UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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ANNUAL REPORT PURSUANT
SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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TRANSITION REPORT
PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Commission
file number 000-51696
Trulite,
Inc.
(Exact
name of small business issuer as specified in its charter)
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Delaware
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20-1372858
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(State
or other jurisdiction of
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(I.R.S.
employer
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incorporation
or organization)
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identification
number)
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1401
McKinney Street
Suite
900
Houston,
TX 77010
(Address
of principal executive offices)
Issuer's
telephone number, including area code: (713) 888-0660
Securities
registered under Section 12(b) of the Exchange Act:
None.
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.0001 par value per share
(Title
of
Class)
Check
whether issuer is not required to file reports pursuant to Section 13 or 15(d)
of the Exchange Act
o
.
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
x
No
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Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
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No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K .
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check
one):
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Large
accelerated filer:
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Accelerated
filer:
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Non-accelerated
filer:
o
(Do
not check if a smaller reporting
company)
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Smaller
reporting company:
x
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $4,552,955 as of
June 30, 2007.
Number
of
shares outstanding of each of the issuer's classes of common stock, as of the
latest practicable date: Common Stock, 21,201,270 shares outstanding at March
31, 2008. Preferred Stock, no shares issued and outstanding at March 31,
2008.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions
of the definitive proxy statement for the Company’s 2008 annual meeting of
stockholders, which is to be filed within 120 days after the end of the fiscal
year ended December 31, 2007, are incorporated by reference into Part III of
this Form 10-K, to the extent described in Part III.
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PART
I
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Item
1.
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Business
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Item
1A.
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Risk
Factors
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Item 1B.
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Unresolved Staff Comments
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Item
2.
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Property
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Item
3.
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Legal
Proceedings
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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PART
II
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Item
5.
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Market
for Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
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Item
6.
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Selected Financial
Data
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Item 7.
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Management's Discussion And Analysis
Of
Financial Condition And Results Of Operations
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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Item
8.
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Financial
Statements
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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Item
9A (T).
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Disclosure
Controls and Procedures
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Item
9B.
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Other
Information
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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Item
11.
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Executive
Compensation
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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Item
14.
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Principal
Accountant Fees and Services
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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FORWARD-LOOKING
STATEMENTS
Certain
statements made in this Annual Report on Form 10-K are “forward-looking
statements,” which involve known and unknown risks, uncertainties, and other
factors that could cause actual financial or operating results, performances,
or
achievements expressed or implied by such forward-looking statements not to
occur or be under realized. These forward-looking statements generally are
based
on our best estimates of future results, performances, or achievements, current
conditions and assumptions. Forward-looking statements may be identified by
the
use of forward-looking terminology such as “may,” “can,” “could,” “project,”
“expect,” “believe,” “plan,” “predict,” “estimate,” “anticipate,” “intend,”
“continue,” “potential,” “would,” “should,” “aim,” “opportunity,” or similar
terms, variations of those terms or the negative of those terms, or other
variations of those terms or comparable words or expressions. These risks and
uncertainties include, but are not limited to:
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1.
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our
ability to develop and manufacture commercially viable
products
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the
continued expansion of our business
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3.
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general
economic conditions in both foreign and domestic
markets
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4.
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lack
of growth in our industry
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5.
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our
ability to comply with government
regulations
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6.
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a
failure to manage our business effectively and
profitably
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7.
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our
ability to sell both new and existing products at profitable, yet
competitive, prices
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You
should carefully consider these risks, uncertainties, and other information,
disclosures, and discussions that contain cautionary statements identifying
important factors that could cause actual results to differ materially from
those provided in the forward-looking statements. We undertake no obligation
to
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
PART
I
Item
1. Business.
Overview
of the Company, Products and Target Markets
Trulite
is an emerging technology company engaged in the development, production,
sourcing, marketing and selling of portable, semi-portable and stationary
products, components and power generation systems that can generate clean
renewable power for use in off-grid applications requiring power up to one
kilowatt. These products, components and systems include the integration of
hydrogen fuel cells, photovoltaic solar panels, wind micro-turbines, batteries,
charge controllers and inverters and can be used in both a prime as well as
standby power system in both indoor as well as outdoor
applications.
The
Company was incorporated in Delaware on July 15, 2004. Later that month, the
Company purchased all the membership interests of, and merged with, Trulite
Technology, LC (“Trulite Technology”), a Utah limited liability company. Trulite
Technology had been formed in May 2002. In October 2003, Trulite Technology
was
introduced to William Jackson Berger (“John Berger”) of Contango Capital
Partners, LP (“CCP”). CCP provided the first round of private funding to the
Company in July 2004 and effected the merger between the Company and Trulite
Technology.
In
January 2004, Trulite Technology received an initial order for two prototype
chemical hydride cartridges which were delivered in March 2004. In July 2004,
Trulite Technology delivered four larger chemical hydride cartridges to the
Naval Research Laboratory.
In
September 2005, the Company introduced its Kitty Hawk system. This product
consists of three technologies: one that generates hydrogen gas from dry
chemical hydride compounds (the HydroCell, a proprietary hydrogen storage
product that is an environmental-friendly alternative developed from the
Company’s prototype chemical hydride cartridges that the Company also plans to
market as a separate product and with respect to which the Company has filed
six
patent applications); one that transforms the hydrogen gas into electricity
(the
fuel cell stack, for which the Company has one filed patent); and one that
controls the flow of hydrogen for the actual generation of electricity (the
control technology, which is a technology with respect to which the Company
has
also filed one patent). This original Kitty Hawk system, produced in limited
quantities in the first quarter of 2006, was capable of producing 15 net watts
of power. During 2006, the Company developed an enhanced version of the Kitty
Hawk, the KH-3X, with twice the power output of the initial Kitty Hawk product.
The Company used the results of field testing and initial user response of
the
KH-3X in developing a more powerful and more advanced hybrid power generation
product, the KH4. The Company has one patent application for the ability to
utilize hybrid power sources.
The
KH4
system has the capability to produce 150 watts of continuous power and up to
250
watts of peak power. The integrated advanced technology lithium ion battery
can
provide immediate power if the unit is being used as a back-up for grid power.
The system can manage the integration of power from photovoltaic solar panels
and on-site wind micro-turbines together with power from the fuel cell to
optimize the power available to meet the needs of the application. The two
integral 400 watt-hour fuel cartridges that are standard with the KH4 can
provide over seven hours of run time with the unit operating at 60% of capacity.
In the proper storage conditions, the fuel cartridges can be stored indefinitely
before use. The Company has identified and entered into initial discussions
with
potential key customers in anticipation of initial product shipments in late
2008. The expected manufacturing, application development costs and capital
operating requirement is expected to total $9.1 million during 2008, including
capital expenditures of $1.2 million. Funding for product development and
manufacturing are expected to come from the issuance of additional equity and
debt instruments.
We
generated $16,667, $8,333 and $2,883 in revenues from the sale of HydroCells
and
integrated power generation units and ancillary products in 2005, 2006 and
2007,
respectively.
Overview
of the Renewable Energy Industry
There
are
a number of factors that we believe are creating significant changes in the
landscape of the renewable energy industry, which in turn present significant
opportunities for renewable portable power generation:
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1.
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Users
of conventional hydrocarbon energy sources (oil and natural gas)
face
increasing problems with maintaining supply in the face of growing
global
demand;
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2.
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Power
reliability (that is, the electric power provided to commercial and
consumer markets through the electrical grid) is becoming an increasing
problem in the United States and other countries due to aging
infrastructure, necessitating alternative off-grid power sources
for
back-up during outages or as primary power
sources;
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3.
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The
increasing proliferation of electronic devices (for example, cell
phones,
portable digital movie and music players and personal computers)
and their
power demands are becoming more challenging for conventional battery
technology to keep pace;
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4.
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Increasing
global environmental and regulatory issues are making the use of
hydrocarbons ever more difficult;
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5.
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Increasing
geopolitical issues are causing global security concerns related
to the
availability and price of oil and natural
gas.
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Due
to
these pressures, we believe the energy industry will change dramatically before
the end of this decade. We believe that both portable and stationary hydrogen
fuel cell products can provide practical, cost efficient solutions to certain
of
the problems presented by the above issues.
Fuel
cell
and alternative fuel source technology is still being developed and refined.
In
many applications applied research and technology development remains a vitally
important part of the industry. Reliability, cost and safe deployment of this
technology will be the key to initial successes.
A
fuel
cell is a non-mechanical device (it is a very thin membrane similar to a
computer chip) that converts hydrogen gas (the fuel source) and oxygen into
electricity and water. The water is a non-toxic by-product resulting from the
process of generating electricity in a proton exchange membrane fuel cell and
is
eliminated during the electricity conversion process. Each fuel cell (that
is,
each “chip”) produces a given amount of power when the hydrogen and oxygen are
combined (the power output is measured in watts). When several fuel cells are
combined or “stacked,” they create a fuel cell stack.
Products
utilizing fuel cell technology include fuel cell buses, numerous military
applications, auxiliary power units, remote power, and other transportation
applications. Broad commercialization of fuel cell usage depends on developing
a
cost effective product or products with unique attributes for certain
applications. Products will be commercialized at price points that make sense
to
both commercial and consumer markets.
Portable
and semi-portable applications such as in the premium battery markets, where
fuel cells improve run time and can be cost-competitive, appear to be leading
the early efforts of commercialization. This initial focus should also help
demonstrate product performance, reliability and durability. It should also
reduce production costs, establish codes and standards for fuel cell technology,
build a skilled labor force, develop the nation’s hydrogen infrastructure and
create public awareness and acceptance.
There
will be winners and losers in the commercialization process as the technology
develops, but we believe it is too early to tell which technologies will
ultimately dominate in certain applications. However, the future direction
of
the industry appears clear in some major application areas, such as Proton
Exchange Membrane (“PEM”) fuel cell technology, the technology used in our
products. A portable fuel cell industry
survey
by
Fuel
Cell Today
in
December 2006 indicated that over 75% of the companies surveyed are focusing
their efforts on PEM fuel cells or the closely related Direct Methanol Fuel
Cell
technologies. The survey also suggests that government actions to address fuel
costs, supply risks, and the environment could positively and dramatically
impact fuel cell industry prospects in the next two to three
years.
Our
Products
Trulite
plans to produce two primary products: the HydroCell fuel source and the
integrated fuel cell power generation system that uses the HydroCells. These
core products will be offered as stand alone products but will also be the
primary technology behind various hybrid systems that Trulite
offers.
Our
HydroCell is a technology that utilizes a cartridge filled with a chemical
hydride (dry sodium borohydride) that, when injected with water, produces
hydrogen on demand for portable and stationary power devices. Each cartridge
is
compact and lightweight. Power-to-weight ratio (the ability to generate the
same
or more energy by cutting the weight of the generating device) is one factor
in
gaining market acceptance for clean portable power sources. The key to the
HydroCell’s efficient design is that it uses moist air exiting a PEM fuel cell
to produce hydrogen for the PEM fuel cell stack. Water recycling not only
enables the HydroCell to produce several liters of hydrogen from a lightweight
package, but also means that the HydroCell produces hydrogen only when the
fuel
cell stack is operating. The proprietary control technology used inside the
HydroCell and the cartridges make possible the safe production of hydrogen.
The
internal cartridge components allow the energy-dense chemical hydride to react
with the injected water in a controlled manner while providing for an almost
complete reactivity of the material.
The
HydroCell fuel source can be marketed as a separate product and is a metallic
cylinder holding the chemical hydride. When water is injected into the cylinder,
it creates a chemical reaction which generates hydrogen gas. The hydrogen gas
is
transformed into electricity via the fuel cell, which then powers the product
in
which it is installed. The container is sealed to prevent moisture from entering
the cylinder and to ensure the chemical hydride does not escape the cylinder.
The cylinder is robust and will not break if dropped or otherwise abused,
resulting in a reliable and safe product that is easy to
manufacture.
We
believe the significance of the HydroCell is the proprietary, chemical hydride
mixture and chemical reaction process wherein the generation of hydrogen does
not occur until water is added to the chemical hydride. Given that the hydride
is inert until water is added, a HydroCell cartridge can be kept in storage
for
a minimum of three years without losing its energy density. In other words,
the
energy level doesn’t get weaker over time. We believe the HydroCell has the
highest energy density of any known portable hydrogen source currently available
in the market. Our dry hydride technology for generating hydrogen makes it
possible to build HydroCell cartridges capable of generating hydrogen for
extended run times.
We
believe the HydroCell’s design offers the following advantages:
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Safety
- Hydrogen is produced only as it is needed, making it a safer
product;
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2.
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Reliability
- The HydroCell has few moving parts, making it a reliable fuel
source;
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3.
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Cost
- The HydroCell cartridges are inexpensive compared with the costs
associated with generating an equal amount of energy from conventional
energy sources because they provide clean
energy;
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4.
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Disposability
- The HydroCell cartridges are disposable. The by-product is an inert,
solid, chemical oxide with minimal health hazard that can be discarded
in
landfills; and
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5.
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Shelf
Life - The HydroCell can lie dormant for an extended period of time
without losing its energy
density.
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Our
second product is the integrated fuel cell power generation system, consisting
of the HydroCell, the fuel cell stack and the Company’s control technology that
controls the flow of hydrogen for the actual generation of electricity.
The
control technology is an integrated, programmable electronic circuit (that
is,
the circuit can be programmed to perform specific tasks) that is used to control
the flow of hydrogen and oxygen to the fuel cell stack and to optimize the
process. The purpose of the control technology is to ensure the proper amount
of
hydrogen is generated to power the device that is attached to the Kitty Hawk
product. If too much or too little hydrogen is generated, the efficiency of
the
Kitty Hawk is significantly reduced resulting in the unit’s inability to
adequately power the attached devices. The control system also manages the
use
of power from all of the energy sources that can be used in this hybrid system
including batteries, photovoltaic solar panels, wind micro-turbines, and of
course the fuel cell itself.
We
manufacture the fuel cell stack, and engage in new product development and
product enhancements on the fuel cell stack. We first introduced the Kitty
Hawk
power system in September 2005. The initial Kitty Hawk products could generate
hydrogen for up to three hours at full power. The initial product was capable
of
generating 15 net watts of power and the second generation, the KH-3X, was
capable of generating 30 net watts of usable power.
The
KH-3X
had a number of enhancements: improved physical design; noise reduction; faster
start-up cycle (several seconds versus two to three minutes); fuel level gauge
to indicate the level of energy remaining in the cartridge; an attached carrying
handle; a status display screen indicating the power output of the unit;
interior technical modifications to eliminate hose pinching and increased power
output to 30 watts of power. Each of these enhancements required several steps
including designing and building the enhancement; testing the enhancement to
ensure it performs as specified; incorporating and testing the enhancement
in
the KH-3X unit and testing the KH-3X unit in a customer environment. The
designing, building and testing of the enhancements began in March 2006 and
were
completed by the third quarter of 2006.
The
KH4
was introduced in August 2007 and is currently undergoing field testing at
strategic customer sites. The product offers 150 watts of continuous power
and
up to 250 watts of peak power, consumes less internal power, weighs less per
watt of power generated and is more rugged than the KH-3X and is quieter. The
KH4 also offers remote indication via its integral communication port of fuel
consumed, fuel remaining as well as other advanced diagnostic monitoring and
control features through its integrated RFID technology. Additionally, the
KH4
can produce both AC as well as DC power providing superior flexibility in
numerous customer and multiple market applications. We expect first sales of
production quantities of the KH4 to commence in the fourth quarter of 2008,
contingent on securing funding for manufacturing and application
development.
Market
Focus
We
believe that the Company’s off-grid products have application in several markets
where electrical power is needed, including; (i) recharging UPS battery back-up
systems for computers where extended run times may be needed to provide
unlimited runtime capabilities, (ii) telecommunications, such as back-up power
for repeater stations, (iii) recharging batteries used in power tools on
construction sites, (iv) emergency situations where grid power is not available
(v) in the home or small business to power lights and small refrigerators and
to
power or recharge electronics, (vi) remote monitoring for security, industrial
and other applications, (vii) recreational activities where grid power is not
readily available such as camping, boating, fishing and hunting, (viii) off-grid
power for remote displays and for traffic control applications, (ix) other
applications where clean indoor power generation or portability are important,
(x) portable back-up power for batteries in cars, trucks, boats and RV’s, and
(xi) power for portable and mobile medical devices.
We
are in
the process of producing and delivering approximately 30 KH4 units that are
being sold to customers for field testing. Based on the feedback from those
tests, the product will be modified if appropriate for certain applications.
Limited production of finished product for shipment into the marketplace is
planned for Q3
of
2008.
Processes will be established and documented and the first level of automation
will be introduced. By Q2 of 2009, the KH4 will be in full production resulting
in further reductions in the cost of this product.
Trulite
believes that the Company is in a unique position to succeed in the marketplace
primarily because:
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Trulite’s
management team and Board of Directors have substantial experience
in
electrical and portable power generation, in operating and growing
businesses and in key disciplines such as manufacturing/supply chain
management and marketing.
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Trulite
plans to provide integrated power generation solutions for off-grid
markets (which include back-up power) for requirements up to one
kilowatt.
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Trulite
offers hybrid products that can both generate and store power. Trulite
incorporates advanced technology batteries into its solutions. This
hybrid
solution enables Trulite to provide instant-on back-up power, continuous
power even with intermittent loads (such as refrigerators), continuous
power even with intermittent power generation (such as solar or wind),
and
capacity for peak loads.
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By
using dry sodium borohydride in the KH4, Trulite’s fuel source is more
stable, less costly and able to produce more power per pound than
other
fuel technologies.
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Trulite
has a more robust integration and control technology incorporated
into its
products that provides for the direct integration of the solar and
wind
power sources.
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Trulite
plans to have its products available for shipment to the market in
2008.
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The
applications we are targeting initially can be categorized into three market
groups:
Back-up
Power:
With
the
increased frequency and duration of power outages experienced on the grid due
to
peak demands exceeding capacity, to many parts of the grid wearing out, and
to
weather and other natural disasters, businesses and homes have increased demands
for back-up power to provide for the continued operation of critical electrical
devices, appliances, lights and other equipment. While batteries have played
and
will continue to play a large role in this back-up power, the market has
increased interest in finding solutions that will provide extended run time
and
reliability. Trulite’s KH4 portable power generator provides an excellent
solution for many of these requirements since it can be safely used indoors
or
outdoors and can be located wherever the power is needed. The KH4 is expected
to
be used primarily to recharge batteries in these applications but can also
provide the primary power for many devices if necessary during a power outage.
For example, the KH4 has sufficient power to recharge several cell phones or
other communications devices at the same time. It can provide the power to
repeater stations that are associated with towers for cell phones and satellite
data transmission. It can power many medical devices that must continue to
function when grid power is not available. The KH4 can recharge the
uninterrupted power supply (“UPS”) battery devices used to power desktop
computers or small servers when the power fails, and it can recharge the
batteries in laptop computers and run laptops indefinitely. In combination
with
a battery that would be used to handle the peak electrical demand on the
cyclical start-up, the KH4 could also power a typical household refrigerator
or
freezer for an extended period of time. Companies with applications in the
telecommunications, satellite data transmission, UPS, and first responder
markets have expressed interest in the KH4 power generator and in the higher
output clean generators that Trulite plans to develop.
Off-Grid
Power:
Gasoline
or diesel generators and/or batteries are the primary sources for power in
applications that cannot conveniently be connected to the grid. Generators
are
typically cumbersome, noisy, environmentally unfriendly, maintenance intensive
and potentially dangerous due to the associated carbon monoxide. Generators
must
be refueled continuously. The Trulite power generation system is quieter,
requires little maintenance and does not generate any harmful or environmentally
unfriendly byproducts (heat and water,
which
is
re-used in the Trulite process, are the only byproducts). The HydroCell fuel
canisters can be stored indefinitely before use and are much more convenient
and
easy to use than containers of gasoline. As a result, companies with
applications in off-grid shelters, battery charging for uses such as portable
hand tools and communication devices in the field, video cameras, recreational
vehicles, trucks, sports vehicles, boating and other recreational activities
have expressed interest in the KH4 product. The KH4 clean power generators
can
also provide a product line extension in generator markets to fill niche
applications that cannot be properly served with current generator
products.
Remote
Monitoring:
Many
applications require powering electrical devices with relatively low power
requirements to monitor activities in disperse locations. These requirements
range from the monitoring equipment found on oil and gas wells or on pipelines
to security cameras used in a variety of locations. These applications are
frequently powered by photovoltaic solar panel and battery systems today.
However, if the solar panels do not get sufficient power due to rain or cloudy
conditions for an extended period of time, then the battery cannot be recharged
and someone has to be dispatched to the remote location to charge or replace
the
battery. If a Trulite power generator is included in a hybrid system, then
the
fuel cell can be automatically activated when sufficient solar power is not
available to recharge the battery and to keep the system operating. Solar panels
are also subject to a variety of abuses, from vandalism to roaming animals
knocking down the panels, rendering them inoperative. The repair and maintenance
of these facilities is time consuming and costly, especially in remote
environments. The impact of the lack of monitoring data may result in
significant loss of revenue and potentially may create an operational hazard.
Companies and government agencies with remote monitoring applications have
expressed interest in the KH4 product, which provides sufficient power for
many
of their current applications.
Continuous
Technology and Product Innovation
We
are
committed to continuous technology and product innovation as a means of
achieving and maintaining sustainable competitive advantages. Our research
and
product development group in Utah is narrowly focused on new technology
innovation. The group’s responsibility is to create a portfolio of emerging
technologies specific to the hydrogen generation and fuel cell space. The senior
management team reviews the portfolio and those projects which have the highest
likelihood of commercialization will be selected for the research agenda.
Quarterly milestones, as well as performance and test metrics, are established
to determine the viability of commercialization of the technology. If the test
criteria are met, the technology is then further developed and optimized for
manufacturing. Our goal is to continuously enhance our existing product lines
and leverage our market and product knowledge into new products.
The
KH4
product and the related HydroCells will be transferred to manufacturing
operation in 2008. The manufacturing team will continue the design for
manufacturing of the product. They will establish appropriate manufacturing
and
quality control procedures. As part of the process to reduce the cost of the
product, the manufacturing team will also design and implement automation where
justified. The product cost for the initial products will be high since it
takes
time to source the automation equipment and the high capacity tooling for many
of the components. Also, it will be necessary to start the manufacturing process
to fully identify the potential automation applications in some instances.
Most
of the automation and high capacity tooling are expected to be in place in
2009.
Utilize
Strategic Relationships
Strategic
relationships are critical to us for research, product development and volume
manufacturing. As used in this context, these relationships are agreements
with
companies to perform specific activities on our behalf for which we do not
have
or may not want to develop the competencies to accomplish. In return, we will
offer activities or provide competencies that are not available to the
counterparties. It is expected that these relationships will be dissolvable
at
any time and may be formed for the objective of entering a market or developing
a technology. We expect to seek out relationships with companies for product
design and product development. As we enter into higher volume production,
we
intend to seek out strategic relationships for manufacturing, distribution
and
logistics.
We
currently do not intend to actively pursue markets other than as set forth
herein. However, if opportunities arise through strategic relationships with
companies specializing in non-competitive markets, we expect to carefully
evaluate such opportunities before making a final determination.
Strong
Corporate Culture
We
believe a strong corporate culture is the foundation for a successful, enduring
enterprise. There are two principles which have been imbedded in the culture
of
the Company since its inception:
|
|
1.
|
Integrity
above reproach
:
All members of our team and strategic partners are committed to conducting
business in an ethical manner with our customers, suppliers, partners,
employees, and the communities in which we operate. There is zero
tolerance for behavior at any level that does not adhere to this
principle.
|
|
|
2.
|
Frugality:
We
and our strategic partners are committed to the prudent allocation
of
resources. In every aspect of normal business activities, resource
allocations are carefully weighed before making a decision. Alternatives
are thoroughly discussed to determine if there is a better, more
efficient
option. We intend to make investments in technology and people in
order to
retain and enhance our competitive position and create fair returns
for
our stockholders.
|
Intellectual
Property
We
have filed nine patent applications for the HydroCells, the control
system and the fuel cells. We make every effort to protect our knowledge of
our
processes and procedures.
Competition
We
believe that the HydroCell technology is unique and offers significant
advantages over hydrogen generation technology offered by our competitors.
The
HydroCell is a lightweight, compact fuel cell system that, to the Company’s
knowledge, when combined with water recycling, produces more hydrogen for its
size and weight than any other hydrogen source currently available on the
market.
We
believe our HydroCell and the integrated power system products have created
a
business model that gives us a competitive advantage. We also believe that
the
use of the dry sodium borohydride fuel source provides a competitive advantage
due to the extended shelf life and convenience of these fuel canisters. We
believe our business model affords us the opportunity to sell the integrated
power system products in line with the price point of other fuel cell products
that we believe are under development.
Employees
We
currently have 18 full-time employees, all of whom are involved in research
and
development. The Company’s Chief Financial Officer works for Trulite on a part
time basis with the associated costs allocated to the Company by Standard
Renewable Energy Group, LLC (“SREG”). The Company also hires temporary employees
from time to time as needed.
Item
1A. Risk Factors
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals, including those described below. The risks described below
are not the only ones we will face. Additional risks not presently known to
us
or that we currently deem immaterial may also impair our financial performance
and business operations. If any of these risks actually occurs, our business,
financial condition, or results of operations may be materially adversely
affected.
Our
business is difficult to evaluate because we are a development stage
company.
The
Company is a development stage company that was formed in July 2004, to further
the research and development of fuel source and fuel cell systems. To date,
we
have manufactured 50 KH-3X units and 19 prototype and beta KH4 units.
Accordingly, there is only a limited basis upon which to evaluate our business
and prospects. An investor in our Company should consider the challenges,
expenses, and difficulties we will face as a development stage company seeking
to develop and manufacture a new product in a relatively new
market.
Our
independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern.
We
received an audit report for the year ended December 31, 2007, from our
independent registered accounting firm containing an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern.
The Company has no significant operating history as of December 31, 2007, and
since inception, the Company has not had significant revenues. Management raised
additional equity and debt financing to fund operations and to provide
additional working capital. However, there is no assurance that such financing
will be in amounts sufficient to meet the Company’s needs. These conditions
raise substantial doubt about the Company’s ability to continue as a going
concern.
We
cannot guarantee that we will not again be required to restate our financial
statements.
Since
our
inception, we have restated our financial statements on more than one occasion
to correct errors in our financial statements. For example, our Quarterly Report
on Form 10-QSB/A filed with the Commission on December 22, 2006, restated our
financial statements at and for the period ended June 30, 2006, to make a
correction to the valuation of our common stock for the purposes of accounting
for stock-based compensation. We believe that we have developed processes and
procedures that will ensure that our financial statements, including the
financial statements contained in this Form 10-K, accurately reflect our
financial position and results of operations. However, we cannot guarantee
that
in the future we will not again be required to restate our financial
statements.
We
have a need for additional capital as we continue to execute our business
plan.
To
achieve and maintain competitiveness and continue our growth, we need to
raise approximately $10.0
–
$15.0
million to
develop, promote, and distribute our products. These funds will be required
for
capital expenditures to build out the product line, hiring additional technical
staff, for purchasing materials for the manufacture of KH4 units, for labor
costs associated with manufacturing, marketing expenses and other operating
costs and for product development and enhancements to the entire product
line.
The
Company may make appropriate filings to cease to be a reporting company under
the Securities Exchange Act of 1934, as amended.
The
Company may, if management determines in connection with future financings
or
otherwise that it is in the best interest of the Company and its stockholders,
make appropriate filings to cease to be a reporting company under the Securities
Exchange Act of 1934, as amended. If the Company chooses to do so, its
stockholders no longer will have access to current information regarding
the
Company contained in periodic reports filed by the Company with the Securities
and Exchange Commission. Additionally, the Company's Common Stock would no
longer be eligible for trading on the OTCBB which would adversely affect
the
liquidity for the Common Stock.
Technological
changes could force us to drastically alter our business
plan.
The
quest
for alternate energy sources is being undertaken by numerous governments,
corporations, universities and other institutions and individuals throughout
the
world. Many of these participants have far greater experience and resources
than
the Company and have been engaged in these activities for a longer period of
time. In the event that commercially ready applications for alternative energy
sources similar in nature to ours are introduced into the marketplace, we may
be
forced to alter our business plan. This can be expected to be costly and cause
substantial delays in, or prevent us entirely from, realizing our
objectives.
The
Company must demonstrate value and reliability in order to gain consumer
acceptance.
The
cost
of our fuel cell system is more than that of existing and competing energy
providers. If we are unable to reduce our manufacturing and materials costs
to
produce products that are more cost-effective and reliable than those of our
competitors, consumers may be unlikely to purchase our products. The price
of
our fuel cell system depends, in large part, on material and manufacturing
costs. We cannot guarantee that we will be able to lower these costs without
affecting the reliability and performance of our product.
The
Company has limited experience manufacturing or selling fuel cells and fuel
cell
systems.
The
Company has limited experience in producing, marketing, and selling any products
or services on a commercial basis. To date, we have focused primarily on
research and development and have only limited experience manufacturing fuel
cells or fuel source systems on a large-volume, commercial basis. We believe
that in order to make our products profitable we would have to produce our
products through a high-volume automated process. We do not know whether or
when
we would be able to develop efficient, automated, low-cost manufacturing
capabilities. Even if we are successful in developing such capabilities, we
cannot ensure that we will do so in time to meet our product commercialization
schedule or to satisfy the requirements of our customers, and
stockholders.
We
expect that some of our fuel source products will only be commercially viable
as
a component of other companies’ products, and these companies may choose not to
include our fuel source system in their products.
Certain
of our fuel source products must be integrated into products manufactured by
original equipment manufacturers (“OEMs”). We cannot guarantee that OEMs will
manufacture these products. If they manufacture such products, no assurances
can
be given as to whether they will choose to incorporate our products or that
such
integration will be on financial and other business terms acceptable or
profitable to us. In addition, any integration, design, marketing, manufacturing
or other problems encountered by an OEM could adversely affect the market for
our products and we would have no ability to control the response to such
problems.
We
will need to rely on third parties for the proper execution of our business
strategy.
Strategic
relationships are critical to us for research, product development, and volume
manufacturing. We will seek out strategic relationships for product design
and
development. As the Company enters into higher volume production, we will seek
out strategic relationships for manufacturing, distribution and
logistics.
Outsourcing
is expected to happen in phases. First, we will work with raw material and
individual component manufacturing. We will control all the development,
manufacturing, and quality internally for the initial small-volume ramp-up.
Thereafter, outsourcing relationships are expected to be established.
We
do not
believe we should have difficulty obtaining contractors for any of this work
or
to supplement or replace existing contractors if any of those relationships
were
to be insufficient or terminate, or if the sales volume were such that we needed
additional contractors to support the increases in sales volume. No assurance
can be given that a suitable contractor can be found or that once found, it
will
consistently meet the Company’s demands
with
regard to timing or quality. It is possible, however, that difficulties in
supplementing or replacing current contractors could develop in the future
because of factors that we cannot predict at this time, creating a potential
material adverse effect on the Company. The availability of raw materials may
have a material adverse effect on the Company’s results of operations. Because
we use only the highest quality components, any restriction on the availability
or use of such raw materials, whether as the result of a reduction in supply,
natural disaster, or environmental restrictions, could have a material adverse
effect on the business, financial condition, and results of operations of the
Company.
We
may be unable to raise additional capital to pursue our commercialization
strategy.
Our
product development and commercialization schedule may be delayed if we are
unable to properly fund the Company and execute our business plan. We do not
know whether we will be able to secure additional funding or funding on terms
that are acceptable to us. If additional capital is raised through the issuance
of stock, stockholders’ ownership interest may be diluted.
One
of
the factors that generally affects the market price of publicly traded equity
securities is the number of shares outstanding in relationship to assets, net
worth, earnings or anticipated earnings. If a public market develops for the
Company’s shares, or if the Company determines to register for sale to the
public those shares of Common Stock granted in any business combination or
issued in any capital-raising activity, a material amount of dilution can be
expected to cause the market price of our Common Stock to decline. Furthermore,
the public perception of future dilution can have the same effect even if the
actual dilution does not occur.
In
order
for us to obtain additional capital, we may find it necessary to issue
securities conveying rights senior to those of the holders of the Company’s
common stock. Those rights may include voting rights, liquidation preferences
and conversion rights. To the extent we convey senior rights; the value of
the
Company’s common stock can be expected to decline.
If
we incur indebtedness, we may become too highly leveraged and would be in risk
of default.
There
is
no contractual or regulatory limit to the amount of debt we can take on,
although we intend to follow a conservative debt policy. If our policy were
to
change or be eliminated due to unforeseen circumstances, we could become more
highly leveraged, which could adversely affect our ability to meet our
obligations, and we would then be in risk of default, which could have a
material adverse effect on our financial condition, results of operations,
business prospects and long term future viability.
A
large-scale consumer market for our products may never develop or take longer
to
develop than we anticipate.
A
large-scale consumer market for our products may never develop or may develop
more slowly than we anticipate. Fuel cell technology is an emerging market,
and
we are unsure whether there will ever be popular demand for such products.
The
development of a large-scale market may be affected by many factors, some of
which are beyond our control, including:
|
|
1.
|
the
competitive cost of fuel cell
systems
|
|
|
2.
|
the
emergence of newer and more competitive
technology
|
|
|
3.
|
the
future cost of raw materials
|
|
|
4.
|
regulatory
requirements
|
|
|
5.
|
consumer
perceptions regarding the safety of our
product
|
|
|
6.
|
consumer
reluctance to try new products and
technologies
|
If
a
large-scale consumer market fails to develop or develops more slowly than we
anticipate, we may be unable to recover losses incurred in the development
of
our products.
Changes
in environmental policies could hurt the market for our products and deter
potential investors.
Although
many governments have made the development of alternative energy sources, fuel
cells in particular, a priority, we cannot assure you that these governments
will not change their environmental policies or that any change would not
negatively affect our business. Research for alternative energy is influenced
by
governmental regulations and policies concerning energy research or
conservation. Depending on the nature of the governmental regulations, it could
be easier and more cost efficient, or more difficult and costly, to raise funds
and conduct research or to manufacture, market or sell our products in a given
country. Governmental regulations may also impose more stringent requirements
for the transport of the hydrogen fuel source, thereby increasing the costs
of
distribution.
Changes
in governmental regulation could hurt the market for our products and negatively
affect our ability to attract potential consumers.
The
energy industry is influenced by state and federal regulations and policies.
Any
change in the present policies could affect additional investment in alternative
forms of energy and decrease demand for our products.
Fuel
cell
technology may be subject to future governmental regulation, which could affect
the market for our product. As our products are introduced to the market, we
may
be subject to additional laws and regulations. We do not know the extent to
which this will affect our ability to distribute our products. In addition,
any
future regulation may increase our production costs and the cost of our final
product.
We
currently face and will continue to face significant
competition.
Our
products, the HydroCell hydrogen generation system and the Kitty Hawk integrated
power systems, are expected to face significant competition. Many companies
with
substantially greater resources are developing similar hydride hydrogen
generation technologies and are enhancing their fuel cell technologies. We
cannot be sure that customers will use our products in lieu of competitor’s
product offerings in the target markets we have identified. Further, the
development of new technology may affect the popularity and profitability of
our
products or render our products obsolete.
We
depend on our intellectual property, and our failure to protect that technology
could adversely affect our future success.
We
rely
in part on our nine patent applications to protect our intellectual property.
Additionally, we make every effort to protect our knowledge of our processes
and
procedures. Failure to protect our existing intellectual property could cause
the loss of our exclusivity or the right to use the technology we developed.
If
we do not adequately protect our intellectual property rights, we may have
to
pay others for the right to use their technology.
We
could
face litigation regarding the legitimacy of our patents, if and when issued,
and
we cannot ensure that we will be successful in such suits. These suits may
result in the invalidation of our patent rights or the licensing of these rights
to others.
We
protect our proprietary intellectual property, including intellectual property
that may not be patented, through the use of confidentiality agreements. We
cannot assure you that these agreements will not be breached or that we will
have an adequate remedy in the event that they are breached.
The
Company may be unable to attract or retain key personnel, which would adversely
affect our operations.
Our
team
consists of several scientists and we also employ engineers and researchers
to
help develop our products. Our future success depends on our ability to attract
and retain a highly skilled workforce, consisting of scientists, engineers,
researchers and marketing professionals. We cannot assure you that we will
be
able to attract and retain such personnel. Our inability to do so could
negatively impact our success.
Authorization
of Preferred Stock
Our
Certificate of Incorporation authorizes the issuance of up to 1,500,000 shares
of preferred stock with designations, rights and preferences determined from
time to time by our Board of Directors. Accordingly, our Board of Directors
is
empowered to issue, without stockholder approval, preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the
voting power or other rights of the holders of the Common Stock. As of March
31,
2008, there were no shares of preferred stock outstanding. If shares of
preferred stock are issued, such shares could affect the rights of holders
of
our Common stock.
Penny
Stock Regulations may impose certain restrictions on marketability of the
Company’s securities.
The
trading of the Company’s Common Stock is subject to rules pertaining to “penny
stocks.” The Securities and Exchange Commission (“SEC”) has adopted regulations
which generally define a “penny stock” to be any equity security that has a
market price (as defined) 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, the
Company’s Common Stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established clients and “accredited investors.” 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 mandated
by
the SEC 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 shares of
the Company’s Common Stock and may affect the ability of investors to sell such
shares of Common Stock in the secondary market and the price at which such
investors can sell any of such shares.
Investors
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns
include:
|
|
1.
|
control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer
|
|
|
2.
|
manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press releases
|
|
|
3.
|
“boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons
|
|
|
4.
|
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers
|
|
|
5.
|
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.
Item
1B. Unresolved Staff Comments
Item
2. Property.
The
Company leases space in Bluffdale, Utah. The facility serves as the Company’s
research, product development and manufacturing center. The facility encompasses
approximately 5,500 square feet rented by the Company at a monthly rate of
$3,000 as of December 31, 2007. Lease expense in 2007 totaled $32,848. The
lease
expires May 31, 2008.
Item
3. Legal Proceedings.
The Company is not party to any legal proceedings nor is it aware of any
investigation, claim or demand made on the Company that may reasonably result
in
any legal proceedings.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases
of
Equity Securities.
The
Company is authorized by its Certificate of Incorporation, which was amended
on
May 4, 2007, to issue an aggregate of 51,500,000 shares of capital stock,
comprising of 50,000,000 shares of common stock, par value $.0001 per share
(the
"Common Stock") and 1,500,000 shares of preferred stock, par value $.0001 per
share (the “Preferred Stock”). As of March 31, 2008, 21,201,270 shares of Common
Stock and no shares of Preferred Stock were issued and outstanding.
As
of
March 10, 2008, there were 40 record holders of 21,201,270 shares of Common
Stock issued and outstanding.
The
Company’s Common Stock is listed under the symbol TRUL on the NASDAQ
over-the-counter bulletin board.
The
following table sets forth, for the quarters indicated, the high and low closing
sale prices as reported on NASDAQ.
|
|
|
2007
|
|
|
|
|
High
|
|
Low
|
|
|
First
Quarter Ending March 31
|
|
|
N/A
|
|
|
N/A
|
|
|
Second
Quarter Ending June 30
|
|
$
|
1.25
|
|
$
|
1.00
|
|
|
Third
Quarter Ending September 30
|
|
$
|
.90
|
|
$
|
.41
|
|
|
Fourth
Quarter Ending December 31
|
|
$
|
.86
|
|
$
|
.40
|
|
The
Company has paid no dividends on its Common Stock.
On
April
13, 2006, the Company’s Board of Directors approved the payment of dividends
equal to an aggregate of $113,138, to be paid in the form of Common Stock to
all
of the holders of the Series A Preferred Stock. This dividend had accrued from
July 22, 2004 to March 31, 2006. On May 5, 2006, the Company’s Board of
Directors approved an additional dividend, which had accrued from April 1,
2006
to May 2, 2006, but had not been paid, to be paid in the form of Common Stock
to
all the holders of the Series A Preferred Stock. The holders of the Series
A
Preferred Stock have since converted their preferred shares to shares of Common
Stock and no more dividends shall be declared and paid on those shares of Series
A Preferred Stock.
Information
regarding the Company’s equity compensation plans is incorporated by reference
to the Company’s definitive proxy statement (“Proxy Statement”) for its 2008
annual meeting of stockholders.
Item
6. Selected Financial Data
Not
applicable.
Item
7. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited financial statements for the twelve
months ended December 31, 2007 and 2006, with their explanatory notes included
as part of this Form 10-K.
Overview
and Plan of Operation
Trulite
is engaged in the development, production, sourcing, marketing and selling
of
portable, semi-portable and stationary products, components and systems that
can
generate power for use in off-grid applications requiring power up to one
kilowatt. These products, components and systems include hydrogen fuel cells,
photovoltaic solar panels, wind micro-turbines, batteries, charge controllers
and inverters. Solar panels and on-site wind micro-turbines provide intermittent
power that frequently must be stored to meet requirements when the panels are
not producing. The Trulite fuel cells can provide power when the solar panels
or
wind turbines are not operating for extended and consistent power
availability.
The
Company announced the development of its new KH4 product in 2007. This hydrogen
fuel cell generator can produce 150 watts of continuous power and up to 250
watts of peak power. The integrated advanced technology lithium ion battery
can
provide immediate power if the fuel cell is being used as a back-up for grid
power. The system can manage the integration of power from solar panels and
on-site wind micro-turbines together with power from the fuel cell to optimize
the power available to meet the needs of the application. The KH4 uses dry
sodium borohydride as the hydrogen source. The two 400 watt-hour fuel cartridges
that are standard with the KH4 can provide over seven hours of run time with
the
unit operating at 60% of capacity. In the proper storage conditions, the fuel
cartridges can be stored indefinitely before use. The Company has nine patents
pending for the technology involved in the KH4 and other products.
Trulite
has recently expanded its product offering to include smaller photovoltaic
solar
power systems and small on-site wind micro-turbines power systems. These
products will be offered in the marketplace prior to the new KH4 product being
available in production quantities but will be able to work in conjunction
with
the KH4.
Trulite
believes that its off-grid products have application in several markets where
electrical power is needed. The products can be used to recharge batteries
such
as those used in power tools on construction sites. Power can be provided in
emergency situations where grid power is not available in the home or small
business to recharge batteries, to power lights and small refrigerators and
to
power or recharge electronics. Power can also be provided for remote monitoring
and electronics for security, industrial, telecommunications, and other
applications. The products can also be used for recreational activities where
grid power is not readily available such as camping, boating, fishing and
hunting. Off-grid power is also useful for remote displays and for traffic
control applications. The Trulite products can also be used to recharge
uninterruptible power supply (“UPS”) battery back-up systems for computers where
extended run times may be needed. Portable back-up power for batteries in cars,
trucks, boats and RV’s also provides market opportunities.
The
Company is a development stage company and, as such, has not had any meaningful
revenues and has accumulated a deficit since it’s inception on July 15, 2004.
From July 15, 2004 through December 31, 2004, the Company had $1,750 in sales.
For the years ended December 31, 2005, 2006, and 2007, the Company had revenue
of $16,667, $8,333, and $2,883, respectively. We expect increasing commercial
sales during 2008, contingent on securing funding for manufacturing and
application development. Research and development expenditures will be made
to
further enhance the performance of the hydrogen fuel sources, to develop the
electronics that control the process to generate electricity, to improve the
performance of the fuel cells and other components, to increase the electrical
output of the products and to test the performance and reliability of the
products. Since our inception, we have spent $4,295,722 million in research
and
development and anticipate that we will spend at least $9.1 million in 2008
for
manufacturing and application development costs and operating capital
requirements. We will have ongoing research and development expenditures for
the
foreseeable future as products are developed for new applications and markets.
The timing, amount and success of the research and development and manufacturing
estimates are dependent on a number of factors that are difficult to project,
including but not limited to the availability of qualified people, the success
of the technologies under development, the cost to implement technologies,
the
cost of the product, the requirements of the marketplace, regulatory
requirements, the availability of funds, and other factors.
We
do not
currently have sufficient capital to fully execute our business plan and we
need
to raise additional capital to develop, promote, and distribute our product.
Historically, our activities have been funded through a combination of common
and preferred stock issuances and loans from existing investors. Our current
financial plans require us to secure approximately $10.0 - $15.0 million in
2008. Additional funding may not be available under favorable terms, if at
all.
If adequate funds are not available, we may be required to curtail operations
significantly or to obtain funds on terms not as favorable as we would
hope.
The
following table summarizes our results of operations for the twelve months
ended
December 31, 2007 and 2006:
|
|
|
Twelve Months Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,883
|
|
$
|
8,333
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,674
|
|
|
5,912
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
209
|
|
|
2,421
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,928,582
|
|
|
1,216,616
|
|
|
Depreciation
|
|
|
26,097
|
|
|
14,848
|
|
|
General
and administrative
|
|
|
2,338,642
|
|
|
2,190,319
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
4,293,321
|
|
|
3,421,783
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(4,293,112
|
)
|
|
(3,419,362
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(436,708
|
)
|
|
(29,726
|
)
|
|
Interest
income
|
|
|
4,499
|
|
|
5,794
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(432,209
|
)
|
|
(23,932
|
)
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(4,725,321
|
)
|
|
(3,443,294
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(4,725,321
|
)
|
$
|
(3,443,294
|
)
|
Revenues
For
the
year ended December 31, 2007, revenues totaled $2,833 versus $8,333 for the
year
ended December 31, 2006.
Gross
profit
For
the
twelve months ended December 31, 2007, gross profit was $209 compared to $2,421
for 2006.
Operating
expenses
Operating
expenses were $4,293,321 for the year ended December 31, 2007. This compares
to
operating expenses of $3,421,783 for 2006. Research and development expenses
increased to $1,928,582 for 2007, compared to $1,216,616 for 2006. The increase
in research and development during the twelve month period ended December 31,
2007 was due to a scale up of research and development of the KH4 150-watt
power
system. Depreciation expense increased $11,249 during 2007. General and
administrative expense during the twelve month period ended December 31, 2007
increased $148,323. This increase is a result of an increase of $489,519 in
management and administrative services, a non-cash charge of $177,147, which
was
recognized due to the modification of the conversion feature of the June 2007
Note and Warrant Purchase Agreement, an increase of $188,531 in sales and
marketing expense, an increase of insurance cost of $28,231, an increase in
website expense and other administrative expenses of $30,247, offset by a
decrease in professional fees of $477,713 and a decrease of stock based
compensation of $287,639.
Non-cash
charges of $494,143 were recognized in general and administrative expenses
in
2007, which consisted of stock based compensation of $223,518, issuance of
common stock and warrants for consulting services of $93,478, and a charge
of
$177,147 recognized due to the modification of the conversion feature of the
June Note and Warrant Purchase Agreement.
Non
cash
charges of $958,312 were recognized in general and administrative expenses
in
2006, which consisted of stock based compensation of $511,157 and $447,155
recognized through the issuance of common stock and warrants for consulting
services.
Other
Income (Expense)
For
the
year ended December 31, 2007, other income (expense) was a loss of $432,209,
as
compared to a loss of $23,932 for 2006, primarily as a result of higher interest
expense on outstanding borrowings.
Deemed
dividend on warrant modification
On
February 22, 2007, the Company’s Board of Directors agreed to extend the term of
warrants, until April 13, 2008, that were issued on April 13, 2006 in connection
with the issuance of common stock for cash consideration of $1.00 per share.
These warrants entitle the holders to purchase an additional 1,000,000 shares
of
common stock of the Company at an original exercise price of $1.50 per common
share (amended to $0.50 per share on November 19, 2007), that were originally
set to expire on April 13, 2007. A difference of $104,881 in the fair value
of
these warrants after modification, when compared to their fair value immediately
prior to the modification, was recorded as a deemed dividend in the first
quarter of 2007.
On
November 19, 2007, the Board of Directors of the Company approved the amendment
of all warrants to purchase the common stock of the Company to reflect an
exercise price of $0.50 per share.
A
difference of $234,197 in the fair value of these warrants after modification,
when compared to their fair value immediately prior to the modification, was
recorded as a deemed dividend in the fourth quarter of 2007.
Preferred
dividends and deemed dividend on conversion of preferred stock to common
stock
In
May
2006, all of our 8% Cumulative Convertible Series A Preferred Stock was
converted into common stock.
The
8%
Cumulative Convertible Series A Preferred Stock (“Series A Preferred Stock”) had
a liquidation value of $1.00 per share plus dividends whether or not earned
or
declared from the issuance date thereof at the annual rate of eight percent
(8%)
(the “Preferred Dividends”) of $1.00 per share (the “Original Issue Price”),
payable at our option in cash or in shares of Series A Preferred Stock. In
addition, the Preferred Stock had preferential treatment in liquidation to
all
common stock and any other stock of the Company ranking junior to the Series
A
Preferred Stock. Accretion of cumulative dividends outstanding on these shares
was $39,275 and $84,074 for the twelve months ended December 31 2006 and 2005,
respectively.
Each
share of Series A Preferred Stock was convertible at any time into common shares
by dividing the original issue price by a conversion price as defined. The
Series A Preferred Stock was redeemable at the option of the majority holders
in
cash at $1.00 per share plus all accrued and unpaid Preferred Dividends on
the
fifth anniversary of the date of initial issuance or other events relating
to
change in 25% or more of the outstanding voting stock of the Company or a merger
or consolidation as defined. Each holder of Series A Preferred Stock was
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series A Preferred Stock was
convertible.
On
May 2,
2006, 1,454,725 shares of Series A Preferred Stock were converted into 6,562,630
shares of common stock. In addition, the cumulative accreted dividends of
$129,973 were converted into 291,361 shares of common stock. Upon the conversion
of the Series A Preferred Stock, we recorded a non-cash charge of $1,424,762
to
reflect the deemed dividend on conversion in accordance with EITF Topic D-42,
“The Effect on the
Calculation
of Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock.” In addition, we recorded a non-cash charge of $161,388 to reflect the
deemed dividend on conversion of accreted dividends. The total of the two
“deemed dividends” was $1,586,150. The amount of charge is equal to the
difference in the value at the time of exchange of the shares of common stock
exchanged for the preferred stock minus the value of the shares that the holders
of the preferred stock otherwise would have had the right to receive upon
conversion of the preferred stock. The charge did not affect our reported
revenue, operating income, net loss, assets, liabilities or stockholders’
(deficit) equity.
Historical
Sources of Cash
During
the period from July 15, 2004 (inception) though December 31, 2004, the Company
financed its operations principally through the sale of an aggregate of $300,000
of Series A Preferred Stock. The Company, for the year ended
December 31, 2005, financed its operations through the sale of an
aggregate of $950,000 of Series A Preferred Stock, along with sale of three
Kitty Hawk units. The Company conducted a private placement in April 2006,
raising $1,000,000 through the sale of 1,000,000 shares of Common Stock and
warrants. In addition, during 2006, the Company borrowed $1,250,000
pursuant to promissory notes with related parties. The Company for the year
ended December 31, 2007, financed its operations through the issuance of common
stock and warrants and the exercise of stock options for $1,426,188. In
addition, the Company borrowed $2,284,400 through a combination of promissory
notes with related parties and third party financing.
Cash
position, sources and uses of cash, and debt conversion in
2007
Our
cash
position at December 31, 2007, was $374,134 as compared to $275,957 at December
31, 2006.
Our
operating activities for the year ended December 31, 2007, used cash in the
amount of $3,560,951, as compared to $2,178,136 used in 2006. Cash used in
operating activities for 2007 and 2006, reflected a net loss of $4,725,321
and
$3,443,294, respectively, both partially offset by adding back the non-cash
charges associated with depreciation, common stock and warrants issued for
consulting and management services and stock-based compensation, a non cash
charge related to the conversion of notes payable in 2007, and a significant
increase in amount due to affiliates during 2007.
The
Company used $51,460 and $31,889 in investing activities for the purchase of
property and equipment, as well as patent application fees, for the years ended
December 31, 2007 and 2006, respectively.
The
Company had cash inflows from financing activities in 2007 of $1,426,188 from
the issuance of common stock and warrants, and exercise of common stock options.
On
November 26, 2007, the Company entered into a Common Stock Purchase Agreement
with SREG. Pursuant to the terms of the Purchase Agreement, the Company sold
a
total of 2,400,000 unregistered shares of the Company’s common stock, $0.0001
par value to SREG for total proceeds of $1,200,000, or $0.50 per share.
The
Company had $2,284,400 from the issuances of promissory notes during 2007.
During 2007, $289,500 due to SREG for accrued interest and management and
administrative services provided by SREG was re-characterized as part of the
promissory note dated August 20, 2007. The Company had cash inflows from
financing activities in 2006 of $1,000,000 from the issuance of common stock
and
warrants and $1,250,000 from the issuance of promissory notes.
On
April
14, 2006, the Company raised additional equity of $1,000,000 through the
issuance of common stock for cash consideration of $1.00 per share. These
issuances of common stock also included one year warrants to purchase an
additional 1,000,000 shares of common stock of the Company at an exercise price
of $1.50 per common share
(amended
to $0.50 per share on November 19, 2007)
that
expire on April 13, 2007. The value of the warrants was included as additional
paid in capital.
The
Company incurred indebtedness from Contango Venture Capital
Corporation
(“CVCC”)
through issuance of promissory notes as follows:
|
Issue date
|
|
Maturity
|
|
Principal
|
|
Interest rate
|
|
|
August
9, 2006
|
|
December 31, 2007 (As amended)
|
|
$
|
125,000
|
|
12.25% (As amended)
|
|
|
November
22, 2006
|
|
December 31, 2007 (As amended)
|
|
$
|
400,000
|
|
12.25% (As amended)
|
|
|
February
6, 2007
|
|
December 31, 2007 (As amended)
|
|
$
|
240,000
|
|
12.25% (As amended)
|
|
|
May
30, 2007
|
|
February 19, 2008
|
|
$
|
240,000
|
|
11.25%
|
|
|
August 20, 2007
|
|
May 16, 2008
|
|
$
|
250,000
|
|
12.25%
|
|
On
November 26, 2007, the Company and CVCC, entered into a Third Amendment to
Subscription Agreement (the “CVCC Amended Subscription Agreement”) whereby, in
consideration of cancellation of the entire principal balance of, and accrued
but unpaid interest on, the promissory notes dated August 9, 2006, November
22,
2006 and February 6, 2007, made by the Company in favor of CVCC (the “CVCC
Notes”), the $844,628 outstanding under the CVCC Notes, which included $79,628
of accrued and unpaid interest, was converted into 1,260,639 unregistered shares
of the Company’s common stock.
On
November 26, 2007, the Company and CVCC entered into a Subscription Agreement
(the “November 2007 CVCC Subscription Agreement”), whereby, in consideration of
cancellation of the entire principal balance of, and accrued but unpaid interest
on, the promissory notes dated May 30, 2007 and August 20, 2007, made by the
Company in favor of CVCC (the “CVCC New Notes”), the $511,912 outstanding under
the CVCC New Notes, which included $21,912 of accrued and unpaid interest,
was
converted into 764,048 unregistered shares of the Company’s common stock.
The
CVCC
Amended Subscription Agreement and the November 2007 CVCC Subscription Agreement
are substantive conversion options in accordance with the Emerging Issue Task
Force (“EITF”) Issue No. 06-06, “Debtor’s Accounting for a Modification (or
Exchange) of Convertible Debt Instruments” (“Issue No. 06-06”) and in accordance
with EITF Issue No. 96-19, “Debtor’s Accounting for a Modification or Exchange
of Debt Instruments” (“Issue No. 96-19”), were accounted for as an
extinguishment of debt. Management of CVCC allowed for the conversion of CVCC
Notes and CVCC New Notes at a stock price of $0.67 per share, which was greater
than the estimated fair value of the Company’s common stock $0.50 per share on
the date of conversion. An additional 688,393 shares of common stock, at an
estimated fair value of $344,197, which would have been issued to CVCC if the
CVCC Notes and CVCC New Notes were converted at the estimated fair value of
the
Company’s common stock, was credited to additional paid-in capital.
As
of
December 31, 2007, CVCC owned approximately 19% of the Company’s common
stock.
The
Company had incurred indebtedness from
Standard
Renewable Energy Group, LLC and a wholly owned subsidiary (“SREG”)
through
issuance of promissory notes as follows:
|
Issue date
|
|
Maturity
|
|
Principal
|
|
Interest rate
|
|
|
August
9, 2006
|
|
December
31, 2007 (As amended
)
|
|
$
|
125,000
|
|
12.25%
(As amended)
|
|
|
September
21, 2006
|
|
December
31, 2007 (As amended
)
|
|
$
|
250,000
|
|
12.25%
(As amended)
|
|
|
October
26, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
250,000
|
|
12.25%
(As amended)
|
|
|
November
28, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
100,000
|
|
12.25%
(As amended)
|
|
|
February
6, 2007
|
|
December
31, 2007 (As amended)
|
|
$
|
360,000
|
|
12.25%
(As amended)
|
|
|
May
31, 2007
|
|
February
19, 2008
|
|
$
|
360,000
|
|
11.25%
|
|
|
August
20, 2007
|
|
May
16, 2008
|
|
$
|
375,000
|
|
12.25%
|
|
On
November 26, 2007, the Company and SREG entered into a Third Amendment to
Subscription Agreement (the “SREG Amended Subscription Agreement”) whereby, in
consideration of cancellation of the entire principal balance of, and accrued
but unpaid interest on, the promissory notes dated August 9, 2006, September
21,
2006, October 26, 2006, November 28, 2006 and February 6, 2007, made by the
Company in favor of SREG (the “SREG Notes”), the $1,130,524 outstanding under
the SREG Notes, which included $45,524 of accrued and unpaid interest, was
converted into 2,261,048 unregistered shares of the Company’s common
stock.
On
November 26, 2007, the Company and SREG entered into a Subscription Agreement
(the “November 2007 SREG Subscription Agreement”), whereby, in consideration of
cancellation of the entire principal balance of, and accrued but unpaid interest
on, the promissory notes dated May 31, 2007 and August 20, 2007, made by the
Company in favor of SREG (the “SREG New Notes”), the $758,530 outstanding under
the SREG New Notes, which included $23,530 of accrued and unpaid interest,
was
converted into 1,517,060 unregistered shares of the Company’s common
stock.
The
SREG
Amended Subscription Agreement and the November 2007 SREG Subscription Agreement
are substantive conversion options in accordance with EITF Issue No. 06-06,
“Debtor’s Accounting for a Modification (or Exchange) of Convertible Debt
Instruments” (“Issue No. 06-06”) and in accordance with EITF Issue No. 96-19,
“Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“Issue
No. 96-19”), were accounted for as an extinguishment of debt. There was no gain
or loss recognized on extinguishment.
As
of
December 31, 2007, SREG owned approximately 54% of the Company’s common
stock.
On
June
26, 2007, the Company pursuant to the terms of a Note and Warrant Purchase
Agreement dated June 26, 2007 (the “June Purchase Agreement”), sold a total of
6.66 units (“Units”), each Unit comprising (i) a convertible promissory note (a
“Note”), in the original principal amount of $75,000, and (ii) a warrant (a
“Warrant”), to purchase 100,000 shares of the Company's common stock at a price
of $1.00 per share. The Company sold a total of $500,000 in principal amount
of
Notes and Warrants to purchase a total of 666,666 shares of Common Stock for
total proceeds of $500,000. Each Note bears interest at a rate of 15% per annum.
Principal and accrued but unpaid interest on each Note are payable in full
on
June 26, 2008. Amounts outstanding under each Note may be prepaid without
penalty. The unpaid principal balance due under each Note, together with any
accrued but unpaid interest, may be converted into unregistered shares of Common
Stock at a conversion price of $0.75 per share. Each Warrant is exercisable
until June 26, 2010, at an exercise price of $0.50 per share (As amended, see
Note 7) and has a cashless exercise feature. On November 26, 2007, the
convertible promissory notes dated June 26, 2007, with a principal amount of
$500,000, together with accrued and unpaid interest of $31,442, was converted
into 1,062,884 unregistered shares of its common stock at a reduced conversion
price of $0.50 per share. The Company recognized an expense of $177,147 related
to the reduced conversion price, in accordance with SFAS No. 84, “Induced
Conversions of Convertible Debt.
On
November 7, 2007, the Company, pursuant to the terms of a Note and Warrant
Purchase Agreement dated November 7, 2007 (the “November Purchase Agreement”),
sold a total of seventeen units (“Units”), at a price of $25,000 per Unit, with
each Unit comprising (i) an unsecured promissory note (a “Note”), in the
original principal amount of $25,000, and (ii) a warrant (a “Warrant”) to
purchase 25,000 shares of the Company’s common stock, $0.0001 par value (“Common
Stock”), at a price of $.50 per share. The Company sold a total of $425,000 in
principal amount of Notes and Warrants to purchase a total of 425,000 shares
of
Common Stock. Each Note bears interest at a rate of 15% per annum. Principal
and
accrued but unpaid interest on each Note are payable in full on April 30, 2008.
Amounts outstanding under each Note may be prepaid without penalty. Each Warrant
is exercisable until November 7, 2008, at an exercise price of $.50 per share,
subject to adjustment as provide in the Warrant and has a cashless exercise
feature.
Capital
Resources Going Forward
Our
intended plan of operations for 2008 is to manufacture, sell and distribute
limited quantities of our product and to continue to develop our products.
In
the past, the Company primarily used funds derived from the private placement
of
its securities to fund its operations.
Cash
on
hand as of December 31, 2007, and cash generated by operations in conjunction
with our working capital, will not be sufficient to continue our business for
the next twelve months. We continually review our overall capital and funding
needs, taking into account current business needs, as well as the Company’s
future goals and requirements. Based on our business strategy, we believe we
will need to increase our available capital through the incurrence of debt
and
the sale of additional securities.
In
February and March 2008, the Company pursuant to the terms of a Note and Warrant
Purchase Agreement, sold a total of five units (the “Units”), each Unit
comprising (i) a 15% interest bearing unsecured promissory note in the principal
amount of $25,000, with a six-month maturity date (the “Notes”), and (ii) a one
year common stock warrant to purchase 50,000 shares of the Company’s Common
Stock at an exercise price of $0.50 per share (the “Warrants”). The price of
each unit was $25,000. The Company sold a total of $125,000 in principal amount
of Notes and Warrants to purchase a total of 250,000 shares of Common Stock
for
total proceeds of $125,000.
Should
our costs and expenses prove to be greater than we currently anticipate, or
should we change our current business plan in a manner that will increase or
accelerate our anticipated costs and expenses, the depletion of our working
capital would be accelerated. To the extent it becomes necessary to raise
additional cash in the future as our cash on hand and working capital resources
are depleted, we intend to raise additional capital through the sale of
additional equity securities, public or private sale of debt or equity
securities, debt financing or short term loans, or a combination of these
options. We currently do not have a binding commitment for, or readily available
sources of, additional financing. We cannot give any assurance that we will
be
able to secure the additional cash or working capital that we may require to
continue our operations under such circumstances or that it will be on terms
that would not hinder our ability to execute our business strategy.
Our
anticipated costs are estimates based upon our current business plan. Our actual
costs could vary materially from these estimates. Further, we could change
our
current business plans, which may also result in a change in our anticipated
costs.
Going
Concern
We
received an audit report for the year ended December 31, 2007, from our
independent registered accounting firm containing an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern.
We have had no significant operating history as of December 31, 2007, and since
inception, we have not had significant revenues. We have raised additional
equity and debt financing to fund operations and to provide additional working
capital. However, the amount raised to date is not sufficient to meet our needs
over the next twelve months and there are no assurances that we will be able
to
raise sufficient funds to continue our operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern.
Contractual
Obligations
The
Company had an employment agreement with its President that expires July 31,
2008, under which the committed obligation is $110,000 at December 31, 2007.
The
Company had no other contractual obligations as of December 31,
2007.
Off
Balance Sheet Arrangements
There
are
no guarantees, commitments, lease and debt agreements or other agreements that
would trigger adverse changes in our credit rating, earnings, or cash flows,
including requirements to perform under stand by agreements.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations
are
based upon our financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the United States of
America.
Impairment
of Long Lived Assets
On
an
ongoing basis, we evaluate our estimates and impairment of long lived assets.
We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates, including those for the above described
items.
The
Company reviews the recoverability of its long-lived assets, such as property
and equipment, when events or changes in circumstances occur that indicate
the
carrying value of the asset or asset group may not be recoverable. The
assessment of possible impairment is based on the Company’s ability to recover
the carrying value of the asset or asset group from the expected future pre-tax
cash flows (undiscounted) of the related operations. If these cash flows are
less than the carrying value of such asset, an impairment loss is recognized
for
the difference between estimated fair value and carrying value.
Revenue
Recognition
Although
at this stage in our development we have had no significant revenues we consider
revenue recognition a critical accounting policy as it affects the timing of
earnings recognition. We recognize revenues on delivery and to date our
operations have not involved any uncertainty of accounting treatment, subjective
judgment or estimates over revenue recognition.
Item
7A.
Quantitative
and Qualitative Disclosures About Market Risk
Not
applicable.
Item
8. Financial Statements
TRULITE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
|
|
Balance
Sheets
|
|
F-2
|
|
|
|
|
|
Statements
of Operations
|
|
F-3
|
|
|
|
|
|
Statements
of Cash Flows
|
|
F-4
|
|
|
|
|
|
Statements
of Stockholders’ Deficit
|
|
F-5
|
|
|
|
|
|
Notes
to Financial Statements
|
|
F-7
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of
Trulite,
Inc.
Houston,
Texas
We
have
audited the accompanying balance sheets of Trulite, Inc., (a development stage
company) (the “Company”) as of December 31, 2007 and 2006, and the related
statements of operations, stockholders’ deficit, and cash flows for the years
then ended, and for the period from inception (July 15, 2004) through December
31, 2007. 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. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
We
were
not engaged to examine management’s assertion about the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2007,
included in the accompanying Form 10-K for the year ended December 31, 2007,
and
accordingly, we do not express an opinion thereon.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Trulite, Inc. as of December 31,
2007 and 2006, and the results of its operations and its cash flows for the
years then ended, and for the period from inception (July 15, 2004) through
December 31, 2007, 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 shown in the financial statements, the
Company has incurred significant losses and negative cash flows from operations
since inception and has negative working capital as of December 31, 2007. Those
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/
UHY
LLP
March
31,
2008
Houston,
Texas
Balance
Sheets
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
374,134
|
|
$
|
275,957
|
|
|
Prepaid
expenses and other current assets
|
|
|
23,793
|
|
|
13,372
|
|
|
Total
current assets
|
|
|
397,927
|
|
|
289,329
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
53,322
|
|
|
50,079
|
|
|
|
|
|
|
|
|
|
|
|
Patent
application fees
|
|
|
41,963
|
|
|
19,843
|
|
|
Total
assets
|
|
$
|
493,212
|
|
$
|
359,251
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
260,238
|
|
$
|
239,544
|
|
|
Due
to affiliates
|
|
|
57,363
|
|
|
62,363
|
|
|
Notes
payable to affiliates
|
|
|
-
|
|
|
1,250,000
|
|
|
Notes
payable, net of unamortized discount of $28,778 as of December 31,
2007
|
|
|
396,222
|
|
|
-
|
|
|
Total
current liabilities
|
|
|
713,823
|
|
|
1,551,907
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
8%
Cumulative Convertible, Series A Preferred Stock; $0.0001 par value,
1,500,000 shares authorized, 0 shares issued and outstanding as of
December 31, 2007 and December 31, 2006.
|
|
|
-
|
|
|
-
|
|
|
Common
Stock; $0.0001 par value, 50,000,000 and 20,000,000 shares authorized,
21,201,270 and 11,785,491 shares issued and outstanding as of December
31,
2007 and December 31, 2006, respectively.
|
|
|
2,120
|
|
|
1,178
|
|
|
Additional
paid-in-capital
|
|
|
15,572,927
|
|
|
9,537,425
|
|
|
Deficit
accumulated during the development stage
|
|
|
(15,795,658
|
)
|
|
(10,731,259
|
)
|
|
Total
stockholders' deficit
|
|
|
(220,611
|
)
|
|
(1,192,656
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
493,212
|
|
$
|
359,251
|
|
The
accompanying notes are an integral part of these financial
statements.
Statements
of Operations
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
Twelve Months Ended
|
|
(July 15, 2004)
|
|
|
|
|
December 31,
|
|
Through
|
|
|
|
|
2007
|
|
2006
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,883
|
|
$
|
8,333
|
|
$
|
29,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,674
|
|
|
5,912
|
|
|
21,059
|
|
|
GROSS
PROFIT
|
|
|
209
|
|
|
2,421
|
|
|
8,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,928,582
|
|
|
1,216,616
|
|
|
4,295,722
|
|
|
Depreciation
|
|
|
26,097
|
|
|
14,848
|
|
|
48,908
|
|
|
General
and administrative
|
|
|
2,338,642
|
|
|
2,190,319
|
|
|
5,085,058
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
4,293,321
|
|
|
3,421,783
|
|
|
9,429,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(4,293,112
|
)
|
|
(3,419,362
|
)
|
|
(9,421,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(436,708
|
)
|
|
(29,726
|
)
|
|
(467,097
|
)
|
|
Interest
income
|
|
|
4,499
|
|
|
5,794
|
|
|
15,622
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(432,209
|
)
|
|
(23,932
|
)
|
|
(451,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(4,725,321
|
)
|
|
(3,443,294
|
)
|
|
(9,872,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
NET
LOSS
|
|
|
(4,725,321
|
)
|
|
(3,443,294
|
)
|
$
|
(9,872,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
-
|
|
|
(39,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on conversion of preferred stock to common stock
|
|
|
-
|
|
|
(1,586,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on warrant modifications
|
|
|
(339,078
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
(5,064,399
|
)
|
$
|
(5,068,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.37
|
)
|
$
|
(0.37
|
)
|
|
|
|
|
Preferred
and deemed dividends
|
|
|
(0.03
|
)
|
|
(0.18
|
)
|
|
|
|
|
Attributable
to common stockholders
|
|
$
|
(0.40
|
)
|
$
|
(0.55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,766,702
|
|
|
9,139,510
|
|
|
|
|
|
Diluted
|
|
|
12,766,702
|
|
|
9,139,510
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
Statements
of Cash Flows
|
|
|
|
|
|
|
Period From
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
|
(July 15, 2004)
|
|
|
|
|
Twelve Months Ended December 31,
|
|
Through
|
|
|
|
|
2007
|
|
2006
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,725,321
|
)
|
$
|
(3,443,294
|
)
|
$
|
(9,872,589
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
26,097
|
|
|
14,848
|
|
|
48,908
|
|
|
Amortization
of debt discount
|
|
|
147,322
|
|
|
-
|
|
|
147,322
|
|
|
Common
stock issued for consulting services
|
|
|
75,000
|
|
|
285,000
|
|
|
360,000
|
|
|
Common
stock issued for management fees
|
|
|
-
|
|
|
-
|
|
|
133,840
|
|
|
Stock-based
compensation expense
|
|
|
223,518
|
|
|
511,157
|
|
|
734,675
|
|
|
Warrants
issued for consulting services
|
|
|
18,478
|
|
|
162,155
|
|
|
180,633
|
|
|
Debt
conversion expense
|
|
|
177,147
|
|
|
|
|
|
177,147
|
|
|
Write-off
of research and development expenses
|
|
|
-
|
|
|
-
|
|
|
606,798
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Due
to/from affiliate
|
|
|
455,094
|
|
|
86,136
|
|
|
517,457
|
|
|
Accounts
receivable
|
|
|
-
|
|
|
16,667
|
|
|
-
|
|
|
Prepaid
expenses and other current assets
|
|
|
(10,421
|
)
|
|
(5,528
|
)
|
|
(17,328
|
)
|
|
Grants
receivable
|
|
|
-
|
|
|
-
|
|
|
850
|
|
|
Accounts
payable and accrued expenses
|
|
|
52,135
|
|
|
194,723
|
|
|
283,570
|
|
|
Net
cash used in operating activities
|
|
|
(3,560,951
|
)
|
|
(2,178,136
|
)
|
|
(6,698,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of fixed and intangible assets
|
|
|
(51,460
|
)
|
|
(31,889
|
)
|
|
(137,737
|
)
|
|
Net
cash used in investing activities
|
|
|
(51,460
|
)
|
|
(31,889
|
)
|
|
(137,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
1,200,000
|
|
|
1,000,000
|
|
|
2,200,000
|
|
|
Proceeds
from exercise of stock options
|
|
|
50,088
|
|
|
-
|
|
|
50,088
|
|
|
Proceeds
from issuance of common stock warrants with debt financing
|
|
|
176,100
|
|
|
-
|
|
|
176,100
|
|
|
Proceeds
from issuance of preferred stock
|
|
|
-
|
|
|
-
|
|
|
1,250,000
|
|
|
Proceeds
from issuance of notes payable
|
|
|
748,900
|
|
|
-
|
|
|
748,900
|
|
|
Proceeds
from issuance of notes payable to affiliates
|
|
|
1,535,500
|
|
|
1,250,000
|
|
|
3,534,400
|
|
|
Net
cash provided by financing activities
|
|
|
3,710,588
|
|
|
2,250,000
|
|
|
7,959,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
98,177
|
|
|
39,975
|
|
|
1,123,034
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
275,957
|
|
|
235,982
|
|
|
-
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
374,134
|
|
$
|
275,957
|
|
$
|
1,123,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued for acquisition
|
|
$
|
-
|
|
$
|
-
|
|
$
|
20,000
|
|
|
Common
stock issued for acquisition
|
|
$
|
-
|
|
$
|
-
|
|
$
|
592,460
|
|
|
Common
stock issued for consulting services
|
|
$
|
75,000
|
|
$
|
285,000
|
|
$
|
360,000
|
|
|
Common
stock issued for management fees
|
|
$
|
-
|
|
$
|
-
|
|
$
|
133,840
|
|
|
Warrants
issued for consulting services
|
|
$
|
18,478
|
|
$
|
162,155
|
|
$
|
180,633
|
|
|
Common
stock options issued for compensation
|
|
$
|
223,518
|
|
$
|
511,157
|
|
$
|
734,675
|
|
|
Common
stock issued through coversion of notes payable, including accrued
interest of $31,442
|
|
$
|
531,442
|
|
$
|
-
|
|
$
|
531,442
|
|
|
Common
stock issued through coversion of notes payable to affiliates, including
accrued interest of $170,593
|
|
$
|
3,245,593
|
|
$
|
-
|
|
$
|
3,245,593
|
|
|
Additional
paid-in capital credited through an expense recognized due to the
induced
conversion of notes payable
|
|
$
|
177,147
|
|
$
|
-
|
|
$
|
177,147
|
|
|
Affiliate
payable relieved through issuance of note payable
|
|
$
|
289,500
|
|
$
|
-
|
|
$
|
289,500
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
28,897
|
|
$
|
28,897
|
|
The
accompanying notes are an integral part of these financial
statements.
Statements
of Stockholders' Deficit
For
the Periods From Inception (July 15, 2004) Through December 31,
2007
|
|
|
8% Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series A
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
28, 2004; issuance of preferred stock at $1.00 per share
|
|
|
100,000
|
|
$
|
10
|
|
|
-
|
|
$
|
-
|
|
$
|
99,990
|
|
$
|
-
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
5, 2004; issuance of preferred stock at $1.00 per share
|
|
|
190,000
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
189,981
|
|
|
-
|
|
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
12, 2004; issuance of preferred stock at $1.00 per share
|
|
|
10,000
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
9,999
|
|
|
-
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
22, 2004; preferred stock issued in the acquisition of Trulite Technology,
LC based on fair value of stock issued of $1.00 per share
|
|
|
20,000
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
19,998
|
|
|
-
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
22, 2004; common stock issued in the acquisition of Trulite Technology,
LC
based on fair value of stock issued of $0.20 per share (post April
2005
split)
|
|
|
-
|
|
|
-
|
|
|
2,962,300
|
|
|
296
|
|
|
592,164
|
|
|
-
|
|
|
592,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
28, 2004; common stock issued for management services based on fair
value
of stock issued of $0.20 per share (post April 2005 split)
|
|
|
-
|
|
|
-
|
|
|
343,850
|
|
|
34
|
|
|
68,736
|
|
|
-
|
|
|
68,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of dividends
|
|
|
-
|
|
|
6,624
|
|
|
-
|
|
|
-
|
|
|
(6,624
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(878,022
|
)
|
|
(878,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
320,000
|
|
|
6,656
|
|
|
3,306,150
|
|
|
330
|
|
|
974,244
|
|
|
(878,022
|
)
|
|
103,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2005; issuance of preferred stock, at $1.00 per share
|
|
|
200,000
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
199,980
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
1, 2005; issuance of preferred stock at $0.80 per share
|
|
|
934,725
|
|
|
93
|
|
|
-
|
|
|
-
|
|
|
749,907
|
|
|
-
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2005; common stock issued for management services based on fair
value
of stock issued of $0.20 per share (post April 2005 split)
|
|
|
-
|
|
|
-
|
|
|
325,350
|
|
|
33
|
|
|
65,037
|
|
|
-
|
|
|
65,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of dividends
|
|
|
-
|
|
|
84,074
|
|
|
-
|
|
|
-
|
|
|
(84,074
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(825,952
|
)
|
|
(825,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
1,454,725
|
|
|
90,843
|
|
|
3,631,500
|
|
|
363
|
|
|
1,905,094
|
|
|
(1,703,974
|
)
|
|
292,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
13, 2006; issuance of common stock and warrants
|
|
|
-
|
|
|
-
|
|
|
1,000,000
|
|
|
100
|
|
|
999,900
|
|
|
-
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
26, 2006; common stock issued for consulting services based on fair
value
of stock issued of $0.95 per share
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
|
30
|
|
|
284,970
|
|
|
-
|
|
|
285,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
26, 2006; warrants to purchase common stock issued for consulting
services
based on fair value of warrants issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,155
|
|
|
-
|
|
|
162,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of dividends
|
|
|
-
|
|
|
39,275
|
|
|
-
|
|
|
-
|
|
|
(39,275
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2, 2006; accretion of preferred stock for deemed dividend on conversion
of
accrued dividends to common stock
|
|
|
-
|
|
|
161,388
|
|
|
-
|
|
|
-
|
|
|
(161,388
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2, 2006; accretion of preferred stock for deemed dividend on conversion
to
common stock
|
|
|
-
|
|
|
1,424,762
|
|
|
-
|
|
|
-
|
|
|
(978,494
|
)
|
|
(446,268
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2, 2006; conversion of preferred stock to common stock
|
|
|
(1,454,725
|
)
|
|
(1,716,268
|
)
|
|
6,853,991
|
|
|
685
|
|
|
6,853,306
|
|
|
(5,137,723
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
511,157
|
|
|
-
|
|
|
511,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,443,294
|
)
|
|
(3,443,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
11,785,491
|
|
|
1,178
|
|
|
9,537,425
|
|
|
(10,731,259
|
)
|
|
(1,192,656
|
)
|
The
accompanying notes are an integral part of these financial
statements.
Trulite,
Inc. (a Development Stage Company)
Statements
of Stockholders' Deficit
(Continued)
For
the Periods From Inception (July 15, 2004) Through December 31,
2007
|
|
|
8% Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series A
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1, 2007; exercise of stock options
|
|
|
-
|
|
|
-
|
|
|
100
|
|
|
-
|
|
|
88
|
|
|
-
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
9, 2007; exercise of stock options
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
5
|
|
|
49,995
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
26, 2007; issuance of common stock
|
|
|
-
|
|
|
-
|
|
|
2,400,000
|
|
|
240
|
|
|
1,199,760
|
|
|
-
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
26, 2007; common stock issued for consulting services based on fair
value
of stock issued of $0.75 per share
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
|
10
|
|
|
74,990
|
|
|
-
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
26, 2007; issuance of common stock through converion of related party
notes payable
|
|
|
-
|
|
|
-
|
|
|
5,802,795
|
|
|
581
|
|
|
3,245,012
|
|
|
-
|
|
|
3,245,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
26, 2007; issuance of common stock through induced conversion of
notes
payable and recognition of conversion expense of $177,147
|
|
|
-
|
|
|
-
|
|
|
1,062,884
|
|
|
106
|
|
|
708,483
|
|
|
-
|
|
|
708,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February,
22, 2007; deemed dividend on warrant modification
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
104,881
|
|
|
(104,881
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
19, 2007; warrants to purchase common stock issued for consulting
services
based on fair value of warrants issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,478
|
|
|
-
|
|
|
18,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
26, 2007; warrants issued with convertible debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
135,300
|
|
|
-
|
|
|
135,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
7, 2007; warrants issued with notes payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
40,800
|
|
|
-
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
19, 2007; deemed dividend on warrant modification
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
234,197
|
|
|
(234,197
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
223,518
|
|
|
-
|
|
|
223,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,725,321
|
)
|
|
(4,725,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
-
|
|
$
|
-
|
|
|
21,201,270
|
|
$
|
2,120
|
|
$
|
15,572,927
|
|
$
|
(15,795,658
|
)
|
$
|
(220,611
|
)
|
The
accompanying notes are an integral part of these financial
statements.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
1 – Nature of Operations
Trulite,
Inc. (the “Company”) was incorporated on July 15, 2004, in the State of
Delaware. The Company is a development stage entity and is engaged in the
development, production, sourcing, marketing and selling of portable,
semi-portable and stationary products, components and systems that can generate
power for use in off-grid applications requiring power up to one kilowatt.
These
products, components and systems include hydrogen fuel cells, photovoltaic
solar
panels, wind micro-turbines, batteries, charge controllers and inverters. Solar
panels and on-site wind micro-turbines provide intermittent power that
frequently must be stored to meet requirements when the panels are not
producing. The Trulite fuel cells can provide power when the solar panels or
wind turbines are not operating for extended and consistent power
availability.
For
the
year ended December 31, 2007, and since inception (July 15, 2004), the Company
has not had significant revenues. The Company has no significant operating
history as of December 31, 2007. The accompanying financial statements have
been
prepared assuming the Company will continue as a going concern. From inception
(July 15, 2004) through December 31, 2007, management has raised additional
equity and debt financing to fund operations and to provide additional working
capital. However, there is no assurance that future such financing will be
in
amounts sufficient to meet the Company’s needs.
The
accompanying financial statements do not include any adjustments to reflect
the
possible future effects on the recoverability and classification of assets
or
the amounts and classifications of liabilities that may result from the possible
inability of the Company to continue as a going concern.
Note
2 – Summary of Significant Accounting Policies
Cash
and Cash Equivalents.
Cash
and
cash equivalents include short-term investments with original maturities of
three months or less.
Accounts
Receivable and Allowance for Doubtful Accounts.
Accounts
receivable are reported at outstanding principal less allowance for doubtful
accounts. Earnings are charged with a provision for doubtful accounts based
on a
current review of the collectability of the accounts. Accounts deemed
uncollectible are applied against the allowance for doubtful
accounts.
Revenue
Recognition
.
Revenue
from sales is recognized on delivery.
Property
and Equipment
.
Property and equipment is carried at cost. The Company depreciates property
and
equipment using the straight-line method over the estimated useful lives of
the
related assets ranging from three to seven years. Maintenance and repairs are
charged to expense as incurred and expenditures for major improvements are
capitalized. Gains and losses from retirement or replacement of property and
equipment are included in operations.
Research
and Development Costs.
Expenditures
for research activities relating to product development and improvement are
charged to expense as incurred.
Impairment
of Long-Lived Assets
.
The
Company reviews the recoverability of its long-lived assets, such as property
and equipment, when events or changes in circumstances occur that indicate
the
carrying value of the asset or asset group may not be recoverable. The
assessment of possible impairment is based on the Company’s ability to recover
the carrying value of the asset or asset group from the expected future pre-tax
cash flows (undiscounted) of the related operations. If these cash flows are
less than the carrying value of such asset, an impairment loss is recognized
for
the difference between estimated fair value and carrying value.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
2 – Summary of Significant Accounting Policies
(Continued)
Income
Taxes.
The
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The realizability of deferred tax assets are evaluated
annually and a valuation allowance is provided if it is more likely than not
that the deferred tax assets will not give rise to future benefits in the
Company’s tax returns.
The
Company’s estimates are based on the information available to it at the time
that it prepares the income tax provision. The Company generally files its
annual income tax returns several months after its fiscal year-end. Income
tax
returns are subject to audit by federal, state, and local governments, generally
years after the returns are filed. These returns could be subject to material
adjustments or differing interpretations of the tax laws.
Effective
January 1, 2007, the Company adopted
Financial
Accounting Standards Board (“FASB”)
Interpretation
Number 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is
intended to clarify the accounting for income taxes prescribing a minimum
recognition threshold for a tax provision before being recognized in the
consolidated financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. In accordance with the
requirements of FIN 48, the Company evaluated all tax years still subject to
potential audit under state and federal income tax law in reaching its
accounting conclusions. As a result, the Company concluded it did not have
any
unrecognized tax benefits or any additional tax liabilities after applying
FIN
48 as of the January 1, 2007 adoption date or for the fiscal year ended December
31, 2007. The adoption of FIN 48 therefore had no impact on the Company’s
consolidated financial statements. See Note 10 to the Company’s consolidated
financial statement for further discussion.
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 could differ from those
estimates.
Stock-Based
Compensation.
A
t
December 31, 2007, the Company had a stock-based employee compensation plan.
The
Company accounts for stock grants issued under the plan in accordance with
the
recognition and measurement principles of Statement of Financial Accounting
Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”). SFAS No.
123R requires that expense resulting from all share-based payment transactions
be recognized in the financial statements at fair value.
Reclassifications
Certain
reclassifications have been made to conform prior period amounts to the current
period presentation. These reclassifications had no effect on net loss or
stockholders’ deficit.
New
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”) defines fair value and applies to other
accounting pronouncements that require or permit fair value measurements and
expands disclosures about fair value measurements. For non-financial assets
and
liabilities that are recognized or disclosed at fair value in the financial
statements at least annually as well as for all financial assets and
liabilities, SFAS No. 157 is effective in financial statements issued for fiscal
years beginning after November 15, 2007. For non-financial assets and
liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis, SFAS No. 157 is effective in financial
statement issued for fiscal years beginning after November 15, 2008. The Company
is currently evaluating the impact of adopting SFAS No. 157 on its
financial statements.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
2 – Summary of Significant Accounting Policies
(Continued)
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting
For Defined Benefit Pension and Other Postretirement Plans - an amendment of
FASB Statements No. 87, 88, 106 and 132(R).” The standard requires
companies to recognize the funded status (plan obligations less the fair value
of plan assets) of pension and other postretirement benefit plans on their
balance sheets, effective for fiscal years ending after December 15, 2006.
The statement will also require fiscal year-end measurements of plan assets
and
benefit obligations, effective for fiscal years ending after December 15,
2008. SFAS No. 158 will have no effect on the Company’s financial
statements, as the Company does not maintain defined benefit pension or other
postretirement plans.
In
February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
Assets and Financial Liabilities," which permits the choice to measure certain
financial assets and liabilities at their fair value at specified election
dates. The new standard is effective for the Company on January 1, 2008, unless
early adoption is elected. The Company does not expect the new standard to
have a material impact on its financial position or results of
operation.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
No. 141(R)”). SFAS No. 141(R) requires the Company to continue to follow
the guidance in SFAS No. 141 for certain aspects of business combinations,
with additional guidance provided defining the acquirer, recognizing and
measuring the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, assets and liabilities arising from
contingencies, defining a bargain purchase and recognizing and measuring
goodwill or a gain from a bargain purchase. This statement is effective for
all
business combinations for which the acquisition date is on or after the
beginning of an entity’s first fiscal year that begins after December 15,
2008. The Company will implement SFAS No. 141(R) for any business
combinations occurring at or subsequent to January 1,
2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” an Amendment of ARB No. 51,
“Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that
a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement is effective as of the beginning of an
entity’s first fiscal year that begins after December 15, 2008 with
retrospective application. SFAS No. 160 will not impact the Company’s financial
statements.
Note
3 – Property and Equipment
Property
and Equipment consists of the following:
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Office
and other equipment
|
|
$
|
79,657
|
|
$
|
59,249
|
|
|
Manufacturing
equipment
|
|
|
15,450
|
|
|
9,491
|
|
|
Test
equipment
|
|
|
7,123
|
|
|
4,150
|
|
|
Total
fixed assets
|
|
|
102,230
|
|
|
72,890
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(48,908
|
)
|
|
(22,811
|
)
|
|
Property
and equipment, net
|
|
$
|
53,322
|
|
$
|
50,079
|
|
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
4 – Accounts Payable and Accrued liabilities
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
137,732
|
|
$
|
134,905
|
|
|
Accrued
expenses
|
|
|
122,506
|
|
|
104,639
|
|
|
|
|
$
|
260,238
|
|
$
|
239,544
|
|
Note
5 – Notes Payable to Affiliates and Conversion to Common
Stock
Contango
Venture Capital Corporation (“CVCC”)
The
Company had incurred indebtedness from CVCC through issuance of promissory
notes
as follows:
|
Issue date
|
|
Maturity
|
|
Principal
|
|
Interest rate
|
|
|
August
9, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
125,000
|
|
12.25%
(As amended)
|
|
|
November
22, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
400,000
|
|
12.25%
(As amended)
|
|
|
February
6, 2007
|
|
December
31, 2007 (As amended)
|
|
$
|
240,000
|
|
12.25%
(As amended)
|
|
|
May
30, 2007
|
|
February
19, 2008
|
|
$
|
240,000
|
|
11.25%
|
|
|
August
20, 2007
|
|
May
16, 2008
|
|
$
|
250,000
|
|
12.25%
|
|
On
November 26, 2007, the Company and CVCC, entered into a Third Amendment to
Subscription Agreement (the “CVCC Amended Subscription Agreement”) whereby, in
consideration of cancellation of the entire principal balance of, and accrued
but unpaid interest on, the promissory notes dated August 9, 2006, November
22,
2006 and February 6, 2007, made by the Company in favor of CVCC (the “CVCC
Notes”), the $844,628 outstanding under the CVCC Notes, which included $79,628
of accrued and unpaid interest, was converted into 1,260,639 unregistered shares
of the Company’s common stock.
On
November 26, 2007, the Company and CVCC entered into a Subscription Agreement
(the “November 2007 CVCC Subscription Agreement”), whereby, in consideration of
cancellation of the entire principal balance of, and accrued but unpaid interest
on, the promissory notes dated May 30, 2007 and August 20, 2007, made by the
Company in favor of CVCC (the “CVCC New Notes”), the $511,912 outstanding under
the CVCC New Notes, which included $21,912 of accrued and unpaid interest,
was
converted into 764,048 unregistered shares of the Company’s common stock.
The
CVCC
Amended Subscription Agreement and the November 2007 CVCC Subscription Agreement
are substantive conversion options in accordance with the Emerging Issue Task
Force (“EITF”) Issue No. 06-06, “Debtor’s Accounting for a Modification (or
Exchange) of Convertible Debt Instruments” (“Issue No. 06-06”) and in accordance
with EITF Issue No. 96-19, “Debtor’s Accounting for a Modification or Exchange
of Debt Instruments” (“Issue No. 96-19”), were accounted for as an
extinguishment of debt. Management of CVCC allowed for the conversion of CVCC
Notes and CVCC New Notes at a stock price of $0.67 per share, which was greater
than the estimated fair value of the Company’s common stock $0.50 per share on
the date of conversion. An additional 688,393 shares of common stock, at an
estimated fair value of $344,197, which would have been issued to CVCC if the
CVCC Notes and CVCC New Notes were converted at the estimated fair value of
the
Company’s common stock, was credited to additional paid-in capital.
As
of
December 31, 2007, CVCC owned approximately 19% of the Company’s common
stock.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
5 – Notes Payable to Affiliates and Conversion to Common Stock
(Continued)
Standard
Renewable Energy Group, LLC and a wholly
owned subsidiary (“SREG”)
The
Company had incurred indebtedness from SREG through issuance of promissory
notes
as follows:
|
Issue
date
|
|
Maturity
|
|
Principal
|
|
Interest
rate
|
|
|
August
9, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
125,000
|
|
12.25%
(As amended)
|
|
|
September
21, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
250,000
|
|
12.25%
(As amended)
|
|
|
October
26, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
250,000
|
|
12.25%
(As amended)
|
|
|
November
28, 2006
|
|
December
31, 2007 (As amended)
|
|
$
|
100,000
|
|
12.25%
(As amended)
|
|
|
February
6, 2007
|
|
December
31, 2007 (As amended)
|
|
$
|
360,000
|
|
12.25%
(As amended)
|
|
|
May
31, 2007
|
|
February
19, 2008
|
|
$
|
360,000
|
|
11.25%
|
|
|
August
20, 2007
|
|
May
16, 2008
|
|
$
|
375,000
|
|
12.25%
|
|
On
November 26, 2007, the Company and SREG entered into a Third Amendment to
Subscription Agreement (the “SREG Amended Subscription Agreement”) whereby, in
consideration of cancellation of the entire principal balance of, and accrued
but unpaid interest on, the promissory notes dated August 9, 2006, September 21,
2006, October 26, 2006, November 28, 2006 and February 6, 2007, made by the
Company in favor of SREG (the “SREG Notes”), the $1,130,524 outstanding under
the SREG Notes, which included $45,524 of accrued and unpaid interest, was
converted into 2,261,048 unregistered shares of the Company’s common
stock.
On
November 26, 2007, the Company and SREG entered into a Subscription Agreement
(the “November 2007 SREG Subscription Agreement”), whereby, in consideration of
cancellation of the entire principal balance of, and accrued but unpaid interest
on, the promissory notes dated May 31, 2007 and August 20, 2007, made by the
Company in favor of SREG (the “SREG New Notes”), the $758,530 outstanding under
the SREG New Notes, which included $23,530 of accrued and unpaid interest,
was
converted into 1,517,060 unregistered shares of the Company’s common
stock.
The
SREG
Amended Subscription Agreement and the November 2007 SREG Subscription Agreement
are substantive conversion options in accordance with EITF Issue No. 06-06,
“Debtor’s Accounting for a Modification (or Exchange) of Convertible Debt
Instruments” (“Issue No. 06-06”) and in accordance with EITF Issue No. 96-19,
“Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“Issue
No. 96-19”), were accounted for as an extinguishment of debt. There was no gain
or loss recognized on extinguishment.
As
of
December 31, 2007, SREG owns approximately 54% of the Company’s common
stock.
Note
6 – Note and Warrant Purchase Agreements
On
June
26, 2007, the Company pursuant to the terms of a Note and Warrant Purchase
Agreement dated June 26, 2007 (the “June Purchase Agreement”), sold a total of
6.66 units (“Units”), each Unit comprising (i) a convertible promissory note (a
“Note”), in the original principal amount of $75,000, and (ii) a warrant (a
“Warrant”), to purchase 100,000 shares of the Company's common stock at a price
of $1.00 per share. The Company sold a total of $500,000 in principal amount
of
Notes and Warrants to purchase a total of 666,666 shares of Common Stock for
total proceeds of $500,000. Each Note bears interest at a rate of 15% per annum.
Principal and accrued but unpaid interest on each Note are payable in full
on
June 26, 2008. Amounts outstanding under each Note may be prepaid without
penalty. The unpaid principal balance due under each Note, together with any
accrued but unpaid interest, may be converted into unregistered shares of Common
Stock at a conversion price of $0.75 per share. Each Warrant is exercisable
until June 26, 2010, at an exercise price of $0.50 per share (As amended, see
Note 7) and has a cashless exercise feature. On November 26, 2007, the
convertible promissory notes dated June 26, 2007, with a principal amount of
$500,000, together with accrued and unpaid interest of $31,442, was converted
into 1,062,884 unregistered shares of its common stock at a reduced conversion
price of $0.50 per share. The Company recognized a debt conversion expense
of
$177,147 related to the reduced conversion price, in accordance with SFAS No.
84, “Induced Conversions of Convertible Debt, which is included in general and
administrative expenses in the statement of operations for the year ended
December 31, 2007.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
6 – Note and Warrant Purchase Agreements
(Continued)
On
November 7, 2007, the Company, pursuant to the terms of a Note and Warrant
Purchase Agreement dated November 7, 2007 (the “November Purchase Agreement”),
sold a total of seventeen units (“Units”), at a price of $25,000 per Unit, with
each Unit comprising (i) an unsecured promissory note (a “Note”), in the
original principal amount of $25,000, and (ii) a warrant (a “Warrant”) to
purchase 25,000 shares of the Company’s common stock, $0.0001 par value (“Common
Stock”), at a price of $.50 per share. The Company sold a total of $425,000 in
principal amount of Notes and Warrants to purchase a total of 425,000 shares
of
Common Stock. Each Note bears interest at a rate of 15% per annum. Principal
and
accrued but unpaid interest on each Note are payable in full on April 30, 2008.
Amounts outstanding under each Note may be prepaid without penalty. Each Warrant
is exercisable until November 7, 2008, at an exercise price of $.50 per share,
subject to adjustment as provide in the Warrant and has a cashless exercise
feature.
In
accordance with the guidelines of APB No. 14, “Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants,”
the
proceeds of the November Purchase Agreement and the June Purchase Agreement
were
allocated to the Warrants and to the Notes based on the relative fair values
of
the two instruments at the date of issuance.
The
fair
value of the Warrants was determined using the Black-Scholes pricing model,
assuming a risk-free interest rate of 3.71 % and 4.63%, a volatility factor
of
50% and 63%, dividend yields of 0% and a contractual life of one and three
years
for the November and June Purchase Agreements, respectively.
Of
the
$425,000 of proceeds received from the November Purchase Agreement $40,800
was
recorded to additional paid-in capital to recognize the issuance of the Warrants
and as a discount to the face amount of the Notes of $425,000. The discount
will
be amortized to interest expense through the date of maturity, April 30, 2008.
Of the $500,000 of proceeds received from the June Purchase Agreement, $135,300
was recorded to additional paid-in capital to recognize the issuance of the
Warrants and as a discount to the face amount of the Notes of $500,000. The
discount will be amortized to interest expense through date of maturity, June
26, 2008. The convertible feature contained in the Notes of the June Purchase
Agreement was not a beneficial conversion feature in accordance with
EITF
98-5, “Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios,” and thus no portion of the
proceeds was allocated to the conversion feature of the Notes.
Note
7 – Stockholders’ Equity
Common
Stock
On
April
13, 2006, the Company raised additional equity of $1,000,000 through the
issuance of common stock for cash consideration of $1.00 per share. These
issuances of common stock also included one year warrants to purchase an
additional 1,000,000 shares of common stock of the Company at an exercise price
of $1.50 per common share
(amended
to $0.50 per share on November 19, 2007)
that
expire on April 13, 2007. The value of the warrants was included as additional
paid in capital.
On
April
26, 2006, the Company also entered into two consulting agreements for investment
banking services, under which the Company was required to issue 300,000 shares
of restricted common stock and 400,000 five-year warrants to purchase the
Company’s common stock at $3.00 per share (amended to $0.50 per share on
November 19, 2007). One of the agreements terminates on
April 25, 2008, and the second terminates on June 30, 2008.
The fair value of the warrants, utilizing the Black-Scholes method and assuming
a risk-free interest rate of 4.97%, expected volatility of 77%, expected life
of
5 years and no dividend yield, resulted in a fair value of $162,155, which
was
recorded as a component of general and administrative expense in the second
quarter of 2006.
On
February 22, 2007, the Company’s Board of Directors agreed to extend the term of
warrants, until April 13, 2008, that were issued on April 13, 2006 in connection
with the issuance of common stock for cash consideration of $1.00 per share.
These warrants entitled the holders to purchase an additional 1,000,000 shares
of common stock of the Company at an original exercise price of $1.50 per common
share (amended to $0.50 per
share
on
November 19, 2007), that were originally set to expire on April 13, 2007. A
difference of $104,881 in the fair value of these warrants after modification,
when compared to their fair value immediately prior to the modification, was
recorded as a deemed dividend in the first quarter of 2007.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
7 – Stockholders’ Equity
(Continued)
On
November 19, 2007, the Board of Directors of the Company approved the amendment
of any and all warrants to purchase the common stock of the Company to reflect
an exercise price of $0.50 per share. Outstanding warrants as of December 31,
2007 are as follows:
|
Date
Issued
|
|
Expiration
Date
|
|
Original
Exercise Price
|
|
Amended Exercise
Price
|
|
# of Common Shares
for which Warrant is Exercisable
|
|
|
4/13/2006
|
|
|
4/13/2008
|
|
$
|
1.50
|
|
$
|
0.50
|
|
|
1,000,000
|
|
|
4/26/2006
|
|
|
4/26/2011
|
|
$
|
3.00
|
|
$
|
0.50
|
|
|
400,000
|
|
|
4/19/2007
|
|
|
4/19/2009
|
|
$
|
1.20
|
|
$
|
0.50
|
|
|
120,000
|
|
|
6/26/2007
|
|
|
6/26/2010
|
|
$
|
1.00
|
|
$
|
0.50
|
|
|
666,666
|
|
|
11/7/2007
|
|
|
11/7/2008
|
|
$
|
0.50
|
|
$
|
0.50
|
|
|
425,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,611,666
|
|
A
difference of $234,197 in the fair value of these warrants after modification,
when compared to their fair value immediately prior to the modification, was
recorded as a deemed dividend in the fourth quarter of 2007.
On
November 26, 2007, the Company entered into a Common Stock Purchase Agreement
with SREG. Pursuant to the terms of the Purchase Agreement, the Company sold
a
total of 2,400,000 unregistered shares of the Company’s common stock, $0.0001
par value to SREG for total proceeds of $1,200,000, or $0.50 per share.
On
November 26, 2007, the Company entered into the CVCC Amended Subscription
Agreement and the November 2007 CVCC Subscription Agreement under which it
issued 2,024,687 unregistered shares of its common stock. See Note
5.
On
November 26, 2007, the Company entered into the SREG Amended Subscription
Agreement and the November 2007 SREG Subscription Agreement under which it
issued 3,778,108 unregistered shares of its common stock. See Note
5.
On
November 26, 2007, the Company issued 1,062,884 unregistered shares of its
common stock through the conversion of the convertible promissory notes dated
June 26, 2007. See Note 6.
On
June
26, 2007, the Company agreed to issue 100,000 unregistered shares of common
stock to a consultant who provided services to the Company in connection with
the consummation of the transactions contemplated by the June Purchase
Agreement, including providing advice regarding the terms of the Notes and
Warrants and identifying potential investors. The Company recognized $75,000
as
a component of general and administrative expenses, the estimated fair value
of
the shares issued.
On
May 4,
2007, the Company amended its certificate of incorporation to increase the
authorized capital stock of the Company from 21,500,000 shares to 51,500,000
shares of capital stock, consisting of 50,000,000 shares of common stock and
1,500,000 shares of preferred stock.
On
April
19, 2007, the Company issued two-year warrants to purchase the Company’s common
stock at $1.20 per share (amended to $0.50 per share on November 19, 2007),
for
consulting services from a former employee. The fair value of the warrants,
utilizing the Black-Scholes method and assuming a risk-free interest rate of
4.64%, expected volatility of 59%, expected life of 2 years and no dividend
yield, resulted in a fair value of $18,478, which was recorded as a component
of
general and administrative expense.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
7 – Stockholders’ Equity
(Continued)
Series
A Preferred Stock
In
May
2006, all of the Company’s 8% Cumulative Convertible Series A Preferred Stock
was converted into the Company’s common stock.
The
8%
Cumulative Convertible Series A Preferred Stock (“Series A Preferred Stock”) had
a liquidation value of $1.00 per share plus dividends whether or not earned
or
declared from the issuance date thereof at the annual rate of eight percent
(8%)
(the “Preferred Dividends”) of $1.00 per share (the “Original Issue Price”),
payable at the option of the Company in cash or in shares of Series A Preferred
Stock. In addition, the Preferred Stock had preferential treatment in
liquidation to all Common Stock and any other stock of the Company ranking
junior to the Series A Preferred Stock. Accretion of cumulative dividends
outstanding on these shares was $39,275 and $84,074 for the twelve months ended
December 31, 2006 and 2005, respectively.
Each
share of Series A Preferred Stock was convertible at any time into common shares
of the Company by dividing the original issue price by a conversion price as
defined. The Series A Preferred Stock was redeemable at the option of the
majority holders in cash at $1.00 per share plus all accrued and unpaid
Preferred Dividends on the fifth anniversary of the date of initial issuance
or
other events relating to change in 25% or more of the outstanding voting stock
of the Company or a merger or consolidation as defined. Each holder of Series
A
Preferred Stock was entitled to the number of votes equal to the number of
whole
shares of Common Stock into which the shares of Series A Preferred Stock was
convertible.
On
May 2,
2006, 1,454,725 shares of Series A Preferred Stock were converted into 6,562,630
shares of common stock. In addition, the cumulative accreted dividends of
$129,973 were converted into 291,361 shares of common stock. Upon the conversion
of the Series A Preferred Stock, the Company recorded a non-cash charge of
$1,424,762 to reflect the deemed dividend on conversion in accordance with
EITF
Topic D-42, “The Effect on the Calculation of Earnings per Share for the
Redemption or Induced Conversion of Preferred Stock.” In addition, the Company
recorded a non-cash charge of $161,388 to reflect the deemed dividend on
conversion of accreted dividends. The total of the two “deemed dividends” was
$1,586,150. The amount of charge is equal to the difference in the value at
the
time of exchange of the shares of common stock exchanged for the preferred
stock
minus the value of the shares that the holders of the preferred stock otherwise
would have had the right to receive upon conversion of the preferred stock.
The
charge did not affect the Company’s reported revenue, operating income, net
loss, assets, liabilities or stockholders’ deficit.
Note
8 – Stock-Based Compensation
The
Company has granted options to purchase common stock to employees, consultants
and outside directors under the Trulite, Inc. Stock Option Plan, as amended
and
restated (the “Plan”). A total of 5,000,000 shares are reserved for issuance
and, as of December 31, 2007, 1,626,421 shares remained available for grant
under the Plan.
For
the
year ended December 31, 2007 and 2006, total stock-based compensation expense
recognized was $223,518 and $511,157, respectively. The total unrecognized
compensation cost at December 31, 2007, relating to non-vested share-based
compensation arrangements granted under the Plan, was $793,895. That cost is
expected to be recognized over a weighted average period of 3.1
years.
During
the year ended December 31, 2007, the Company granted options to purchase
1,125,916 shares of common stock under the plan. With respect to 375,916 of
these options, the exercise price is $1.00 per common share. With respect to
750,000 of these options the exercise price is $0.75 per common share. The
exercise price was determined based on management’s estimate of fair value on
the date of grant. The options vest over a weighted average period of 3.8 years
and have a contractual life of seven years. During 2006, the Company granted
options to purchase 2,339,465 shares of common stock under the Plan. With
respect to 1,175,339 of these shares, the exercise price is $0.88 per common
share, which is equivalent to the fair value of a share of common stock on
the
date of grant. With respect to 5,000 of these shares, the exercise price is
$0.88 per common share,
whereas
the fair value of a share of common stock on the date of grant was $0.18. With
respect to options to purchase the additional 1,159,126 shares of common stock,
the exercise price is $1.00 per common share. 1,065,407 of these options were
vested upon grant, whereas the remaining 1,274,058 vest over four years and
have
varying contractual lives ranging from four to seven years. The fair value
of
these options was based upon the weighted average assumptions noted
below:
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
8 – Stock-Based Compensation
(Continued)
|
|
|
For the Year Ended December 31,
|
|
|
Assumptions
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Risk
free rate
|
|
|
4.76
|
%
|
|
4.85
|
%
|
|
Expected
life (in years)
|
|
|
4.7
|
|
|
3.5
|
|
|
Expected
volatility
|
|
|
64
|
%
|
|
71
|
%
|
|
Expected
dividends
|
|
$
|
-
|
|
$
|
-
|
|
|
Fair
value
|
|
$
|
0.47
|
|
$
|
0.47
|
|
The
Company estimates the fair value of stock options under SFAS No. 123R at the
date of grant using a Black-Scholes-Merton valuation model. The risk-free rate
is based on the U.S. Treasury yield curve in effect at the time of grant. The
expected term (estimated period of time outstanding) of option grants is based
on the “simplified” method of estimating expected term for “plain vanilla”
options allowed by SEC Staff Accounting Bulletin No. 107, and varies based
on
the vesting period and contractual term of the option. Expected volatility
has
historically been based on an evaluation of similar companies’ trading activity.
The Company has not issued any cash dividends on its common stock.
The
following summary presents information regarding outstanding options as of
December 31, 2007, and the changes during the twelve months then
ended:
|
Option
Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
|
|
Weighted Average
|
|
Aggregate
|
|
|
|
|
Under
|
|
Exercise Price
|
|
Remaining
|
|
Intrinsic
|
|
|
|
|
Options
|
|
Per Share
|
|
Contractual Term
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
|
2,447,060
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,125,916
|
|
|
0.83
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50,000
|
)
|
|
1.00
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled
|
|
|
(97,300
|
)
|
|
1.00
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
3,425,676
|
|
|
0.90
|
|
|
4.9
years
|
|
$
|
-
|
|
|
Vested
or expected to vest at December 31, 2007
|
|
|
3,230,941
|
|
|
0.90
|
|
|
|
|
|
-
|
|
|
Exercisable
at December 31, 2007
|
|
|
1,478,330
|
|
$
|
0.90
|
|
|
3.3
years
|
|
$
|
-
|
|
Note
9 – Research and Development Costs
Expenditures
for research activities relating to product development and improvement are
charged to expense as incurred. For the year ended December 31, 2007 and 2006,
research and development costs were $1,928,582 and $1,216,616,
respectively.
Note
10 – Income taxes
Since
inception, the Company has incurred net operating losses and, accordingly,
no
provision for current income taxes has been recorded in these financial
statements. In addition, no benefit for income taxes has been recorded in
respect of the net deferred tax assets as management believes it is more likely
than not that the deferred tax assets will not be fully realizable. Accordingly,
the Company has provided for a full valuation allowance against its net deferred
tax assets at December 31, 2007 and 2006.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
10 – Income taxes
(Continued)
The
Company adopted the provisions of FIN 48 on January 1, 2007. After application
of the provisions of FIN 48, it was not necessary for the Company to recognize
any liability for unrecognized tax benefits or adjustment to the balance of
retained earnings as of January 1, 2007. The Company’s policy is to classify
interest and penalties related to unrecognized tax benefits in income tax
expense. As of January 1, 2007, the Company had no accrued interest and
penalties related to unrecognized tax benefits. As of January 1, 2007, after
the
implementation of FIN 48, the Company had no unrecognized tax benefits.
Therefore, there is no amount, if recognized, that would affect the effective
tax rate.
The
Company files an income tax return in the U.S. federal jurisdiction. For federal
tax purposes, the Company’s 2004 through 2006 tax years remain open for
examination by the tax authorities under the normal three year statute of
limitations. The adoption of FIN 48 on January 1, 2007 did not have a material
effect on the Company’s results of operations or financial
condition.
The
Company did not incur any income tax expense due to operating losses and the
related increase in the valuation allowance. The Company has established a
valuation allowance for the full amount of the deferred tax assets as management
does not currently believe that it is more likely than not that these assets
will be recovered in the foreseeable future.
The
reconciliation of income taxes at the statutory rate of 35% applied to the
loss
before taxes for the years ended December 31, 2007 and 2006, respectively,
are
as follows:
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Computed
income tax benefit
|
|
$
|
(1,653,862
|
)
|
$
|
(1,205,153
|
)
|
|
Qualified
stock compensation
|
|
|
78,231
|
|
|
178,905
|
|
|
Debt
conversion expense
|
|
|
62,001
|
|
|
-
|
|
|
Other
permanent differences
|
|
|
1,623
|
|
|
3,485
|
|
|
Increase
in valuation allowance
|
|
|
1,512,007
|
|
|
1,022,763
|
|
|
Tax
expense
|
|
$
|
-
|
|
$
|
-
|
|
The
tax
effects of the temporary differences that give rise to deferred tax assets
and
liabilities at December 31, 2007 and 2006 are as follows:
|
|
|
At December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Loss
carryforwards
|
|
$
|
2,885,165
|
|
$
|
1,398,286
|
|
|
Stock-based
expense
|
|
|
261,205
|
|
|
228,487
|
|
|
Other
temporary differences
|
|
|
10,045
|
|
|
17,635
|
|
|
|
|
|
3,156,415
|
|
|
1,644,408
|
|
|
Less
valuation allowance
|
|
|
(3,156,415
|
)
|
|
(1,644,408
|
)
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
As
of
December 31, 2007, the Company had net operating loss carryforwards of
approximately $8.2 million. To the extent not utilized, the net operating loss
carryforwards will begin to expire in 2024.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
11 – Commitments and Contingencies
Concentrations
of Credit Risk
.
The
Company maintains cash balances at a financial institution which at times
exceeds federally insured amounts. The Company has not experienced any material
losses in such accounts.
Leases
Rent
expense for the year ended December 31, 2007 and 2006 was $32,848 and $35,737,
respectively. Rent expense is included in general and administrative expenses
in
the accompanying statements of operations. The Company’s lease agreement will
expire in May 2008, with future rental commitments of approximately
$15,000
.
Other
The
Company had an employment agreement with its President that expires July 31,
2008, under which the committed obligation is $110,000 at December 31,
2007.
Note
12 – Related Party Transactions
Due
to affiliates
As
of
December 31, 2007 and 2006,
amounts
due
to
affiliates consisted of $57,363 and $62,363 due to SREG for management and
administrative services, respectively.
During
the twelve month period ended December 31, 2007 and 2006, SREG billed the
Company $454,907 and $71,121, respectively, for management and administrative
services.
Interest
expense
For
the
year ended December 31, 2007, the Company incurred interest expense of $144,875
and $101,184, respectively, related to promissory notes with SREG and CVCC.
For
the year ended December 31, 2006, the Company incurred interest expense of
$19,082 and $10,644, respectively, related to promissory notes with SREG and
CVCC.
Trulite,
Inc.
(A
Development Stage Company)
Notes
to
Financial Statements
For
the Years Ended December 31, 2007 and 2006
Note
13 – Net Loss Per Share
|
|
|
Twelve Months Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Numerator:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,725,321
|
)
|
$
|
(3,443,294
|
)
|
|
|
|
|
|
|
|
|
|
|
Increases
to Net Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
-
|
|
|
(39,275
|
)
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on conversion of preferred stock to common stock
|
|
|
-
|
|
|
(1,586,150
|
)
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on warrant extension
|
|
|
(339,078
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(5,064,399
|
)
|
$
|
(5,068,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share - weighted average
common
shares outstanding
|
|
|
12,766,702
|
|
|
9,139,510
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
dilutive effect of stock-based awards and common stock issuable
upon
conversion of preferred stock, net of assumed repurchase of treasury
stock
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Fully-diluted
earnings per share - weighted average common shares
outstanding
|
|
|
12,766,702
|
|
|
9,139,510
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.37
|
)
|
$
|
(0.37
|
)
|
|
Preferred
and deemed dividends
|
|
|
(0.03
|
)
|
|
(0.18
|
)
|
|
Attributable
to common stockholders
|
|
$
|
(0.40
|
)
|
$
|
(0.55
|
)
|
Basic
and
diluted net loss per share are the same since the effect of all common stock
equivalents are anti-dilutive to the Company’s net loss in accordance with
Statement of Financial Accounting Standards No. 128,
Earnings
per Share
.
The
following weighted average securities are not included in the computation of
diluted loss per share as their effect would have been
anti-dilutive:
|
|
|
Twelve Months Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Common
stock options
|
|
|
2,924,069
|
|
|
1,610,461
|
|
|
Common
stock warrants
|
|
|
1,809,246
|
|
|
986,301
|
|
|
8%
cumulative convertible series A preferred stock
|
|
|
-
|
|
|
486,237
|
|
|
Convertible
debt (if-converted)
|
|
|
2,904,519
|
|
|
-
|
|
Note
14 – Subsequent Event
In
February and March 2008, the Company pursuant to the terms of a Note and Warrant
Purchase Agreement, sold a total of five units (the “Units”), each Unit
comprising (i) a 15% interest bearing unsecured promissory note in the principal
amount of $25,000, with a six-month maturity date (the “Notes”), and (ii) a one
year common stock warrant to purchase 50,000 shares of the Company’s Common
Stock at an exercise price of $0.50 per share (the “Warrants”). The price of
each unit was $25,000. The Company sold a total of $125,000 in principal amount
of Notes and Warrants to purchase a total of 250,000 shares of Common Stock
for
total proceeds of $125,000.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item
9A(T). Disclosure Controls and Procedures.
Disclosure
Controls and Procedures
In
an
effort to ensure that the information the Company must disclose in its filings
with the Securities and Exchange Commission is recorded, processed, summarized,
and reported on a timely basis, the Company’s chief executive officer and chief
financial officer have evaluated the effectiveness of the Company’s disclosure
controls and procedures as defined in Exchange Act Rules 13a-15(e) and
15d-15(e), as of December 31, 2007. Based on such evaluation, such officers
have concluded that, as of December 31, 2007, the Company’s disclosure
controls and procedures were effective in timely alerting them to information
relating to the Company required to be disclosed in the Company’s periodic
reports filed with the SEC.
Management’s
Report on Internal Control Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934, as a process
designed by, or under the supervision of, the company's principal executive
and
principal financial officers and effected by the company's board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America and includes those policies and
procedures that:
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets of
the
company;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and
that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets
that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Therefore, even those systems determined to
be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation
of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. Under the supervision and
with
the participation of management, including the Chief Executive Officer and
the
Chief Financial Officer, an evaluation was conducted on the effectiveness of
the
Company’s internal control over financial reporting based on criteria
established in the Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Management concluded
that the Company maintained effective internal control over financial reporting
as of December 31, 2007. This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report.
Changes
in Internal Control Over Financial Reporting
There
has
been no change in the Company’s internal control over financial reporting during
the quarter ended December 31, 2007 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item
9B. Other Information.
None.
Part
III
Item
10. Directors, Executive Officers and Corporate
Governance.
Information
in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after
the
end of the fiscal year covered by this form 10-K.
Item
11. Executive Compensation.
Information
in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after
the
end of the fiscal year covered by this form 10-K.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Information
in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after
the
end of the fiscal year covered by this form 10-K.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Information
in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after
the
end of the fiscal year covered by this form 10-K.
Item
14. Principal Accountant Fees and Services.
Information
in response to this Item is incorporated herein by reference to our definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after
the
end of the fiscal year covered by this form 10-K.
Part
IV
Item
15. Exhibits and Financial Statement Schedules
Index
to
Exhibits
|
Number
|
|
Description
|
|
|
3.1
(1)
|
|
Certificate
of Incorporation
|
|
3.2
(1)
|
|
Certificate
of Amendment to the Certificate of Incorporation
|
|
3.3
(1)
|
|
Bylaws
|
|
3.4
(1)
|
|
Application
of Certificate of Authority (Texas)
|
|
3.5
(13)
|
|
Amendment
to Bylaws
|
|
3.6
(17)
|
|
Amended
and Restated Bylaws
|
|
4.1
(1)
|
|
Certificate
of Designation of the 8% Cumulative Convertible Preferred Stock,
Series
A
|
|
4.2
(1)
|
|
Certificate
of Amendment to the Certificate of Designation of the 8% Cumulative
Convertible Preferred Stock, Series
A
|
|
Number
|
|
Description
|
|
|
10.2
(1)
|
|
April
2005 Option Agreement of John Sifonis
|
|
10.3
(1)
|
|
October
2005 Option Agreement of John Sifonis
|
|
10.4
(1)
|
|
Employment
Agreement of Kevin Shurtleff
|
|
10.5
(1)
|
|
Employment
Agreement of Jerry Metz
|
|
10.6
(1)
|
|
April
2005 Option Agreement of Jerry Metz
|
|
10.7
(1)
|
|
October
2005 Option Agreement of Jerry Metz
|
|
10.8
(1)
|
|
Employment
Agreement of James A. Longaker
|
|
10.9
(1)
|
|
July
2005 Option Agreement of James A. Longaker
|
|
10.10
(1)
|
|
Employment
Agreement of Eric Ladd
|
|
10.11
(1)
|
|
Trulite,
Inc. Stock Option Plan
|
|
10.12
(1)
|
|
Contribution
Agreement
|
|
10.13
(1)
|
|
Waiver
Agreement
|
|
10.14
(1)
|
|
Preferred
Stock Purchase Agreement
|
|
10.15
(1)
|
|
Addendum
to Preferred Stock Purchase Agreement
|
|
10.16
(1)
|
|
Investor’s
Rights Agreement
|
|
10.17
(1)
|
|
Right
of First Refusal and Co-Sale Agreement
|
|
10.18
(4)
|
|
Option
Agreement with Synexus Energy, Inc.
|
|
10.19
(5)
|
|
Stockholder
Lock-Up Agreement with Contango Capital Partners, LP
|
|
10.20
(5)
|
|
Consulting
Agreement with Boru Enterprises, Inc.
|
|
10.21
(5)
|
|
Memorandum
of Understanding with Synexus Energy, Inc.
|
|
10.22
(5)
|
|
Grant
Documents from The Defense Threat Reduction Agency and the United
States
Air Force
|
|
10.23
(6)
|
|
Consulting
Agreement with Jelco, Inc.
|
|
10.24
(6)
|
|
Consulting
Agreement with Ascend Renewable Technologies, LLC
|
|
10.25
(6)
|
|
Employment
Agreement of Christopher Brydon
|
|
10.26
(6)
|
|
Employment
Agreement of Eric Ladd
|
|
10.27
(6)
|
|
Employment
Agreement of John Patton
|
|
10.28
(6)
|
|
Employment
Agreement of Kevin Shurtleff
|
|
10.29
(6)
|
|
Stockholder
Lock-Up Agreement with James Longaker
|
|
10.30
(6)
|
|
Stockholder
Lock-Up Agreement with John Sifonis
|
|
10.31
(6)
|
|
Stockholder
Lock-Up Agreement with Kevin Shurtleff
|
|
10.32
(6)
|
|
Stockholder
Lock-Up Agreement with Eric Ladd
|
|
10.33
(6)
|
|
Amended
Stock Option Plan
|
|
10.34
(6)
|
|
Stock
Option Agreement with John Berger
|
|
10.35
(6)
|
|
Stock
Option Agreement with Christopher Brydon
|
|
10.36
(6)
|
|
Stock
Option Agreement with William Flores
|
|
10.37
(6)
|
|
Stock
Option Agreement with Richard Hoesterey
|
|
10.38
(6)
|
|
Stock
Option Agreement with Evan Hughes
|
|
10.39
(6)
|
|
Stock
Option Agreement with Eric Ladd
|
|
10.40
(6)
|
|
Stock
Option Agreement with Jenny Ligums
|
|
10.41
(6)
|
|
Stock
Option Agreement with James Longaker
|
|
10.42
(6)
|
|
Stock
Option Agreement with Eric Melvin
|
|
10.43
(6)
|
|
Stock
Option Agreement with John Patton
|
|
10.44
(6)
|
|
Stock
Option Agreement with Kevin Shurtleff
|
|
10.45
(7)
|
|
Consulting
Agreement with Ken Pearson
|
|
10.46
(7)
|
|
Consulting
Agreement with Jonathan Godshall
|
|
10.47
(8)
|
|
Form
of Warrant Agreement for the April 13, 2006 private
offering
|
|
10.48
(8)
|
|
Form
of Warrant Agreement for the Boru and Jelco issuances
|
|
10.49
(8)
|
|
Resignation
Letter of Thomas Samson
|
|
10.50
(9)
|
|
Revised
Consulting Agreement with Boru Enterprises, Inc.
|
|
10.51
(10)
|
|
Employment
Agreement dated August 7, 2006 with Jonathan Godshall.
|
|
10.52
(10)
|
|
Promissory
Note dated August 9, 2006 made by Trulite in favor of Contango Venture
Capital Corporation, LLC
|
|
10.53
(10)
|
|
Promissory
Note dated August 9, 2006 made by Trulite in favor of Standard Renewable
Energy Group, L.P.
|
|
10.54
(14)
|
|
Stock
Option Agreement with Contango Capital Partners, LP
|
|
10.55
(14)
|
|
Stock
Option Agreement with John Berger (May 2006)
|
|
10.56
(11)
|
|
Promissory
Note dated September 21, 2006 made by Trulite in favor of Standard
Renewable Energy Group, LLC
|
|
10.57
(3)
|
|
Employment
Agreement dated January 1, 2007 with Kenneth
Pearson.
|
|
Number
|
|
Description
|
|
|
10.58
(12)
|
|
Promissory
Note, dated October 26, 2006, made by Trulite, Inc., in favor of
Standard
Renewable Energy Group, LLC
|
|
10.59
(12)
|
|
Promissory
Note, dated November 28, 2006, made by Trulite, Inc., in favor of
Standard
Renewable Energy Group, LLC
|
|
10.60
(12)
|
|
Promissory
Note, dated November 22, 2006, made by Trulite, Inc., in favor of
Contango
Venture Capital Corporation
|
|
10.61
(15)
|
|
Promissory
Note dated February 6, 2007, made by Trulite in favor of Standard
Renewable Energy Group, LLC
|
|
10.62
(15)
|
|
Promissory
Note dated February 6, 2007, made by Trulite in favor of Contango
Venture
Capital Corporation
|
|
10.63
(16)
|
|
Consulting
Agreement, dated April 4, 2007, by and between Trulite and Fenway
Advisory
Group
|
|
10.64
(16)
|
|
Form
of Warrant Agreement issued to Fenway Advisory Group
|
|
10.65
(16)
|
|
Subscription
Agreement, dated April 5, 2006, by and between Trulite, Inc. and
Standard
Renewable Energy Group, LP
|
|
10.66
(16)
|
|
Subscription
Agreement, dated April 5, 2006, by and between Trulite, Inc. and
Standard
Renewable Energy Group, LLC
|
|
10.67
(16)
|
|
Subscription
Agreement, dated April 5, 2006, by and between Trulite, Inc. and
Contango
Venture Capital Corporation
|
|
10.68
(16)
|
|
Form
of Amendment to Warrant
|
|
10.69
(17)
|
|
Amendment
to Subscription Agreement, dated April 24, 2006, by and between Trulite,
Inc. and Standard Renewable Energy Group, LP
|
|
10.70
(17)
|
|
Amendment
to Subscription Agreement, dated April 24, 2006, by and between Trulite,
Inc. and Standard Renewable Energy Group, LLC
|
|
10.71
(17)
|
|
Amendment
to Subscription Agreement, dated April 24, 2006, by and between Trulite,
Inc. and Contango Venture Capital Corporation
|
|
10.72A
(17)
|
|
Stockholder
Lock-Up Agreement with Andrew J. Nielsen
|
|
10.72B
(18)
|
|
Promissory
Note dated May 30, 2007, made by Trulite in favor of Contango Venture
Capital Corporation
|
|
10.73
(18)
|
|
Promissory
Note dated May 31, 2007, made by Trulite in favor of Standard Renewable
Energy Group, LLC
|
|
10.74
(19)
|
|
Form
of Convertible Promissory Note
|
|
10.75
(19)
|
|
Form
of Warrant
|
|
10.76
(19)
|
|
Note
and Warrant Purchase Agreement dated June 26, 2007
|
|
10.76A
(20)
|
|
Agreement,
dated July 10, 2007 between Trulite, Inc. and HPC Capital
Management
|
|
10.76B
(21)
|
|
Amendment
To Promissory Note, dated June 29, 2007, made by Trulite, Inc., in
favor
of Standard Renewable Energy Group, LLC.
|
|
10.76C
(21)
|
|
Amendment
To Promissory Note, dated June 29, 2007, made by Trulite, Inc., in
favor
of Contango Venture Capital Corporation.
|
|
10.77
(21)
|
|
Amendment
To Promissory Note, dated June 29, 2007, made by Trulite, Inc., in
favor
of Standard Renewable Energy, LP.
|
|
10.78
(21)
|
|
Second
Amendment To Subscription Agreement, dated June 29, 2007, made by
Trulite,
Inc., in favor of Standard Renewable Energy Group, LLC.
|
|
10.79
(21)
|
|
Second
Amendment To Subscription Agreement, dated June 29, 2007, made by
Trulite,
Inc., in favor of Contango Venture Capital Corporation.
|
|
10.80
(21)
|
|
Second
Amendment To Subscription Agreement, dated June 29, 2007, made by
Trulite,
Inc., in favor of Standard Renewable Energy, LP.
|
|
10.81
(22)
|
|
Promissory
Note, dated August 20, 2007, made by Trulite, Inc., in favor of Contango
Venture Capital Corporation.
|
|
10.82
(22)
|
|
Promissory
Note, dated August 20, 2007, made by Trulite, Inc., in favor of Standard
Renewable Energy Group, LLC.
|
|
10.83
(23)
|
|
Form
of Promissory Note
|
|
10.84
(23)
|
|
Form
of Warrant
|
|
10.85
(23)
|
|
Note
and Warrant Purchase Agreement dated November 7, 2007
|
|
10.86
(24)
|
|
Third
Amendment to Subscription Agreement - SRE, LP
|
|
10.87
(24)
|
|
Third
Amendment to Subscription Agreement - SREG
|
|
10.88
(24)
|
|
Third
Amendment to Subscription Agreement - CVCC
|
|
10.89
(24)
|
|
November
26, 2007 Subscription Agreement - SREG
|
|
10.90
(24)
|
|
November
26, 2007 Subscription Agreement - CVCC
|
|
10.91
(24)
|
|
SREG
Common Stock Purchase Agreement
|
|
10.92
(24)
|
|
Form
of April 13, 2006 Warrants, as
Amended
|
|
Number
|
|
Description
|
|
|
10.93
(24)
|
|
Form
of April 26, 2006 Warrants, as Amended
|
|
10.94
(24)
|
|
Form
of April 19, 2007 Warrants, as Amended
|
|
|
|
|
|
31.1
(25)
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
(25)
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
(25)
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
(25)
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
(1)
|
Previously
filed as an exhibit to Form 10-SB, filed December 23,
2005
|
|
(2)
|
Previously
filed as an exhibit to Form SB-2, filed June 6, 2006
|
|
(3)
|
Previously
filed as an exhibit to Form SB-2/A, filed January
30,2007
|
|
(4)
|
Previously
filed as an exhibit to Form 10-SB/A, filed February 23,
2006
|
|
(5)
|
Previously
filed as an exhibit to Form 10-SB/A, filed April 21,
2006
|
|
(6)
|
Previously
filed as an exhibit to Form 10-SB/A, filed June 8, 2006
|
|
(7)
|
Previously
filed as an exhibit to Form 10-SB/A, filed July 7, 2006
|
|
(8)
|
Previously
filed as an exhibit to Form 10-SB/A, filed July 28,
2006
|
|
(9)
|
Previously
filed as an exhibit to Form 10-SB/A, filed October 6,
2006
|
|
(10)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated August 7, 2006
and incorporated herein by reference
|
|
(11)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated September 19, 2006 and
incorporated herein by reference
|
|
(12)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated October 26, 2006 and
incorporated herein by reference
|
|
(13)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated October 31, 2006 and
incorporated herein by reference
|
|
(14)
|
Previously
filed as an exhibit to Form 10-SB/A, filed December 22,
2006
|
|
(15)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated January 1, 2007 and
incorporated herein by reference
|
|
(16)
|
Previously
filed as an exhibit to Post-Effective Amendment No. 1 to Form SB-2/A,
filed April 6, 2007
|
|
(17)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated May 23, 2007 and
incorporated herein by reference
|
|
(18)`
|
Previously
filed as an exhibit to the Company’s Form 8-K dated May 30, 2007 and
incorporated herein by reference
|
|
(19)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated June 26, 2007 and
incorporated herein by reference
|
|
(20)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated July 10, 2007 and
incorporated herein by reference
|
|
(21)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated July 30, 2007 and
incorporated herein by reference
|
|
(22)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated August 20, 2007 and
incorporated herein by reference
|
|
(23)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated November 7, 2007 and
incorporated herein by reference
|
|
(24)
|
Previously
filed as an exhibit to the Company’s Form 8-K dated November 26, 2007 and
incorporated herein by reference
|
|
(25)
|
Filed
herewith
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
|
Dated:
March 31, 2008
|
TRULITE,
INC.
|
|
|
|
|
|
|
By:
|
/s/
Jonathan Godshall
|
|
|
|
Jonathan
Godshall
|
|
|
|
Chief
Executive Officer (Principal Executive
Officer)
|
Pursuant to the requirements of the Securities Exchange
Act of
1934, this Report has been signed below by the following persons on behalf
of
Registrant and in the capacities and on the dates indicated.
|
/s/
Jonathan Godshall
|
Director
and Chief Executive Officer
|
March
31, 2008
|
|
Jonathan Godshall
|
(Principal Executive Officer)
|
|
|
|
|
|
|
/s/
G. Wade Stubblefield
|
Chief Financial
Officer
|
March
31, 2008
|
|
G. Wade Stubblefield
|
(Principal Executive Officer)
|
|
|
|
|
|
|
/s/
John Berger
|
Chairman
of the Board of Directors
|
March
31, 2008
|
|
John
Berger
|
|
|
|
|
|
|
|
/s/
Richard Hoesterey
|
Director
|
March
31, 2008
|
|
Richard
Hoesterey
|
|
|
|
|
|
|
|
/s/
General Randolph House
|
Director
|
March
31, 2008
|
|
General
Randolph House
|
|
|
|
|
|
|
|
/s/
W. Kyle Willis
|
Director
|
March
31, 2008
|
|
W.
Kyle Willis
|
|
|
|
|
|
|
|
/s/
John Sifonis
|
Director
|
March
31, 2008
|
|
John Sifonis
|
|
|
|
|
|
|
|
/s/
John White
|
Director
|
March
31, 2008
|
|
John White
|
|
|
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