMTUCK Note was paid off in full on November 30,
2006.
The
members of EMTUCK were issued 2,083,334 warrants in conjunction with the EMTUCK
Note, with an exercise price of $0.24 per share. 1,458,334 warrants vested
immediately, and the remaining 625,000 warrants vested equally over nine (9)
months. The warrants have a cashless exercise provision and will have a 5 year
term. If after the date of issuance of the warrants, the Registrant files a
registration statement under the Securities Act of 1933, or amends an existing
registration statement, in either case, the Registrant will use its best efforts
to include the shares issuable on exercise of the warrants in such registration
statement or amended registration statement.
On
October 17, 2005, the Company issued a $50,000 promissory note payable to its
former landlord in connection with a settlement agreement. The note is
non-interest bearing and calls for monthly payments of $2,778 of principal
beginning November 17, 2005. In connection with this note payable, the Company
recorded a note discount of $6,146 on the Company’s balance sheet. During the
years ended December 31, 2007 and December 31, 2006, the Company paid $11,111
and $33,327 in principal, respectively. As of December 31, 2007, this note
has
been paid off in full.
On
December 15, 2004, the Company issued a $25,334 promissory note payable to
a
former officer, in connection with a settlement agreement (See Note 17), at
15%.
The note calls for monthly payments of $1,580, principal and interest, beginning
January 2005 and matured on June 15, 2006. During the years ended December
31,
2006 the Company paid $8,997 in principal. As of December 31, 2007 this note
has
been paid off in full.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
17 -
EMPLOYMENT AND CONSULTING AGREEMENTS:
On
June
1, 2005, the Company entered into an employment and compensation agreement
with
Steven Strasser, the Company’s Chief Executive Officer. The agreement is for a
term of five years, with a base salary for the first year of the agreement
of
$275,000 with annual increases of at least 5% of the current year’s base salary
and bonuses at the discretion of the compensation committee of the board of
directors. During the first year of the Agreement, an amount equal to $215,000
of the base salary shall be paid by grant of stock options under the Company’s
2000 Stock Option and Restricted Stock Plan to purchase 1,612,500 shares of
the
Company’s common stock, vesting in equal quarterly installments over the year
ending June 1, 2006, and the remaining $60,000 of the base salary is to be
paid
in cash. The agreement with this Chief Executive Officer also provides, among
other things, for reimbursement of certain business expenses and for certain
payments to be made to this Chief Executive Officer in the event of a change
of
control. This Chief Executive Officer also received 1,818,180 incentive stock
options which will vest over a five year period and have an exercise price
of
$0.22, and 1,181,820 non-qualified stock options which will vest over a five
year period and have an exercise price of $0.20. The agreement also provides
for
certain non-competition and nondisclosure covenants.
On
June
1, 2005, the Company entered into an employment and compensation agreement
with
John Lackland, the Company’s Chief Financial Officer. The agreement is for a
term of five years, with a base salary for the first year of the agreement
of
$175,000 with annual increases of at least 5% of the current year’s base salary
and bonuses at the discretion of the compensation committee of the board of
directors. During the first year of the Agreement, an amount equal to $55,000
of
the base salary shall be paid by grant of stock options under the Company’s 2000
Stock Option and Restricted Stock Plan to purchase 412,500 shares of the
Company’s common stock, vesting in equal quarterly installments over the year
ending June 1, 2006, and the remaining $120,000 of the base salary is to be
paid
in cash. The agreement with this Chief Financial Officer also provides, among
other things, for reimbursement of certain business expenses and for certain
payments to be made to this Chief Financial Officer in the event of a change
of
control. This Chief Financial Officer also received 1,733,750 incentive stock
options which will vest over a five year period and have an exercise price
of
$0.20, and 66,250 non-qualified stock options which vested on June 1, 2006
and
have an exercise price of $0.20. The agreement also provides for certain
non-competition and nondisclosure covenants.
On
June
1, 2005, the Company entered into an employment and compensation agreement
with
Nicholas Anderson, the Company’s former Chief Technology Officer. On May 15,
2006, the Company terminated Nicholas
Anderson, for
cause, and cancelled his
employment agreement with the Company. The Company has not accrued a loss
related to this termination and does not foresee any material loss in its
ability to manufacture current products or develop new products.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
On
June
9, 2005, the Company entered into a consulting agreement with an advisor to
serve as the Company’s Senior Technical Advisor. The term of this agreement is
for 24 months and calls for the advisor to assist the Company in digitizing
the
Company’s technology. For his services, the Company agreed to issue the advisor
400,000 options, vesting quarterly from the date of the agreement. In addition,
the Company will reimburse all reasonable and necessary expenses incurred by
the
advisor. In the event that the Company’s annual sales from digital products
reaches $5,000,000, the Company will pay the advisor a $100,000 one time bonus.
The agreement contains confidentiality and non-competition provisions. This
agreement can be terminated in 90 days by either party by written notices.
On
June 6, 2007, the Company renewed the agreement with the advisor. In connection
with the renewal, the Company granted the advisor 1,000,000 warrants, which
vest
upon the approval of certain patents, created by the advisor, by the US Patent
Office, or the buy-out of the Company, whichever occurs first.
On
March
1, 2007, the Company entered into a consulting agreement with a sales and
marketing consultant. The term of this agreement is for 12 months and calls
for
the consultant to assist the Company in its business development, sales and
marketing efforts. For his services, the Company has agreed to issue the
consultant 100,000 warrants, vesting quarterly from the date of the agreement.
In addition, the Company will reimburse all reasonable and necessary expenses
incurred by the consultant. This agreement contains confidentiality and
non-competition provisions. Each party has the right to cancel this agreement
with no less than 10 days notice in writing.
On
March
21, 2007, the Company entered into a consulting agreement with a product
manager. The term of this agreement is for two years and calls for the product
manager to assist the company in product development and marketing. For his
services, the Company agreed to pay the product manager $6,250 per month, due
on
the 1st
of each
month, as well as 400,000 stock options, which vest over the term of the
agreement. In
addition, the Company will reimburse all reasonable and necessary expenses
incurred by the product manager. The
agreement contains confidentiality and non-competition provisions. Each party
has the right to cancel this agreement upon 30 days written notice. This
agreement was terminated on April 11, 2007 and all obligations have been
satisfied in full, and all stock options issued to the product manager were
cancelled.
NOTE
18 -
ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK:
On
October 29, 2007, the Company issued and sold 113,500 units (the “Units”), each
Unit consisting of one share of the Company’s Series B Preferred Stock, par
value $.001 per share (“Series B Preferred Stock”), and a warrant to purchase 50
shares of the Company’s common stock, resulting in the sale and issuance of an
aggregate of 113,500 shares of Series B Preferred Stock and warrants to
purchase, initially, up to 5,675,000 shares of the Company’s common stock (the
“Warrants”), in a private offering (the “Preferred Offering”) for $5,675,000 in
cash and cancellation of indebtedness (See Note 16). Many of the purchasers
of
Units were either officers, directors or pre-existing stockholders or
noteholders of the Company (See Note 14).
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
In
connection with the Preferred Offering, the Company has agreed to use its
reasonable best efforts to file a registration statement (the “Registration
Statement”) to register the common stock issuable upon conversion of the Series
B Preferred Stock issued, as well as the common stock issuable upon exercise
of
the Warrants, not later than 60 days from the termination date of the Offering
(the “Termination Date”), and must use its reasonable best efforts to have the
Registration Statement declared effective not later than 120 days from the
Termination Date.
Each
share of Series B Preferred Stock is initially convertible into 100 shares
of
the Company’s common stock, subject to adjustment under certain circumstances.
The Series B Preferred Stock is convertible at the option of the holder at
any
time. The Series B Preferred Stock is also subject to mandatory conversion
in
the event the average closing price of the Company’s common stock for any ten
day period equals or exceeds $1.00 per share, such conversion to be effective
on
the trading day immediately following such ten day period. The Series B
Preferred Stock has an 8% dividend, payable annually in cash or stock, at the
discretion of the Company’s board of directors. As such, none is accredited in
these financial statements.
The
Preferred Offering was conducted pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Regulation
D, Section 4(2) and Rule 506 thereunder. No placement agent or underwriter
was
used in connection with the Offering and there is no commission, finder’s fee or
other compensation due or owing to any party.
On
November 8, 2007, the Company sold 5,000 units, resulting in the sale and
issuance of 5,000 shares of Series B Preferred Stock and warrants to purchase
up
to 250,000 shares of the Company’s common stock, for $250,000 under the
Preferred Offering.
On
November 15, 2007, the Company sold 1,400 units, resulting in the sale and
issuance of 1,400 shares of Series B Preferred Stock and warrants to purchase
up
to 70,000 shares of the Company’s common stock, for $70,000 under the Preferred
Offering.
On
December 20, 2007, the Company sold 9,500 units, resulting in the sale and
issuance of 9,500 shares of Series B Preferred Stock and warrants to purchase
up
to 475,000 shares of the Company’s common stock, for $475,000 under the
Preferred Offering.
On
December 28, 2007, the Company sold 5,000 units, resulting in the sale and
issuance of 5,000 shares of Series B Preferred Stock and warrants to purchase
up
to 250,000 shares of the Company’s common stock, for $250,000 under the
Preferred Offering.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
19 -
STOCKHOLDERS' EQUITY:
On
November 30, 2006, the Company issued and sold 10,700,008 shares of its common
stock and 5,350,004 warrants to purchase its common stock (the “Equity
Warrants”), in a private offering (the “Offering”) for $3,210,000 in cash,
cancellation of indebtedness and in lieu of compensation owed to certain
employees, officers and directors of the Company. The per share purchase price
of the common stock was $0.30. The Equity Warrants have a per share exercise
price of $0.40, are exercisable immediately and expire November 29, 2011. The
Company must use best efforts to file a Registration Statement to register
the
common stock issued, together with those issuable upon exercise of the Equity
Warrants, not later than 60 days from the termination of the Offering, and
must
use its best efforts to have the Registration Statement declared effective
not
later than 120 days from the termination of the Offering. Should
the Company not be able to meet these registration requirements, the Company
may
be assessed liquidating damages. The
Offering terminated on March 31, 2007. The Equity Warrants have a cashless
exercise provision, but only if the Registration Statement is not then
effective.
The
$3,210,000 investment included $250,000 from Steven Strasser, the Company’s
Chief Executive Officer, $30,000 from John (BJ) Lackland, the Company’s Chief
Financial Officer, $30,000 from Robert Murray, the Company’s former Chief
Operating Officer, and $300,000 from George Boyadjieff, a Director of the
Company.
The
Offering was conducted pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Regulation
D, Section 4(2) and Rule 506 thereunder. No placement agent or underwriter
is
entitled to compensation in connection with either the Offering or the sale
of
the Notes and there is no commission, finder’s fee or other compensation due or
owing to any party.
On
January 19, 2007, the Company issued and sold 666,668 shares of its common
stock
and 333,334 Equity Warrants, in the Offering for $200,000 in cash, under the
same terms as described above.
On
March
2, 2007, the Company issued and sold 1,583,336 shares of its common stock and
791,668 Equity Warrants, in the Offering for $475,000 in cash, under the same
terms as described above.
On
March
7, 2007, the Company issued and sold 333,334 shares of its common stock and
166,667 Equity Warrants, in the Offering, for $100,000 in cash, under the same
terms as described above.
On
March
30, 2007, the Company issued and sold 500,000 shares of its common stock and
250,000 Equity Warrants, in the Offering, for $150,000 in cash, under the same
terms as described above.
On
March
31, 2007, the Company issued and sold 333,334 shares of its common stock and
166,667 Equity Warrants in the Offering, for $100,000 in cash, under the same
terms as described above.
POWER
EFFICIENCY CORPORATION
NOTES
TO
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
NOTE
20 -
FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS
No.
107 “Disclosure About the Fair Value of Financial Instruments”, requires
disclosure of fair value information about financial instruments. The carrying
amounts reported in the balance sheet for cash, accounts receivable, accounts
payable and accrued expenses approximate fair value because of their short
term
nature.
NOTE
21 -
401(K) RETIREMENT PLANS:
On
August
1, 2006, the Company adopted a 401(k) retirement plan (the 401(k) Plan). The
401(k) Plan is voluntary, and available to all employees who have been with
the
Company for at least six months. The Company may make discretionary
contributions. The Company did not make any contributions in 2007 or
2006.
NOTE
22 -
SUBSEQUENT EVENTS:
On
January 7, 2008, the Company entered into a consulting agreement with a European
sales and marketing consultant. The agreement calls for the consultant to assist
the Company in the business planning, and ultimately commercial development
and
marketing of the Company’s MEC line of products in Europe. For his services, the
Company has agreed to pay the consultant 64,920 € per year, which is
approximately equivalent to $100,000 per year. In addition, the Company will
reimburse all reasonable and necessary expenses incurred by the consultant.
The
initial term of this agreement is for 5 years, and can be terminated by either
party upon 90 days written notice.
On
January 21, 2008, the Company sold 5,600 units under the Preferred Offering,
resulting in the issuance of 5,600 shares of its Series B Preferred Stock and
warrants to purchase up to 280,000 shares of the Company’s common stock, for
$280,000. This was the final closing in the Preferred Offering.
On
January 23, 2008, the Company signed an efficiency aggregation contract with
San
Diego Gas & Electric Company (“SDG&E”). Under the terms of this
contract, SDG&E will pay the Company $0.14 per kWh of energy saved in the
first year of operation of the MEC, for new installations of the MEC in
SDG&E’s service area. Payment to the Company is subject to certain
inspections, approvals and time restrictions. The term of this contract is
for 5
years, and either party may terminate this contract upon written
notice.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers
The
Company's certificate of incorporation provides that the personal liability
of
the directors of the Company shall be limited to the fullest extent permitted
by
the provisions of Section 102(b)(7) of the General Corporation Law of the State
of Delaware, or the DGCL. Section 102(b)(7) of the DGCL generally provides
that
no director shall be liable personally to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that
the
certificate of incorporation does not eliminate the liability of a director
for
(1) any breach of the director's duty of loyalty to the Company or its
stockholders; (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) acts or omissions
in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (4) any transaction from which such director derives an improper
personal benefit. The effect of this provision is to eliminate the rights of
the
Company and its stockholders to recover monetary damages against a director
for
breach of her or his fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (1) through (4) above. The limitations summarized above,
however, do not affect the ability of the Company or its stockholders to seek
nonmonetary remedies, such as an injunction or rescission, against a director
for breach of her or his fiduciary duty.
In
addition, the certificate of incorporation provides that the Company shall,
to
the fullest extent permitted by Section 145 of the DGCL, indemnify all persons
whom it may indemnify pursuant to Section 145 of the DGCL. In general, Section
145 of the DGCL permits the Company to indemnify a director, officer, employee
or agent of the Company or, when so serving at the Company's request, another
company who was or is a party or is threatened to be made a party to any
proceedings because of his or her position, if he or she acted in good faith
and
in a manner reasonably believed to be in or not opposed to the best interests
of
the Company and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his or her conduct was unlawful.
The
Company maintains a directors’ and officers’ liability insurance policy covering
certain liabilities that may be incurred by any director or officer in
connection with the performance of his or her duties and certain liabilities
that may be incurred by the Company, including the indemnification payable
to
any director or officer. The entire premium for such insurance is paid by the
Company.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may be permitted to directors, officers, or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
Item
25. Other Expenses of Issuance and Distribution
The
following table sets forth the fees and expenses, other than any underwriting
discounts and commissions incurred by us in connection with the issue and
distribution of our common stock being registered. All amounts are estimates
except the SEC registration fee.
SEC
Registration Fee
|
|
$
|
300.65
|
|
Legal
Fees
|
|
|
15,000.00
|
|
Accounting
Fees
|
|
|
5,000.00
|
|
Printing
Fees
|
|
|
1,150.00
|
|
Miscellaneous
|
|
|
5,000.00
|
|
Total
|
|
$
|
26,450.65
|
|
Item
26. Recent Sales of Unregistered Securities
During
the last three years, we have issued unregistered securities as described below.
None of these transactions involved any underwriters, underwriting discounts
or
commissions, except as specified below, or any public offering, and we believe
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof and/or Regulation D promulgated
thereunder. All recipients had adequate access, through their relationships
with
us, to information about us.
Sales
Made to Summit Energy Ventures, Commerce Energy Group and Commonwealth Energy
Corporation
The
following details several different sales of unregistered securities the Company
made to Summit, Commonwealth Energy Corporation, a former member of Summit
(“Commonwealth”) and Commerce Energy Group, the parent corporation of
Commonwealth (“Commerce”). All of the sales were exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
section 4(2) of the Securities Act.
On
April
28, 2005, the Company issued 1,204,819 shares of Series A-1 Convertible
Preferred Stock, convertible into 1,000,000 shares of common stock, and warrants
to purchase 500,000 shares of common stock to Summit for an aggregate purchase
price of $200,000. The requisite percentage of current holders consented and
waived the anti-dilution provisions.
On
April
28, 2005, the Company issued 180,723 shares of Series A-1 Convertible Preferred
Stock, convertible into 150,000 shares of common stock, and warrants to purchase
75,000 shares of common stock, to Commerce, in consideration of Commerce’s
cancellation of a license agreement with the Company. The requisite percentage
of current holders consented and waived the anti-dilution
provisions.
On
July
8, 2005, the Company issued 3,000,000 shares of common stock and 1,500,000
warrants to Summit for $300,000 in cash and the conversion of a $300,000 note
payable.
On
July
8, 2005, the Company converted all 4,714,279 outstanding shares of its Series
A-1 Convertible Preferred Stock owned by Summit and Commonwealth into 3,918,848
shares of common stock.
Sales
Made to Purchasers Other than Summit Energy Ventures, Commerce Energy Group
and
Commonwealth Energy Corporation
On
July
8, 2005, the Company issued 9,150,000 shares of common stock to several
accredited investors in a private offering for $1,830,000.
On
August
31, 2005, the Company issued 2,350,000 shares of common stock to several
accredited investors in the second and final closing of this private offering
for $470,000.
On
November 30, 2006, the Company issued 10,700,008 shares of common stock to
several accredited investors in the first closing of a private offering of
common stock for $3,210,000, of which approximately $2,760,000 was from new
cash
and $450,000 was from the exchange of debt. Of this amount, the CEO, CFO and
one
Director of the Company invested a total of $510,000, of which approximately
$260,000 was from new cash and $250,000 was from the exchange of
debt.
On
January 19, 2007, the Company issued 666,668 shares of common stock to several
accredited investors in the second closing of a private offering of common
stock
for $200,000 in cash.
On
March
2, 2007, the Company issued 1,583,336 shares of common stock to several
accredited investors in the third closing of a private offering of common stock
for $475,000 in cash.
On
March
7, 2007, the Company issued 333,334 shares of common stock to an accredited
investor in the fourth closing of a private offering of common stock for
$100,000 in cash.
On
March
30, 2007, the Company issued 500,000 shares of common stock to several
accredited investors in the fifth closing of a private offering of common stock
for $150,000 in cash.
On
March
31, 2007, the Company issued 333,334 shares if common stock to an accredited
investor on the sixth and final closing of a private offering of common stock
for $100,000 in cash.
On
January 21, 2008, the Company issued an aggregate of 140,000 units, each unit
consisting of one share of the Company’s Series B Preferred Stock, par value
$.001 per share, and a warrant to purchase 50 shares of the Company’s common
stock, receiving aggregate consideration of $7,000,000, which included
$5,150,000 of cash and the cancellation of $1,850,000 of debt. The Series B
Preferred Stock and warrants issued in the offering are convertible or
exercisable, as applicable, into an aggregate of up to 21,000,000 shares of
the
Company’s common stock.
Item
27. Exhibits and Financial Statement Schedules
See
Exhibit Index at page II-9.
|
(b) |
Financial
Statement Schedules
|
All
such
schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
Item
28. Undertakings
The
undersigned smaller reporting company hereby undertakes to:
(1) For
determining any liability under the Securities Act, treat the information
omitted from this form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed
by the smaller reporting company under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act of 1933 as part of this registration statement as of the
time
the Securities and Exchange Commission declared it effective.
(2) For
determining any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement
for
the securities offered in this registration statement, and that offering of
the
securities at that time as the initial bona fide offering of those
securities.
The
undersigned smaller reporting companyhereby undertakes with respect to the
securities being offered and sold in this offering:
|
(1)
|
To
file, during any period in which it offers or sells securities, a
post-
effective amendment to this Registration Statement
to:
|
(a) Include
any prospectus required by Section 10(a)(3) of the Securities Act;
(b) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and include any additional or changed material information on the plan of
distribution.
|
(2)
|
For
determining liability under the Securities Act, treat each post-
effective
amendment as a new registration statement of the securities offered,
and
the offering of the securities at that time to be the initial bona
fide
offering.
|
|
(3)
|
File
a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the
offering.
|
Insofar
as indemnification by the undersigned smaller reporting company for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the smaller reporting company pursuant
to
the foregoing provisions, or otherwise, the smaller reporting company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and
is, therefore, unenforceable.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Company
certifies that it has reasonable grounds to believe that it meets all of
the
requirements of filing on Form S-1 and authorized this Registration Statement
to
be signed on its behalf by the undersigned in the City of Las Vegas, State
of
Nevada on August 29, 2008.
POWER
EFFICIENCY CORPORATION
|
|
|
By:
|
/s/
STEVEN Z. STRASSER
|
|
Steven
Z. Strasser
Chairman
and Chief Executive Officer
|
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Steven Z. Strasser and John (BJ) Lackland as their
true
and lawful attorneys-in-fact and agents, with full power of substitution, with
power to act alone, to sign (1) any and all amendments (including post-effective
amendments) to this Registration Statement and (2) any registration statement
or
post-effective amendment thereto to be filed with the Securities and Exchange
Commission pursuant to Rule 462(b) under the Securities Act of 1933, and to
file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do
and perform each and every act and thing requisite and necessary to be done
in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In
accordance with the requirements of the Securities Act of 1933, as amended,
this
Registration Statement was signed by the following persons in the capacities
and
on the dates stated:
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
STEVEN Z. STRASSER
|
|
Chairman
and Chief Executive Officer
|
|
August
29, 2008
|
Steven
Z. Strasser
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
*
|
|
Chief
Financial Officer
|
|
|
John
(BJ) Lackland
|
|
(Principal
Financial and Accounting
|
|
|
|
|
Officer)
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Richard
Morgan
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Douglas
M. Dunn
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
George
Boaydjieff
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Gary
Rado
|
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
|
Raymond
J. Skiptunis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT
INDEX
Description
of Document
Exhibit
Number
|
|
Description
|
3.1
|
|
Certificate
of Incorporation of the Company, incorporated by reference to Exhibit
3.1
to the Company's Annual Report on Form 10-SB filed on October 20,
2000.
|
|
|
|
3.2
|
|
Amendment
to the Certificate of Incorporation of the Company dated June 5,
2002,
incorporated by reference to Exhibit 3.1 to Company's Current Report
on
Form 8-K filed on June 18, 2002.
|
|
|
|
3.3
|
|
Amendment
to the Certificate of Incorporation of the Company dated July 6,
2005,
incorporated by reference to Exhibit 3.3 to the Company’s Form SB-2
Registration Statement filed October 25, 2005.
|
|
|
|
3.4
|
|
Amendment
to the Certificate of Incorporation of the Company dated October
13, 2005,
incorporated by reference to Exhibit 3.4 to the Company’s Form SB-2
Registration Statement filed October 25, 2005.
|
|
|
|
3.5
|
|
Amended
and Restated By-laws of the Company dated March 23, 2004, incorporated
by
reference to Exhibit 3.1 to Company’s Quarterly Report on Form 10-QSB
filed on May 14, 2004.
|
|
|
|
3.6
|
|
Certificate
of Amendment of Certificate of Designation of Series A Convertible
Preferred Stock of Power Efficiency Corporation, incorporated by
reference
to Exhibit 4.2 to Company's Current Report on Form 8-K filed on
May 25,
2003.
|
|
|
|
3.7
|
|
Certificate
of Certificate Eliminating Reference To A Series Of Shares Of Stock
From
the Certificate of Incorporation of the Company, dated October
22,
2007.*
|
|
|
|
3.8
|
|
Certificate
of Designations of Preferences, Rights and Limitations of Series
B
Convertible Preferred Stock of Registrant dated October 23,
2007.*
|
|
|
|
4.1
|
|
Form
of Placement Agent Warrant issued pursuant to Exhibit 10.45, incorporated
by reference to Exhibit 3.2 to Company’s Current Report on Form 8-K Filed
on July 19, 2005
|
|
|
|
4.2
|
|
Form
of Investor Warrant, incorporated by reference to Exhibit 3.1 to
Company’s
Current Report on Form 8-K filed on July 19, 2005
|
|
|
|
4.3
|
|
Specimen
common stock certificate of the Company, incorporated by reference
to
Exhibit 4.5 to the Company’s Form SB-2/A Registration Statement filed
December 8, 2005.
|
|
|
|
4.4
|
|
Agreement
dated April 22, 2005, between the Company and Summit Energy Ventures,
LLC,
for the issuance of preferred stock and warrants, incorporated
by
reference to Exhibit 4.6 to the Company’s Form SB-2 Registration Statement
filed October 25, 2005.
|
|
|
|
4.5
|
|
Agreement
dated April 22, 2005, between the Company and Commerce Energy Group,
Inc.,
for the issuance of preferred stock and warrants, incorporated
by
reference to Exhibit 4.7 to the Company’s Form SB-2 Registration Statement
filed October 25, 2005.
|
|
|
|
4.6
|
|
Form
of Equity Warrant, incorporated by reference to Exhibit 4.1 to
the
Company’s Current Report on Form 8-K, filed January 24,
2007
|
|
|
|
4.7
|
|
Form
of Equity Warrant, incorporated by reference to Exhibit 4.1 to
the
Company’s Current Report on Form 8-K, filed March 8,
2007
|
|
|
|
4.8
|
|
Form
of Warrant, issued to certain investors in the Company’s private placement
of units on January 21, 2008.*
|
|
|
|
5.1
|
|
Opinion
of Ellenoff Grossman & Schole LLP*
|
|
|
|
10.1
|
|
United
States Patent #5,821,726, incorporated by reference to Exhibit
10(g) to
Company's Annual Report on Form 10-SB filed on October 20,
2000.
|
|
|
|
10.2
|
|
1994
Stock Option Plan, incorporated by reference to Exhibit 10(i) to
Company's
Annual Report on Form 10-SB filed on October 20, 2000.
|
|
|
|
10.3
|
|
Patent
License Agreement (DN-858) with NASA, incorporated by reference
to Exhibit
10.10 to Company's Amended Annual Report on Form 10-SB/A filed
on October
26 2001.
|
|
|
|
10.4
|
|
Patent
License Agreement (DE-256) with NASA incorporated by reference
to Exhibit
10.11 to Company's Amended Annual Report on Form 10-SB/A filed
on October
26 2001.
|
|
|
|
10.5
|
|
Settlement
and Release Agreement with NASA incorporated by reference to Exhibit
10.12
to Company's Amended Annual Report on Form 10-SB/A filed on October
26
2001.
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|
|
|
10.6
|
|
Modification
No. 1 to Patent License Agreement (DE-256) with NASA, incorporated
by
reference to Exhibit 10.13 to Company's Amended Annual Report on
Form
10-SB/A filed on October 26 2001.
|
|
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10.7
|
|
Product
Warranty, incorporated by reference to Exhibit 10.16 to Company's
Amended
Annual Report on Form 10-SB/A filed on October 26 2001.
|
|
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|
10.8
|
|
Test
Report from Medsker Electric, Inc., incorporated by reference to
Exhibit
10.17 to Company's Amended Annual Report on Form 10-SB/A filed on
October
26 2001.
|
|
|
|
10.9
|
|
Test
Report from Oak Ridge National Laboratory, incorporated by reference
to
Exhibit 10.18 to Company's Amended Annual Report on Form 10-SB/A
filed on
October 26 2001.
|
|
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|
10.10
|
|
Test
Report from Oregon State University - The Motor Systems Resource
Facility,
incorporated by reference to Exhibit 10.19 to Company's Amended Annual
Report on Form 10-SB/A filed on October 26 2001.
|
|
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10.11
|
|
Test
Report from Otis Elevator Co., incorporated by reference to Exhibit
10.20
to Company's Amended Annual Report on Form 10-SB/A filed on October
26
2001.
|
|
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|
10.12
|
|
Certificate
of Amendment of Warrant, incorporated by reference to Exhibit 10.4
to
Company's Current Report on Form 8-K filed May 25,
2003.
|
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|
10.13
|
|
Settlement
Agreement and Mutual General Release with Stephen L. Shulman and
Summit
Energy Ventures, LLC dated October 3, 2003, incorporated by reference
to
Exhibit 10.5 to Company's Quarterly Report on Form 10-QSB filed November
14, 2003.
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10.14
|
|
Amendment
to the Amended and Restated Stockholders' Agreement among Anthony
Caputo,
Nicholas Anderson, Philip Elkus, Stephen Shulamn, Performance Control,
LLC, Summit Energy Ventures, LLC and Power Efficiency Corporation
dated
September 22, 2003, incorporated by reference to Exhibit 10.7 to
Company's
Quarterly Report on Form 10-QSB filed November 14,
2003.
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10.15
|
|
Business
Property Lease with Arens Investment Company dated November 1, 2003,
incorporated by reference to Exhibit 10.36 to Company's Annual Report
on
Form 10-KSB filed March 10, 2004.
|
|
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10.16
|
|
Letter
agreement with Pali Capital, Inc. dated February 25, 2004, incorporated
by
reference to Exhibit 10.40 to Company's Annual Report on Form 10-KSB
filed
March 10, 2004.
|
|
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|
10.17
|
|
Amended
and Restated 2000 Stock Option and Restricted Stock Plan dated February
23, 2004, incorporated by reference to Exhibit 10.41 to Company's
Annual
Report on Form 10-KSB filed March 10, 2004.
|
|
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10.18
|
|
Amended
and Restated 1994 Stock Option Plan, incorporated by reference to
Exhibit
10.42 to Company's Annual Report on Form 10-KSB filed March 10,
2004.
|
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10.19
|
|
Single
Phase Licensing Agreement with Commerce Energy Group, incorporated
by
reference to Exhibit 10.1 to Company's Quarterly Report on Form 10-QSB
filed November 15, 2004.
|
|
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|
10.20
|
|
Business
Property Lease Amendment involving Glenborough LLC and Northwest
Power
Management, Inc. dated February 7, 2005, incorporated by reference
to
Exhibit 10.48 to the Company's Annual Report on Form 10-KSB filed
on March
31, 2005.
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10.21
|
|
Settlement
and Consulting Agreement with Keith Collin dated September 27, 2004,
incorporated by reference to Exhibit 10.49 to the Company's Annual
Report
on Form 10-KSB filed on March 31, 2005.
|
|
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|
10.22
|
|
Placement
Agency Agreement dated as of June 1, 2005, between the Company and
Joseph
Stevens & Co., Inc., incorporated by reference to Exhibit 10.51 to the
Company’s Form SB-2 Registration Statement filed October 25,
2005.
|
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|
10.24
|
|
Consulting
Agreement with George Boyadjieff, dated June 9, 2005, incorporated
by
reference to Exhibit 10.54 to the Company’s Form 10-KSB filed on March 31,
2006
|
|
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|
10.25
|
|
Consulting
Agreement with Steven Blum dated February 21, 2006, incorporated
by
reference to Exhibit 10.55 to the Company’s Form 10-KSB filed on March 31,
2006
|
|
|
|
10.26
|
|
Consulting
Agreement with CEO Cast, Inc, dated January 2, 2006, incorporated
by
reference to Exhibit 10.56 to the Company’s Form 10-KSB filed on March 31,
2006
|
|
|
|
10.27
|
|
Letter
Agreement with USBX Advisory Services, LLC, dated January 6, 2006,
incorporated by reference to Exhibit 10.57 to the Company’s Form 10-KSB
filed on March 31, 2006
|
|
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|
10.28
|
|
Employment
Agreement with Steven Strasser dated June 1, 2005, incorporated
by
reference to Exhibit 8.1 to the Company’s Current Report of Form 8-K filed
July 13, 2005.
|
|
|
|
10.29
|
|
Employment
Agreement with John Lackland dated June 1, 2005, incorporated by
reference
to Exhibit 8.2 to the Company’s Current Report on Form 8-K filed on July
13, 2005.
|
|
|
|
10.30
|
|
Interim
Financing Agreement with EMTUCK, LLC dated April 18, 2006, incorporated
by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on April 24, 2006.
|
|
|
|
10.31
|
|
Promissory
Note granted to EMTUCK, LLC dated April 19, 2006, incorporated
by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on April 24, 2006.
|
|
|
|
10.32
|
|
Security
Agreement with EMTUCK, LLC dated April 19, 2006, incorporated by
reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April
24, 2006.
|
|
|
|
10.33
|
|
Form
of EMTUCK Warrant, incorporated by reference to Exhibit 10.4 to
the
Company’s Current Report on Form 8-K filed on April 24,
2006.
|
|
|
|
10.34
|
|
Promissory
Note granted to EMTUCK, LLC dated May 19, 2006, incorporated by
reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May
26, 2006.
|
|
|
|
10.35
|
|
Form
of Pali Note Extension Consent Letter dated October 23, 2006, incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on October 27, 2006.
|
|
|
|
10.36
|
|
Form
of Securities Purchase Agreement, dated November 30, 2006, incorporated
by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on December 5, 2006.
|
|
|
|
10.37
|
|
Form
of Note, dated November 30, 2006, incorporated by reference to
Exhibit 4.1
to the Company’s Current Report on Form 8-K filed on December 5,
2006.
|
|
|
|
10.38
|
|
Form
of Debt Warrant, incorporated by reference to Exhibit 4.2 to the
Company’s
Current Report on Form 8-K filed on December 5, 2006.
|
|
|
|
10.39
|
|
Form
of Equity Warrant, incorporated by reference to Exhibit 4.3 to
the
Company’s Current Report on Form 8-K filed on December 5,
2006.
|
|
|
|
10.40
|
|
Form
of Securities Purchase Agreement, incorporated by reference to
Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on January 24,
2007.
|
|
|
|
10.41
|
|
Consulting
Agreement amendment with George Boyadjieff, dated June 9, 2007,
incorporated by reference to the Quarterly Report on Form 10-QSB
filed on
August 13, 2007.
|
|
|
|
10.42
|
|
Manufacturing
Services Agreement, dated September 6, 2007 by and among the Company
and Sanima-Sci Corporation, incorporated by reference to Exhibit
10.1 to
the Company’s Current Report on Form 8-K filed on September 13,
2007.
|
|
|
|
10.43
|
|
Consulting
Agreement amendment with George Boyadjieff, dated June 9, 2007,
incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-QSB filed on August 13, 2007.
|
|
|
|
10.44
|
|
Manufacturing
Services Agreement, dated September 6, 2007 by and among the Company
and
Sanima-Sci Corporation, incorporated by reference to Exhibit 10.1
to the
Company’s Current Report on Form 8-K filed on September 12,
2007.
|
|
|
|
10.45
|
|
Securities
Purchase Agreement, dated as of October 27, 2007 by and between
the
Company and certain Investors.*
|
|
|
|
23.1
|
|
Consent
of Sobel & Co., LLC, Certified Public Accountants.*
|
|
|
|
23.2
|
|
Consent
of Ellenoff Grossman & Schole LLP (included in Exhibit
5.1).
|
|
|
|
24.1
|
|
Power
of Attorney (included in signature page).
|
|
|
|
*
filed
herewith