Item 1.
Business
The
discussion of our business is as of the date of filing this report, unless
otherwise indicated.
Overview
Save the
World Air, Inc. (“STWA” or “Company” or “we”) designs, licenses and develops
products to increase engine performance, reduce harmful emissions and increase
fuel efficiency. We are a green technology company that leverages a
suite of patented, patent-pending and licensed intellectual properties related
to the treatment of fuels. Technologies patented by or licensed to us utilize
either magnetic or uniform electrical fields to alter physical characteristics
of fuels and are designed to create cleaner combustion. Cleaner combustion has
been shown to improve performance, enhance fuel economy and/or reduce harmful
emissions in laboratory testing.
We have
three product lines; MAG ChargR™ and ECO ChargR™, ELEKTRA™ and AOT (Applied Oil
Technology).
MAG
ChargR is past the development stage and we believe that an initial small run of
several thousand units may be manufactured and sold by the end of second quarter
2009.
We
believe
ELEKTRA may be nearing the end of the product development cycle
which we believe could culminate in an upcoming Society of Automotive Engineers
(SAE) test to prove and certify the level of fuel
savings. AOT is in the research and development phase.
The
Company believes that its current product line represents a large addressable
market of approximately $6.9 billion made up of existing tractor trailer owners,
diesel fleet managers, diesel OEM manufacturers, individual automobile
enthusiasts and motorcycle OEM manufacturers.
We have obtained a license from Temple
University for their patent-pending uniform electric field technology, called
ELEKTRA. The ELEKTRA technology consists of passing fuel through a
dynamically-controlled strong electrical field. Although ELEKTRA has
a similar effect on fuels as our ZEFS and MK IV technologies, ELEKTRA
incorporates a uniform electrical field principle versus the fixed magnetic
field used by ZEFS™ and MK IV™ technologies in the MAG ChargR and ECO ChargR
products.
The
Company holds US Patent # 6901917, effective May 21, 2001 for “DEVICE FOR SAVING
FUEL AND REDUCING EMISSIONS” covered in the United States, Australia, Canada,
China, Russia, India, Indonesia and Mexico for the ZEFS technology used in the
MAG ChargR and ECO ChargR.
We are
also working with Temple University and have had discussions with domestic and
international corporations to develop the AOT (Applied Oil Technology) product
line for oil refineries and pipelines. The AOT product line uses the
same dynamically-controlled strong electrical field concepts to reduce viscosity
as ELEKTRA but is designed for pipeline applications that use thicker, more
viscous fuels than the ELEKTRA market. The AOT product is intended to
improve the speed of highly viscous fluids such as crude oil traveling through
pipelines.
Our MAG
ChargR™ and ECO ChargR™ products use fixed magnetic fields to alter
some physical properties of fuel by incorporating our patented and
patent-pending ZEFS and MK IV technologies. We differentiate MAG
ChargR and ECO ChargR products based on their differing attributes and marketing
focus. ECO ChargR products are primarily designed to reduce harmful emissions
and MAG ChargR products are primarily designed to enhance performance and fuel
economy. Our ECO ChargR product is intended to reduce exhaust emissions in
vehicle and small utility motors. We intend that the ECO ChargR will
be marketed primarily to original equipment manufacturers (“OEMs”) as well as to
pilot and government-mandated emissions programs. Our MAG ChargR
product is intended to increase power and improve mileage. MAG ChargR is being
marketed to municipal fleets and to the specialty consumer accessories market
for many types of vehicles, including but not limited to cars, trucks,
motorcycles, scooters, all terrain vehicles (“ATVs”), snowmobiles, personal
watercraft and small utility motors.
Our first
revenues in 2006 and 2007
were
generated
from initial sales in Asia for our ECO ChargR product in the
motorcycle industry. We plan on commencing sales of ECO ChargR to customers in
the United States in the motorcycle industry in second quarter of 2009. We also
plan on commencing initial sales of our MAG ChargR in the United States in
the automobile and motorcycle industry in the second quarter of
2009. See “Recent Developments” and “Sales and Marketing”
below.
We
operate in a highly competitive industry. Many of our activities are
subject to governmental regulation. We have taken aggressive steps to
protect our intellectual property. See “Competition”, “Government
Regulation and Environmental Matters”
and “Intellectual
Property” below.
There are
significant risks associated with our business, our Company and our
stock. See “Risk Factors” below.
We are a
development stage Company that generated minimal revenues in 2006 and 2007. We
did not generate any sales or revenues in 2008. Our expenses to date have been
funded primarily through the sale of stock and convertible debt, as well as
proceeds from the exercise of stock purchase warrants. We raised capital in 2008
and will need to raise substantial additional capital in 2009, and beyond, to
fund our sales and marketing efforts, continuing research and development, and
certain other expenses, until our revenue base grows sufficiently to cover such
expenditures. See “Management’s Discussion and Analysis”
below.
Our
company was incorporated on February 18, 1998, as a Nevada corporation,
under the name Mandalay Capital Corporation. We changed our name to Save the
World Air, Inc. on February 11, 1999, following the acquisition of
marketing and manufacturing rights of the ZEFS technologies. Our mailing address
is 235 Tennant Avenue, Morgan Hill, California 95037. Our telephone number is
(323) 932-7040. Our corporate website is
www.stwa.com
.
Our
common stock is quoted under the symbol “ZERO” on the Over-the-Counter Bulletin
Board.
Recent
Developments
In
December 2008, Dr. Luke Turgeon was retained by us as an engineering
consultant to work on the design and engineering of the Company’s
ELEKTRA products for its commercialization. His depth of knowledge
and experience in the designing of analog integrated circuits should be helpful
to us in moving our efforts to produce and sell our ELEKTRA
products.
On
February 24, 2009, we received notice from the California Air
Resources Board (CARB) that we have been issued an Executive Order (EO number
D-659) approving the MagChargR products for sale in California. A
CARB Executive Order is recognized by the EPA, meaning the product can also be
legally sold in all 50 states subject to any applicable state
regulations.
On
February 20, 2009, we entered into a distribution agreement for the MagChargR
with Magnumforce Race Car Fabrication, Inc.
(Magnumforce).
The
agreement provides for an initial order of $125,000, payment of which is
contingent upon Magnumforce selling our product to its customers. The
product was tested in 2007 in connection with fuel savings and emission
reduction and the CARB certification was necessary before distribution and sales
could occur. Magnumforce manufactures and markets a broad line of
racing and high performance products for Dodge, Chrysler and Plymouth vehicles
through multiple points of distribution.
Our
Business Strategy
Our
business strategy is to fill the need created by three major trends, the
increasing cost of fuel, the desire to reduce fuel consumption and the desire to
reduce pollution related to transportation.
The Crisis of the
Effect of Motor Emissions on Air Pollution
The
incomplete and inefficient burning of fossil fuel in internal combustion engines
results in unburned gases, such as hydrocarbons (“THC”), carbon monoxide (“CO”)
and oxides of nitrogen (“NOx”) being expelled as harmful emission as a
by-product of the engine’s exhaust. These emissions have contributed to
significant air pollution and depletion of the ozone layer that protects the
world’s atmosphere from harmful ultraviolet radiation. As a result, the world
has experienced significant deterioration to its air quality since the beginning
of the 20th century and the problem has gotten progressively worse with each
passing year. Forecasts published by the World Resources Institute indicate that
this trend will continue to accelerate.
According
to the Goddard Institute for Space Studies, in 2000, the world’s roads were
supporting about 800 million vehicles, almost 500 million of which are
cars and the remainder of which are trucks, buses, motorcycles and scooters. The
United States, Japan and Europe account for the majority of motor vehicles, but
future growth is expected to be most rapid in Asia and Latin America. Vehicle
population is projected to increase by 50-100% by 2030. As a result, vehicles
will continue to apply pressure to the environment and it is projected that
emissions of all pollutants will be significantly higher in 2030 than today,
unless additional controls on emissions are implemented.
In
the United States, California, through the California Air Resources Board
(“CARB”), continues to set the lowest emission standards for the country and the
United State Environmental Protection Agency (“EPA”) has indicated it may adopt
lower emission standards, which would be applicable throughout the United
States. California Governor Arnold Schwarzenegger has also announced his intent
to seek greenhouse gas (“GHG”) legislation and the United States Congress is
also considering GHG legislation. See “Government Regulation and Environmental
Matters” below.)
Governments
internationally recognize the serious effects caused by air pollution and many
nations have enacted legislation to mandate that engine manufacturers be
required to reduce exhaust emissions caused by their products. As evidenced by
the overwhelming participation in the establishment of the Kyoto Accord, many
nations are moving towards tighter GHG emissions control as well. The European
Union (“EU”) currently requires all member nations to adopt EURO 3 emissions
standards for motorcycles and EURO 4 emissions standards for automobiles and
trucks. Some Eastern European countries contemplating EU admission, and certain
Asian countries, have also announced gradual phase-in of EURO standards,
including China, Indonesia, Vietnam, Thailand and India. See “Government
Regulation and Environmental Matters” below.)
Notwithstanding
initiatives such as these, much more needs to be done to reverse the harmful
effects of decades of pollutants contributed by motor emissions. Yet, the cost
of adding emissions control devices to engines or vehicles has always been a
challenge, since manufacturers shift the cost of such devices to the consumer.
In developing nations, where incomes are extremely low, economics and the lack
of government resources have hampered progress. Nonetheless, we believe that the
social and political realities of protecting our environment may result in
further government mandates that manufacturers adopt solutions to reduce harmful
motor emissions.
We believe there is a large worldwide
demand for products which could increase fuel efficiency and enhanced
performance in vehicles and our efforts and focus are directed toward that
end.
Our
Technologies and Products
ELEKTRA
We have
obtained a license from Temple University for its patent-pending electric field
technology, called ELEKTRA™. The ELEKTRA technology consists of passing fuel
through a specific strong electrical field. A 2008 paper published by Dr.
Rongjia Tao, Ph.D., Chair of the Physics Department at Temple University titled
“Electrorheology Leads to Efficient Combustion” says that ELEKTRA lower
s
the viscosity of
fuel, resulting in better atomization of the fuel and improved
combustion.
Unlike
MAG ChargR and ECO ChargR, the implementation of ELEKTRA will be essentially
universal, with only a handful of engine models required to cover most
applications. The ELEKTRA technology is designed to be installed in
the fuel supply lines of vehicles and, because there are very few variations in
the size and type of those lines, we anticipate that a relatively small number
of variable capacity devices and a selection of installation adapters will cover
most vehicle installations.
We have
entered into three License Agreements with Temple University covering Temple
University’s current patent applications concerning certain electric field
effects on gasoline, kerosene and diesel fuel particle size distribution, and
concerning electric field effects on crude oil and edible oil
viscosity. The License Agreements are exclusive and the territory
licensed to us is worldwide. Pursuant to the License Agreements, we are required
to pay to Temple University (i) license fees in the aggregate amount of
$300,000. A payment of $50,000 was due on November 1, 2006; a payment
of $100,000 was due on March 2, 2007; a payment of $75, 000 was due on February
2, 2008 and the final payment was due on February 2, 2009. Annual
maintenance fees of $25,000 for the first license were due on November 1, 2007
and November 1, 2008. Annual maintenance payments of $125,000 for two
of the licenses were due January 1, 2008. In addition, each License Agreement
separately provides that we will pay royalties to Temple University on net sales
of products incorporating the technology licensed under that License Agreement
in an amount equal to 7% of the first $20 million of net sales, 6% of the
next $20 million of net sales and 5% of net sales in excess of
$40 million. Sales under the three License Agreements are not aggregated
for purposes of calculating the royalties payable to Temple University. In
addition, we have agreed to bear all costs of obtaining and maintaining patents
in any jurisdiction where we direct Temple University to pursue a patent for
either of the licensed technologies. Should we not wish to pursue a patent in a
particular jurisdiction, that jurisdiction would not be included in the
territory licensed to us.
At
December 31, 2008 we were in default in the amount of $300,000 in connection
with our payment obligations under the License Agreements and maintenance
payments. On November 10, 2008, we received written notice from Temple
University of a material breach relating to required payments under the License
Agreements. The notice provides us with 60 days’ notice to cure the
material breach. Our failure to cure could result in a termination of
the License Agreements. If the termination occurs, we estimate this
would have a material adverse impact on our financial condition and
operations. Under the License Agreements we are subject to a penalty
of 1% per month of the amounts due and unpaid under the License
Agreements. As of December 31. 2008, we estimate the penalty to be
$40,250, and we have accrued this in the accompanying financial
statements.
We have
also entered into a research and development agreement (R&D Agreement) with
Temple University to conduct further research on the ELEKTRA technology. Under
the R&D Agreement Temple University will conduct a 24-month research project
towards expanding the scope of, and developing products utilizing, the
technologies covered under the License Agreements, including design and
manufacture of prototypes utilizing electric fields to improve diesel, gasoline
and kerosene fuel injection in engines using such fuels and a device utilizing a
magnetic field to reduce crude oil viscosity for crude oil (paraffin and mixed
base) and edible oil flow in pipelines. If the research project yields results
within the scope of the technologies licensed pursuant to the License
Agreements, those results will be deemed included as rights licensed to us
pursuant to the License Agreements. If the research project yields results
outside of the scope of the technologies covered by the License Agreements, we
have a six-month right of first negotiation to enter into a new worldwide,
exclusive license agreement with Temple University for the intellectual property
covered by those results. Pursuant to the R&D Agreement, we will
make payments to Temple University in the aggregate amount of
$500,000.
At
December 31, 2008 we were in default in the amount of $376,250 under the R&D
Agreement. On November 10, 2008, we received written notice of
default from Temple University. The notice provides us with 60 days to cure the
material breach. Our failure to cure the breach could result in the
termination of the R&D Agreement. If the termination occurs, we
estimate this would have a material adverse impact on our financial condition
and operations.
At
November 30, 2008, we owed to Temple University a total of $716,500 for the
License Agreements, Maintenance Fees, R&D Agreement and
penalties. On January 9, 2009, we entered into a Letter Agreement
with Temple University wherein Temple University granted to us an extension of
time to cure the above-referenced breaches until March 31, 2009. The
Letter Agreement provides for payments of $100,000 on each of January 31, 2009,
February 28, 2009 and March 31, 2009. We made the January 31,
2009 payment but did not make the payment due on February 28, 2009. On
March 26, 2009 we received a written extension for both the February 28, 2009
payment and the March 31, 2009 payment until April 30, 2009. All
additional amounts past due as of November 10, 2008 will be re-negotiated on or
before March 31, 2009, however, this has now been extended to April 30,
2009. A penalty equal to 1% of the amount due and unpaid on the first
day of each calendar month will be added to the outstanding amount due Temple
University.
We
believe that the applications for products incorporating the ELEKTRA technology
will include gas, diesel and bio-fuel injected motor vehicles, as well as
applications in aviation, marine, oil pipeline and refining industries
.
Subject to our
cash flow and liquidity limitations,
we are currently
developing diesel tractor trailer applications and our present intention,
subject to change, is to seek joint venture partners to commercialize the
ELEKTRA technology in various applications. Subject to adequate
financing, we currently believe that we may be able to commence sales of ELEKTRA
products by the third quarter of 2009.
Applied
Oil Technology (AOT)
We have
also entered into a research and development agreement (“R&D Agreement”)
with Temple University to conduct further research on the ELEKTRA technology.
Under the R&D Agreement Temple University in conducting an ongoing research
project towards expanding the scope of, and developing products utilizing, the
technologies covered under the License Agreements, including a device utilizing
a magnetic field to reduce crude oil viscosity for crude oil (paraffin and mixed
base) and edible oil flow in pipelines.
ZEFS
and MK IV Technologies in MAG ChargR and ECO ChargR
The ZEFS
and the MK IV technology in the MAG ChargR and ECO ChargR products place a
magnetic field in and around the fuel and air that lowers fuel thickness and
influences oxygen to improve combustion. MAG ChargR and ECO ChargR contain
permanent rare-earth magnets, which produce a very strong magnetic field. This
field, when arranged in specific manner of shape and strength, causes a change
in the fuel as it passes through the field. As fuel passes through the magnetic
field, a change in the fuel occurs facilitating a decline in both viscosity and
surface tension. This allows for finer atomization, resulting in a more
optimized mixture and therefore more efficient combustion. Depending
on the specific application of these products to specific makes and models of
vehicles, this improved combustion may offer one or more of the following
benefits; (i) lower emissions, (ii) more horsepower and torque and (iii)
improved fuel economy.
The paper
titled, “Viscosity Reduction in Liquid Suspensions by Electric or Magnetic
Fields” published by Dr. Rongjia Tao, Ph.D., of Temple University, shows that
applying a magnetic field reduces thickness (viscosity) of oil by
17%. The paper “Magnetic Field Effects on the Combustion Processes in
Diffusion Flames” published by LSU in 2005 demonstrates that oxygen is attracted
to a magnetic field. The ZEFS and MK IV technologies used in the MAG
ChargR and ECO ChargR products use these properties of reduced fuel viscosity
and influenced flow of oxygen to improve combustion.
Improved
combustion increases engine power and performance. We have introduced
the ECO ChargR, which incorporated our MK IV technology, and the MAG ChargR,
which incorporates either our ZEFS or MK IV technologies, depending upon the
application. We have designed and tested various versions of our MAG
ChargR and ECO ChargR products for use on 2- and 4-stroke carbureted and fuel
injection gasoline engines.
We
differentiate our MAG ChargR and ECO ChargR products based on their differing
attributes and marketing focus. ECO ChargR products are primarily designed for
devices with engines that fall outside environmental regulation and often do not
have emissions control systems. MAG ChargR products are primarily
designed for engines already subject to environmental regulation and vehicles
that often do already have some emissions control technology.
Additionally,
ECO ChargR products are primarily designed to reduce harmful emissions and MAG
ChargR products are primarily designed to enhance performance and fuel
economy. The ECO ChargR is intended to reduce exhaust emissions in
vehicle and small utility motors. ECO ChargR products will be
marketed primarily to OEMs as well as to pilot and government-mandated emissions
programs. The MAG ChargR is intended to increase power and improve
mileage. MAG ChargR products will be marketed primarily to the specialty
consumer accessories market for many types of vehicles, including but not
limited to cars, trucks, motorcycles, scooters, ATVs, snowmobiles, personal
watercraft and small utility motors. Because our MAG ChargR and ECO
ChargR products are customized to specific brands, models and engine sizes,
these products will require hundreds of individually developed models to
accommodate the market.
MAG
ChargR and ECO ChargR have been developed for one-, two- and four- barrel
carbureted and fuel injection engines. These products are easily fitted to the
base plates of carburetors and fuel injection systems; the devices are compact,
there are no moving parts. They are also inexpensive to produce, extremely
durable and unaffected by poor quality fuel.
We
believe that testing by the Company, as well as by independent third-party
laboratories, has demonstrated that both MAG ChargR and ECO ChargR generate
significant reductions in THC and CO emissions and, in the case of MAG ChargR,
also improve fuel efficiency by lowering gas consumption and increase engine
performance.
Research
and Development
In late 2005, we established a research
and product development facility in Morgan Hill, California. We have
tested products incorporating our ZEFS and MK IV technologies for multiple makes
and models of automobiles, motorcycles and ATVs. We are engaged in
research and development of additional prototypes and products, including
ELEKTRA and other magnetic technologies and products, at our Morgan Hill
facility
.
The
Company has entered into a research and development agreement (R&D
Agreement) with Temple University to conduct further research on the ELEKTRA
technology. Under the R&D Agreement Temple University will conduct a
24-month research project towards expanding the scope of, and developing
products utilizing, the technologies covered under the License Agreements,
including design and manufacture of prototypes utilizing electric fields to
improve diesel, gasoline and kerosene fuel injection in engines using such fuels
and a device utilizing a magnetic field to reduce crude oil viscosity for crude
oil (paraffin and mixed base) and edible oil flow in pipelines.
Independent
Laboratory and Scientific Testing
ECO
ChargR (ZEFS Technology)
The four
internationally recognized emissions standards testing agencies for the
certification of motor vehicles, parts, systems and aftermarket devices are the
EPA, CARB, United Kingdom Vehicle Certification Agency (“VCA”) and
Technischer Überwachungs-Verein (TUV-Germany/EU).
Independent
third-party laboratories have conducted tests of devices incorporating our ZEFS
and MK IV technologies. We believe that research and testing using
government standard test equipment in Thailand has demonstrated that the tested
devices incorporating our ZEFS technology improves
performance.
In 2006,
testing on a device incorporating our MK IV technology for Harley-Davidson style
motors was conducted at the EPA and CARB certified testing facility Olson Labs.
We believe that these tests yielded results that would allow these motors to
meet current and future EPA and CARB emissions standards without expensive fuel
injection and catalytic converters.
Further
testing on a used 4-stroke motorcycle incorporating our ZEFS technology was
conducted in November 2005 in Bangkok, Thailand at Automotive Emission
Laboratory, Pollution Control Department, Ministry of Natural Resources and
Environment of Thailand, and was performed jointly with S.P. Suzuki of Thailand,
the authorized distributor of Suzuki products in Thailand. The test
results were as follows:
|
|
THC
(g/km)
|
CO
(g/km)
|
NOx
(g/km)
|
CO2
(g/km)
|
|
Without
ECO ChargR (ZEFS)
|
0.536
|
0.162
|
9.67
|
52.851
|
|
With
ECO ChargR (ZEFS)
|
0.52
|
0.104
|
1.42
|
48.553
|
|
%
Change
|
-3.00%
|
-35.80%
|
-85.32%
|
-8.13%
|
In
addition, during the testing horsepower increased at all ranges, peaking at
18.8% at 50km/h and fuel economy increased 33% over the baseline
tests.
Additional
testing was conducted in early March 2006 on a new Chinese-manufactured
carbureted 4-stroke Suyijia SZK125 motorcycle incorporating our ZEFS
technologies at Hong Kong Exhaust Emissions Laboratory (“HKEEL”). The
test results were as follows:
|
|
THC
(g/km)
|
CO
(g/km)
|
NOx
(g/km)
|
CO2
(g/km)
|
|
Without
ECO ChargR (ZEFS)
|
0.36
|
0.087
|
2.59
|
44.53
|
|
With
ECO ChargR (ZEFS)
|
0.33
|
0.108
|
1.86
|
43.6
|
|
%
Change
|
-8.3%
|
24.1%
|
-28.2%
|
-2.1%
|
In
addition, during the testing fuel economy increased 7% over the baseline
tests.
Also in
May 2006, at the request of the office of the Minister of Energy for the
Kingdom of Thailand, we participated in a “hot start” test at the testing
laboratories of the Thai petroleum company, the PTT Public Company Limited, of
products incorporating our MK IV technology for fuel efficiency. In this test,
the Thai distributor for Suzuki Motorcycles, SP Suzuki, supplied a new 125cc
4-stroke Best motor scooter to be tested without our preparing or participating
in the installation of a device incorporating our ECO ChargR (MK IV technology).
The mean test results showed an average 5.13% improvement in fuel efficiency, as
follows:
|
|
|
Run
1
|
|
Run
2
|
|
Run
3
|
|
|
|
|
|
(l/km)
|
|
(l/km)
|
|
(l/km)
|
|
Average
|
|
Baseline
FC Test Runs without MK IV Device
|
|
|
0.0196
|
|
|
|
0.0195
|
|
|
|
0.0193
|
|
|
|
0.0195
|
|
|
FC
Test Runs with MK IV Device
|
|
|
0.0186
|
|
|
|
0.0184
|
|
|
|
0.0185
|
|
|
|
0.0185
|
|
|
Difference
|
|
|
0.0010
|
|
|
|
0.0011
|
|
|
|
0.0008
|
|
|
|
0.0010
|
|
|
Improvement
|
|
|
5.10
|
%
|
|
|
5.64
|
%
|
|
|
4.15
|
%
|
|
|
5.13
|
%
|
In
February 2007, tests were performed at Olson Labs for the purpose of evaluating
the emissions reduction and fuel efficiency improvement benefits of our ECO
ChargR product. The mean test results were as follows:
|
Total
Hydrocarbon (THC) Emissions (gms/km)
|
|
|
|
Suzuki
110cc
|
|
RevTech
100cc
|
|
Merch
125cc
|
|
AVERAGE
BASELINE
|
|
|
0.124
|
|
|
|
1.821
|
|
|
|
1.372
|
|
|
AVERAGE
ECO ChargR
|
|
|
0.098
|
|
|
|
1.685
|
|
|
|
1.302
|
|
|
%
Improvement
|
|
|
21.0
|
%
|
|
|
7.5
|
%
|
|
|
5.1
|
%
|
|
Carbon
Monoxide (CO) Emissions (gms/km)
|
|
|
|
Suzuki
110cc
|
|
RevTech
100cc
|
|
Merch
125cc
|
|
AVERAGE
BASELINE
|
|
|
1.729
|
|
|
|
29.086
|
|
|
|
21.201
|
|
|
AVERAGE
ECO ChargR
|
|
|
1.231
|
|
|
|
18.160
|
|
|
|
15.805
|
|
|
%
Improvement
|
|
|
28.8
|
%
|
|
|
37.6
|
%
|
|
|
25.5
|
%
|
|
Oxides
of Nitrogen (NOx) Emissions (gms/km)
|
|
|
|
Suzuki
110cc
|
|
RevTech
100cc
|
|
Merch
125cc
|
|
AVERAGE
BASELINE
|
|
|
0.066
|
|
|
|
0.136
|
|
|
|
0.287
|
|
|
AVERAGE
ECO ChargR
|
|
|
0.063
|
|
|
|
0.196
|
|
|
|
0.268
|
|
|
%
Improvement
|
|
|
4.5
|
%
|
|
|
-44.0
|
%
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
Economy (miles per gallon)
|
|
|
|
Suzuki
110cc
|
|
RevTech
100cc
|
|
Merch
125cc
|
|
AVERAGE
BASELINE
|
|
|
241.97
|
|
|
|
39.68
|
|
|
|
34.83
|
|
|
AVERAGE
ECO ChargR
|
|
|
253.16
|
|
|
|
41.08
|
|
|
|
34.82
|
|
|
%
Improvement
|
|
|
4.6
|
%
|
|
|
3.5
|
%
|
|
|
0.0
|
%
|
Sales
and Marketing
According
to the Goddard Institute for Space Studies, in 2000, the world's roads were
supporting about 800 million vehicles, almost 500 million of which are cars and
the remainder of which are trucks, buses, motorcycles and scooters. Vehicle
population is projected to increase by 50-100% by 2030. As a result, vehicles
will continue to apply pressure to the environment unless additional controls on
emissions are implemented.
In the
United States, California, through the California Air Resources Board (“CARB”),
continues to set the strictest emission standards for the country and the United
States Environmental Protection Agency (“EPA”) has indicated it may adopt more
stringent emission standards, which would be applicable throughout the United
States. California Governor Arnold Schwarzenegger has also announced his intent
to seek greenhouse gas (“GHG”) legislation and the United States Congress is
also considering GHG legislation.
Governments
internationally recognize the serious effects caused by air pollution and many
nations have enacted legislation to mandate that engine manufacturers be
required to reduce exhaust emissions caused by their products. As evidenced by
the overwhelming participation in the establishment of the Kyoto Accord, many
nations are moving towards tighter GHG emissions control as well. The European
Union (“EU”) currently requires all member nations to adopt EURO 3 emissions
standards for motorcycles and EURO 4 emissions standards for automobiles and
trucks. Some
Eastern European
countries contemplating EU admission, and certain Asian countries, have also
announced gradual phase-in of EURO standards, including China, Indonesia,
Vietnam, Thailand and India.
Management
believes that US EPA, CARB and international governments will continue to lower
emission standards below even these recent levels. Yet, the cost of adding
emissions control devices to engines or vehicles has always been a challenge,
since manufacturers shift the cost of such devices to the
consumer. In developing nations, where incomes are extremely low,
economics and the lack of government resources have hampered
progress.
We have
three product lines; MAG ChargR™ and ECO ChargR™, ELEKTRA™ and AOT (Applied Oil
Technology) The MAG ChargR is past the development stage and
the Company believes that an initial small run of several thousand units may be
manufactured and sold by the end of second quarter 2009. We believe
that ELEKTRA may be nearing the end of the product development cycle which
we
believe
could culminate in an upcoming SAE (Society of Automotive Engineers) test to
prove and certify the level of fuel savings. AOT is in the research
and development phase.
ELEKTRA
Management
believes that there is a large and active market for a product such as ELEKTRA
that can reduce the fuel consumption of diesel engines. In 2006, the
US Department of Transportation published that there were 3.1 million “Truck,
combination” (tractor trailers), Busses and Class I locomotives in service in
the US. According to the Specialty Equipment Manufacturing Association’s
“2004/05 Diesel Market Study,” there were 3.1 million Diesel Light Trucks
registered in the US and 151,427 diesel cars sold in the US since
1991.
In a 2008
paper published by Dr. Rongjia Tao, Ph.D., Chair of the Physics Department at
Temple University titled “Electrorheology Leads to Efficient Combustion,” Dr.
Tao stated that over six months of testing that ELEKTRA increased highway
mileage of a Mercedes 300D 19% , from 32 mpg to 38 mpg and increased city
mileage 12% to 15%.
The
Company has had preliminary discussions with the American Trucking
Association and with AITA (America’s Independent Truckers Association,
Inc) The SAE (Society of Automotive Engineers) has advised us that
once the Type II fuel evaluation test results
in verifying
a
meaningful fuel savings, they will publish a story on the product along with the
test results and accompanying photos and contact information.
Subject to proper capitalization, we
intend to embark upon a sales and marketing program through distributors in the
trucking industry.
Applied
Oil Technology
The
pipeline construction industry in the U.S. was approximately $11 billion in 2007
according to October 27 2008 “Pipeline Construction U.S. Industry Report” from
IBIS World. The overall pipeline industry is forecast to grow at
4.7%. Management is in the process of developing more specific
analysis of the market for the AOT products.
MAG
ChargR
In
October 2004, we commenced initial marketing efforts for MAG ChargR and ECO
ChargR products incorporating our ZEFS and MK IV technology. We are
focused on selling or licensing our technologies and products domestically and
internationally to the consumer specialty accessories market, to municipalities,
to motorcycle, automobile, carburetor, fuel-injection and diesel engine
manufacturers and exhaust and muffler OEMs. We have made presentations of our
MAG ChargR and ECO ChargR products to OEMs in the United States, Asia and
Europe. We have already had discussions with the Department of
General Services in California which maintains a fleet of more than 50,000
vehicles including more than 5000 police cars.
On most
automobiles, the MAG ChargR is installed between the throttle body and the
intake manifold. The geometry of this part of the engine varies with
each automobile make, manufacturer, year and engine
displacement. STWA has identified dozens of MAG ChargR models that
will fit popular models from Cadillac, Chevrolet, Chrysler, Dodge, Ford, GMC,
Hummer, Isuzu, Jeep, Lincoln, Mercury, Mitsubishi, Nissan, Pontiac and
Toyota. The MAG ChargR models selected include nine of the top 50
bestselling automobiles of all time.
In
determining the order to bring MAG ChargR models to market, the following
criteria have been considered.
|
|
●
|
Size
of the installed base of cars applicable to an individual MAG ChargR
model
|
|
|
●
|
Probability
that the owner of such an automobile would purchase and aftermarket
performance enhancement
product
|
|
|
●
|
Level
of improvement that MAG ChargR delivers for a specific make, model, year
and displacement
|
On
February 20, 2009, we entered into a distribution agreement for the MagChargR
with Magnumforce Race Car Fabrication,
Inc. (Magnumforce).
The agreement provides for an initial order of $125,000, payment of which
is contingent upon Magnumforce selling our product to its
customers. The product was tested in 2007 in connection with fuel
savings and emission reduction and the CARB certification was necessary before
distribution and sales could occur. Magnumforce manufactures and
markets a broad line of racing and high performance products for Dodge, Chrysler
and Plymouth vehicles through multiple points of distribution.
We have
also
had discussions with Brothers Performance and Motorcycle
Products Consulting Incorporated (MPCI) to carry the MAG ChargR
product.
According
to SEMA, buying behavior has shifted in the last twelve months with enthusiasts
now purchasing more performance products online than at retail. To
that end, we have targeted online retailers as distribution
partners.
ECO
ChargR
In July 2006, we entered into a
separate agreement with SS Sales, to provide exclusive marketing and promotional
services in the western United States and western Canada for our MAG ChargR and
ECO ChargR products. SS Sales will be paid a commission equal to 5% of the
gross amount actually collected on contracts we enter into during the contract
term for existing or future customers introduced by SS Sales. SS Sales is owned
by Nathan Shelton, one of the directors of the Company since February 12,
2007. We also have an agreement pending with Scaffidi-Bolio &
Associates to be our sales agents in a defined territory in the eastern United
States and eastern Canada.
At this time we have devoted limited
resources to the marketing of our ECO ChargR while we focus on our MAG ChargR
and ELEKTRA. Management is reassessing on a continuing basis the
devotion of the Company’s resources
to its
products
.
Manufacturing
and Product Development
ELEKTRA
As a
result of six months of field testing and refining, we are refitting the ELEKTRA
with a new power supply and electronics to optimize the exposure of the fuel to
the electric field in an attempt to create peak efficiency. Dr. Luke
Turgeon and his company have recently
been retained by us to
bring simulation and electronic design skills in an attempt to allow us
to go from design to a stable cost effective volume production in the fastest
time possible.
Management
believes that having the SAE (Society of Automotive Engineers) Type II test
results verifying that ELEKTRA saves 10% of more on fuel consumption will be the
milestone that will allow the Company to begin closing sales of the
product. The 10% fuel savings target is for the after-market ELEKTRA
product. Management believes that the OEM product, integrated into
the manufacturer’s design may be able to yield higher levels of fuel savings due
to the fact that the manufacturer will have ELEKTRA communicate the engine’s
electronics to optimize the advantageous effect as the fuel flow changes over
time.
Upon
completion of our tests and the results being published, management will seek
contracts within the trucking industry and the selection of a manufacturing
company as follows:
Selecting
a Manufacturing Partner
We intend
to outsource the manufacturing of the ELEKTRA and are looking for three things
in selecting a manufacturing partner. We are currently interviewing
candidates.
|
|
●
|
Existing
proven, large-scale manufacturing and distribution for transportation
OEMs
|
|
|
●
|
Existing
relationships with fleet managers of large diesel truck
operators
|
|
|
●
|
Forward-looking
proactive corporate vision looking to bold expand their market
share
|
Applied
Oil Technology
The
Company has signed a Non-Disclosure Agreement with a multi-national energy
company with a market capitalization in excess of $250 billion. The
Company is seeking to develop a manufacturing and product development plan for
AOT.
MAG
ChargR and ECO ChargR
As of
December 15, 2008, the Company has built and tested three working prototypes of
the MAG ChargR for the following make, model and engine
configurations.
|
Make
|
Model
|
Year
|
Engine
|
|
Chrysler
|
SRT8
|
2006
|
6.1L
Hemi
|
|
Dodge
|
Challenger
|
2008
|
6.1L
Hemi
|
|
Chevrolet
|
Suburban
|
2005
|
4.6L
Big
Block
|
Of these
three models, the Company has received and published the following test results
for product performance.
|
Make
|
Model
|
Year
|
Engine
|
HP
Increase @ 4680 RPM
|
Torque
Increase @ 4680 RPM
|
|
Chrysler
|
SRT8
|
2006
|
6.1L
Hemi
|
3.4%
|
5.4%
|
|
Chevrolet
|
Suburban
|
2005
|
Big
Block
|
11.5%
|
8.9%
|
In order
to start sales in California, the Company is required to obtain a certification
for the MAG ChargR from the California Air Resources Board
(CARB). The Company has received CARB certification and can now sell
and distribute throughout the United States.
For the
MAG ChargR product roll-out, we will attempt to have the product
ready for the ten most popular general purpose automobiles listed above and the
ten most popular Muscle Cars that fit our value
proposition. According to Musclecarfacts.net on December 14, 2008,
the ten most popular Muscle Cars in 2008 are, in order; the 2009 Camaro, the
1967 Camaro, the 1969 Camaro, the 1970 Challenger, the 1974 GTO, the 1970 AMX,
the 1970 Barracuda, the 1969 AMX, the 1968 Camaro, and the 1968
AMX.
The
manufacture of the magnets used in products incorporating our ZEFS or MK IV
technologies requires a rare-earth metal, neodymium. Neodymium is readily
available in China, at relatively stable prices.
Competition
The
automotive and motor engine industry is highly competitive. We have many
competitors in the United States and throughout the world developing
technologies to make engines more environmentally friendly and fuel-efficient.
Many of our competitors have greater financial, research, marketing and staff
resources than we do. For instance, automobile manufacturers have already
developed catalytic converters on automobiles in order to reduce emissions, but,
as discussed above, this creates greenhouse gases and makes controlling
emissions costly and complex. The industry has also proposed high-pressure fuel
injection systems for gas and diesel applications but these modifications are
extremely expensive.
Although
we are unaware of any technologies that compete directly with our technologies,
there can be no assurance that any unknown existing or future technology will
be, superior to products incorporation our ZEFS and MK IV technologies, as well
as any products we may produce incorporating the ELEKTRA technology
may provide, the benefits of all of emission reductions, fuel efficiency and
engine performance enhancement. There are competing products
which provide one or more of the beneficial attributes of our ZEFS, MK IV and
ELEKTRA technologies, but not all three benefits. Additionally, we
believe that those competing products that show benefit in more than one area
demonstrate greater benefit in only one area and provide only minimal
improvements in other areas.
Competing
emissions reduction products are largely comprised of catalytic converters and
alternative fuels. Catalytic converters are much more expensive than products
incorporating our ZEFS and MK IV technologies, and are sensitive and subject to
damage caused by the poor quality or adulteration of fuel commonly used in
developing nations. In addition, while catalytic converters reduce emissions,
they do not improve fuel efficiency or engine performance. Domestically, there
are a large number of manufacturers and distributors of catalytic converters,
such as Engelhart Inc., Dow Corning Inc., Delphi Corporation and Car Sound
Exhaust System, Inc., among others. Internationally, most catalytic converters
are manufactured and distributed by Engelhart Inc., Delphi Corporation and a
large number of smaller businesses in a fragmented industry.
Alternative
fuels such as hydrogen, electricity, liquid natural gas and ethanol, generally
require more costly conversions and the fuels are not readily available, if at
all, in most of the world.
We
are not aware of any other technology using magnetic, uniform electrical field
fuel treatments or products based on such technology which has been proven to
significantly improve fuel mileage. There are many products currently on the
market that claim to increase fuel efficiency. We believe that the majority of
these products have not undergone or provided independent scientific validation
from
a
recognized third
party, or testing at a certified laboratory. Fuel injection does improve fuel
efficiency and performance, but is extremely expensive from the perspective of
the developing nations of the world. Major domestic and international
manufacturers and distributors of fuel injection systems include Delphi
Corporation, Robert Bosch Corporation, Siemens Corporation, and a large number
of smaller businesses in a fragmented industry.
We are
not aware of any other technology using magnetic, uniform electrical field fuel
treatments or products based on such technology which has been proven to
significantly improve performance. There are many products which a consumer can
purchase to increase overall performance. All of the most effective such
products, including forced induction, nitrous oxide injection and exotic
exhaust, are very expensive, increase emissions, reduce fuel efficiency and
shorter the life of the engine. Major domestic and international manufacturers
and distributors of performance-enhancing systems include Holley Performance
Products, Inc., Nitrous Express Inc., Paxton Automotive Corporation, Eaton
Corporation, Vortec Engineering LLC, Flowermaster, Inc., Hedman Manufacturing,
Inc., Gibson Performance, Inc. and a large number of smaller businesses in a
fragmented industry.
Government
Regulation and Environmental Matters
Our
research and development activities are not subject to any governmental
regulations that would have a significant impact on our business and we believe
that we are in compliance with all applicable regulations that apply to our
business as it is presently conducted. Our products, as such, are not subject to
certification or approval by the EPA or other governmental agencies domestically
or internationally. Instead, such agencies test and certify a sample engine
fitted with our products. Depending upon whether we manufacture or
license our products in the future and in which countries such products are
manufactured or sold, we may be subject to regulations, including environmental
regulations, at such time.
U.S.
Government Regulation
We are
currently pursuing EPA and CARB executive order exemptions for our products.
These exemptions would signify that our products do not adversely affect
vehicles emissions and would allow our products to be used on emissions control
equipped on and off-road vehicles. We are also submitting our technologies
to the EPA under the “511 Program” which was established in 1970 to evaluate new
emissions and fuel saving technologies for cars and trucks. In April 2007, we
made a formal request that the EPA consider our carbureted 4-stroke engine
device as part of this program, even though there are few carbureted cars and
trucks left on the road, because the EPA is tightening emissions regulation on
motorcycle, utility and non-road vehicles. We believe that these applications
are well suited for our technologies. We are unable to estimate the
time it may take for the EPA to act upon our application or predict whether or
not such application will be favorably received, especially considering that we
are asking the EPA to amend its existing program.
EU
Regulation
The
current EU emissions standard for motorcycles is EURO 3, and for automobiles and
trucks the emissions standard is EURO 4. Although there is not a EURO 4 standard
for motorcycles currently, the current trend appears to be for stricter
regulation. On the other hand, the automobile standard is currently moving
towards adopting EURO 5 standards by 2009 and EURO 6 by 2014. These standards
are difficult to attain and the automotive industry is spending billions of
Euros to engineer solutions. European auto manufacturers are becoming
increasingly at odds with the European Commission (“EC”), the body which
evaluates the industry and makes regulatory standards recommendations to the EU,
over CO
2
emissions
regulations.
The
CO
2
emissions limits are currently a voluntary agreement between the EU and the auto
manufacturers. The EU target is to reach an average CO
2
emission
of
120 g/km for all new passenger cars by 2012. However it has become
increasingly clear that the voluntary agreement will not succeed. The average
CO
2
emissions per car have dropped only to 160 g/km in 2005, whereas the
average was 186 g/km in 1995. Because of this, lawmakers have
started considering regulation. In late 2005, the European Parliament
passed a resolution in support of mandatory CO
2
emissions
standards to replace the current voluntary agreement. In late 2006, the EC
announced that it was working on a proposal for a legally-binding limit CO
2
emissions
from cars. The EC is also proposing the doubling of the fuel efficiency of new
cars by 2020.
Currently
the only accepted method for reducing a vehicle’s CO, THC and NOx emissions is
catalytic converters, but this system converts these gases into largely CO
2
and N2O,
both GHGs. Therefore the lower the CO, THC and NOx output, the higher the
CO
2
production. The only remedy is increasing fuel efficiency and the automakers
argue this is costly and results in small low-power vehicles which consumers
will not want to buy.
Intellectual
Property
ELEKTRA
On May 14, 2004, we filed a patent
application in Australia with respect to certain
technology (Method and Apparatus for a Treatment of a
Fluid). We entered into a license agreement with Temple University
(the “2004 License Agreement”), for a research project with Dr. Rongjia Tao
as principal investigator. That project and the related products involve the
development and commercialization of underwater and cold temperature
applications for improving oil flow under different temperature and pressure
conditions. In connection with the 2004 License Agreement, we assigned the
original patent application for this technology to Temple University and agreed
to assign all subsequent patent applications for this technology to Temple
University. Under the 2004 License Agreement, we have the right to
file additional patent applications, at our sole expense but for the benefit of
Temple University, in various countries. We have exclusive rights to
this technology only in countries where we file patent
applications. In 2005, 2006 and 2007, we filed several additional
patent applications in various countries. As a result of Dr. Tao’s
recently announced progress in reducing viscosity of crude oil with magnetic
pulses, we believe that this technology may have commercial viability. We are
maintaining the patent applications in the countries in which we have filed
them, while we continue to explore the commercial benefits of pursuing this
opportunity in these and possibly other
countries
.
Method
and Apparatus for Treatment of a Fluid Patent Application
This is
an apparatus for the magnetic treatment of oils to improve
viscosity. Under the 2004 License Agreement with Temple University,
we have filed the following patent applications, at our sole expense and for the
benefit of Temple University, in order to secure rights to license this
technology in these countries. US PTO Application #11/519168 was
filed on May 13, 2005. The priority date is May 14, 2004 from
Australian patent application 2004902563. This has been registered in
other territories as follows.
|
Country
|
|
Number
|
|
Filing
date
|
|
Status
|
|
GCC
*
|
|
GCC/P/2005/5066
|
|
22
August 2005
|
|
Application
filed – awaiting examination.
|
|
Brazil
|
|
0510871-3
|
|
13
May 2005
|
|
Examination
to be requested by May 2008
|
|
Canada
|
|
2566739
|
|
13
May 2005
|
|
Examination
to be requested by May 2010
|
|
China
|
|
200580023369.3
|
|
13
May 2005
|
|
Examination
requested April 2007
|
|
Algeria
|
|
060593
|
|
13
May 2005
|
|
Application
filed – awaiting examination
|
|
Eurasia
**
|
|
200602114
|
|
13
May 2005
|
|
Under
examination – response filed.
|
|
Egypt
|
|
PCT
1087/2006
|
|
13
May 2005
|
|
Application
filed – awaiting examination
|
|
United
Kingdom
|
|
0624025.3
|
|
13
May 2005
|
|
Under
examination – response filed
|
|
Indonesia
|
|
WO0200603429
|
|
13
May 2005
|
|
Application
filed – examination to be requested by 13 May 2008
|
|
Libya
|
|
To
be advised
|
|
|
|
Application
sent to agent
|
|
Mexico
|
|
PA/a/2006/013206
|
|
13
May 2005
|
|
Application
filed – awaiting examination
|
|
Norway
|
|
20065632
|
|
13
May 2005
|
|
Application
filed – awaiting examination
|
|
United
States
|
|
11/519168
|
|
13
May 2005
|
|
Application
filed – awaiting
examination
|
* Covers
Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, and
Bahrain.
** The
Eurasian Patent Convention was signed on September 9, 1994 in Moscow by the
Heads of the Governments of the Republic of Azerbaijan, the Republic of Armenia,
the Republic of Belarus, Georgia, the Republic of Kazakstan, the Kyrgyz
Republic, the Republic of Moldova, the Russian Federation, the Republic of
Tajikistan, Ukraine and came into force on August 12, 1995 after Turkmenistan,
Belarus and Tajikistan deposited their instruments of accession to the
Convention to the WIPO Director General, on March 1, 1995, May 8, 1995 and May
12, 1995 respectively. To date, the Convention is also ratified by the Russian
Federation, the Republic of Kazakhstan, Republic of Azerbaijan, the Kyrgyz
Republic, the Republic of Moldova and the Republic of Armenia.
MAG
ChargR and ECO ChargR
ZEFS Patent
Applications
In
December 1998, we acquired all of the marketing and manufacturing rights to
the ZEFS technologies from the purported inventor of the technology in exchange
for 5,000,000 shares of our common stock, $500,000 and $10 royalty for each unit
sold. In November 2002, under our settlement with the bankruptcy trustee
for the estate of the purported inventor and his wife, the trustee transferred
all ownership and legal rights to an existing international patent application
for the ZEFS MK I technology to us. In exchange for these rights, we issued to
the bankruptcy trustee a warrant to purchase 500,000 shares of our common stock
at $1.00 share and granted a $0.20 royalty on each device we sell.
In
May 2002, we settled a dispute with Kevin “Pro” Hart, who claimed
proprietary rights to the ZEFS technologies. In November 2002, under our
settlement with the bankruptcy trustee for the estate of Mr. Hart, the trustee
assigned all ownership and legal rights to the international patent application
for the ZEFS technology to us, in exchange for an option to purchase 500,000
shares of our common stock at $1.00 share and a $0.20 royalty on each device we
sell. Mr. Hart died in March 2006.
We
obtained the patent application for the ZEFS MK1 device originally filed in
Australia on May 19, 2000. The United States Patent and Trademark Office
issued the patent on 7 June 2005 for the ZEFS MK1 device. The duration of the
patent is 20 years from the date the original application was filed.
Overall, we have applied for a patent on an international basis in approximately
64 countries worldwide.
ZEFS MK1—Device For Saving Fuel and
Reducing Emissions
.
Thi
s
fuel saving device has a
disk- like nonmagnetic body provided with a central opening and a number of
permanent magnets having opposed polarities positioned about the central opening
to provide multidirectional magnetic fields. The device is positioned in a fuel
air mixture to reduce emissions.
The
following table summarizes the status of the ZEFS MK1 patent application in the
following countries:
|
Country
|
|
Number
|
|
Filing
date
|
|
Status
|
|
Australia
|
|
2001258057
|
|
21
May 2001
|
|
GRANTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
(small
entity
status)
|
|
2409195
|
|
21
May 2001
|
|
Examination
requested April 2006
|
|
China
|
|
01809802.9
|
|
21
May 2001
|
|
Under
examination – response filed
|
|
Columbia
|
|
02115018
|
|
21
May 2001
|
|
Examination
requested 23 July 2004.
|
|
|
|
|
|
|
|
|
|
Czech
Republic
|
|
PV
2002-4092
|
|
21
May 2001
|
|
Accepted -
awaiting Deed of Letters Patent
|
|
Eurasian
+++
|
|
200201237
|
|
21
May 2001
|
|
GRANTED.
Renewed in Russia only.
|
|
Europe ++
|
|
019331222.2
|
|
21
May 2001
|
|
Awaiting
examination
|
|
|
|
|
|
|
|
|
|
Hong
Kong
|
|
04100327.0
|
|
21
May 2001
|
|
Automatic
grant upon grant of the Chinese application
|
|
|
|
|
|
|
|
|
|
India*
|
|
IN/PCT/2002/01523
|
|
21
May 2001
|
|
Under
Examination – response filed
|
|
Indonesia
|
|
WO0200202844
|
|
21
May 2001
|
|
Accepted
– awaiting Deed of Letters
Patent
|
|
|
|
|
|
|
|
|
|
Korea
[South]
|
|
2002-7015531
|
|
21
May 2001
|
|
Under
examination – response filed.
|
|
Japan
|
|
586731/2001
|
|
21
May 2001
|
|
Examination
to be requested by 21 May 2008
|
|
Mexico
|
|
PA/A/2002/011365
|
|
21
May 2001
|
|
GRANTED
|
|
|
|
|
|
|
|
|
|
New
Zealand
|
|
523113
|
|
21
May 2001
|
|
GRANTED
|
|
Norway
|
|
20025531
|
|
21
May 2001
|
|
Awaiting
examination
|
|
Poland
|
|
P358837
|
|
21
May 2001
|
|
Awaiting
examination
|
|
|
|
|
|
|
|
|
|
Singapore
|
|
93310
[WO
01/90562]
|
|
21
May 2001
|
|
GRANTED
|
|
|
|
|
|
|
|
|
|
Sri
Lanka
|
|
12918
|
|
21
May 2001
|
|
GRANTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
6901917
|
|
21
May 2001
|
|
GRANTED
|
|
Vietnam
|
|
1-2002-01168
|
|
21
May 2001
|
|
GRANTED
|
++European
patent application covers Austria Belgium Switzerland Liechtenstein Cyprus
Germany Denmark Spain Finland France Great Britain Greece Ireland Italy
Luxembourg Netherlands Portugal Sweden Turkey Lithuania Latvia Slovenia Romania
Macedonia.
+++
The Eurasian Patent Convention was signed on September 9, 1994 in Moscow by the
Heads of the Governments of the Republic of Azerbaijan, the Republic of Armenia,
the Republic of Belarus, Georgia, the Republic of Kazakhstan, the Kyrgyz
Republic, the Republic of Moldova, the Russian Federation, the Republic of
Tajikistan and Ukraine.
MK IV Patent
Applications
Device for Saving Fuel and Reducing
Emissions
.
This device is
similar to the Mark 1 device but uses stacked magnets. The following
table summarizes the status of the MK IV patent application in the following
countries:
|
Country
|
|
Number
|
|
Filing
date
|
|
Status
|
|
China
|
|
NA
|
|
20
June 2006
|
|
Application
sent to Agent
|
|
Japan
|
|
NA
|
|
20
June 2006
|
|
Application
sent to Agent
|
|
Korea
[South]
|
|
NA
|
|
20
June 2006
|
|
Application
sent to Agent
|
|
Malaysia
|
|
PI
20062013
|
|
2
May 2006
|
|
Examination
due by 2 May 2008
|
|
PCT
|
|
PCT/AU2006/000861
|
|
20
June 2006
|
|
Demand
for IPE filed – IPRP favorable.
|
|
Taiwan
|
|
95115220
|
|
28
April 2006
|
|
Examination
due by 29 April 2009
|
|
Thailand
|
|
0601001997
|
|
2
May 2006
|
|
Application
filed - awaiting examination
|
|
United
States
|
|
NA
|
|
20
June 2006
|
|
Application
sent to Agent
|
The
priority date is June 21, 2005 from Australian patent application
2005903248.
Trademarks
ECO
ChargR™
|
Country
|
|
Number
|
|
Filing
Date
|
|
Status
|
|
Australia
|
|
1121860
|
|
4
July 2006
|
|
GRANTED
|
|
Madrid
*
|
|
1121860
|
|
4
January 2007
|
|
GRANTED
|
|
Canada
|
|
1330199
|
|
4
January 2007
|
|
Accepted
– awaiting Registration Certificate
|
|
Indonesia
|
|
D00
2007 000330
|
|
4
January 2007
|
|
Application
filed – awaiting examination
|
|
Malaysia
|
|
2007/00156
|
|
4
January 2007
|
|
Application
filed – awaiting examination
|
|
Thailand
|
|
649741
|
|
4
January 2007
|
|
Application
filed – awaiting examination
|
|
Taiwan
|
|
96000462
|
|
4
January 2007
|
|
Under
examination – response filed.
|
* Madrid
Protocol application designates the following countries:
|
|
●
|
China
|
|
|
●
|
European
Community
|
MAG
ChargR™
|
Country
|
|
Number
|
|
Filing
Date
|
|
Status
|
|
Australia
|
|
1121864
|
|
4
July 2006
|
|
Registered
Co-Existence Agreement with Mag Instruments
|
|
Madrid
|
|
1121864
|
|
4
January 2007
|
|
GRANTED
|
|
Canada
|
|
1330200
|
|
4
January 2007
|
|
Under
examination – response filed
|
|
Indonesia
|
|
D00
2007 000331
|
|
4
January 2007
|
|
Application
filed – awaiting examination
|
|
Malaysia
|
|
2007/00157
|
|
4
January 2007
|
|
Application
filed – awaiting examination
|
|
Thailand
|
|
649742
|
|
4
January 2007
|
|
Application
filed – awaiting examination
|
|
Taiwan
|
|
96000465
|
|
4
January 2007
|
|
Allowed/Accepted.
|
STWA
PERFORMANCE™
|
Country
|
|
Number
|
|
Filing
Date
|
|
Status
|
|
Australia
|
|
1140033
|
|
11
July 2006
|
|
GRANTED
|
|
Madrid
|
|
1140033
|
|
10
July 2007
|
|
GRANTED
|
Non-Disclosure
Agreements
To further protect our intellectual
property, we have entered into agreements with certain employees and
consultants, which limit access to, and disclosure or use of, our technology.
There can be no assurance, however, that the steps we have taken to deter
misappropriation of our intellectual property or third party development of our
technology and/or processes will be adequate, that others will not independently
develop similar technologies and/or processes or that secrecy will not be
breached. In addition, although management believes that our technology has been
independently developed and does not infringe on the proprietary rights of
others, there can be no assurance that our technology does not and will not so
infringe or that third parties will not assert infringement claims against us in
the future. Management believes that the steps they have taken to date will
provide some degree of protection; however, no assurance can be given that this
will be the case.
Employees
As of
December 31, 2008, we had seven full-time employees. As of such date, we
also utilized the services of sixteen part-time consultants to assist us with
various matters, including engineering investment relations, public
relations, accounting and sales and marketing. We intend to hire additional
personnel to provide services when they are needed on a full-time basis. We
recognize that our efficiency largely depends, in part, on our ability to hire
and retain additional qualified personnel as and when needed and we have adopted
procedures to assure our ability to do so.
Item 1A.
Risk
Factors
We have just begun to generate
revenues, we have a history of losses, and we cannot assure you that we will
ever become or remain profitable.
As a result, you may lose your
entire investment.
We
generated our first revenues from operations in late 2006 and, accordingly, we
have incurred net losses every year since our inception in 1998. For the fiscal
years ended December 31, 2008 and 2007, we had net losses of $6,052,724 and
$6,262,743, respectively. To date, we have dedicated most of our
financial resources to research and development, general and administrative
expenses and initial sales and marketing activities. We have funded all of our
activities through sales of our securities, including equity and
debt. We anticipate net losses and negative cash flow to continue
until such time as our products are brought to market in sufficient amounts to
offset operating losses. As planned, we have significantly expanded both our
research and development efforts, and our sales and marketing efforts, during
the past year. Consequently, we will need to generate substantial additional
funds, from a combination of revenue and external financing activities, to fund
our operations. Our ability to achieve profitability is dependent upon our
continuing research and development, product development, and sales and
marketing efforts, to deliver viable products and the company’s ability to
successfully bring them to market. Although our management is optimistic that we
will succeed in marketing products incorporating our ZEFS, MK IV, CAT-MATE and
ELEKTRA technologies, there can be no assurance that we will ever generate
significant revenues or that any revenues that may be generated will be
sufficient for us to become profitable or thereafter maintain profitability. If
we cannot generate sufficient revenues or become or remain profitable, we may
have to cease our operations and liquidate our business.
Our independent
auditors have expressed doubt about our ability to continue as a going concern,
which may hinder our ability to obtain future
financing.
In their
report dated March
27
,
2009,
our independent auditors stated that our consolidated
financial statements for the year ended December 31, 2008 were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised as a result of our recurring negative cash
flows from operations and accumulated deficit. We had an accumulated deficit
of $42,743,064 as of December 31, 2008. Our ability to continue
as a going concern is subject to our ability to obtain significant additional
capital to fund our operations and to generate revenue from sales, of which
there is no assurance. The going concern qualification in the auditor’s report
could materially limit our ability to raise additional capital. If we fail to
raise sufficient capital, we may have to liquidate our business and you may lose
your investment.
Since
we have not yet begun to generate positive cash flow from operations, our
ability to continue operations is dependent on our ability to either begin to
generate positive cash flow from operations or our ability to raise capital from
outside sources.
We have
not generated positive cash flow from operations and have relied on external
sources of capital to fund operations. We had $59,346 in cash at December 31,
2008 and negative cash flow from operations of $2,163,656 for the year ended
December 31, 2008.
We
currently do not have credit facilities available with financial institutions or
other third parties, and historically have relied upon best efforts third-party
funding. Though we have been successful at raising capital on a best efforts
basis in the past, we can provide no assurance that we will be successful in any
future best-efforts financing endeavors. We will need to continue to rely upon
financing from external sources to fund our operations for the foreseeable
future. If we are unable to raise sufficient capital from external sources to
fund our operations, we may need to curtail operations.
We
will need substantial additional capital to meet our operating needs, and we
cannot be sure that additional financing will be available.
As of
December 31, 2008 and thereafter, our expenses ran, and are expected to
continue to run, at a “burn rate” of approximately
$
200,000 per month, which
amount could increase during 2009. We are not currently able to fund operations
on a current basis, and we will require substantial additional capital in order
to operate. In order to fund some of our capital needs, we
conducted
private
offerings of our securities in 2007 and 2008. We also established what is
generally referred to as an equity line of credit of up to $10,000,000 with
Dutchess Private Equity Fund, LLP (“Dutchess”), under which we may put shares of
our common stock to Dutchess for sale into the marketplace and receive the
proceeds of these sales. From November 6, 2006 through December 31,
2006, we raised $380,095 gross proceeds from such puts, and between January 1,
2007 and June 12, 2007, we raised an additional $992,055 gross proceeds
from such puts. We may need to rely substantially on additional puts from the
equity line of credit unless and until we can arrange additional interim or
permanent financings. Reliance on the equity line of credit could
create downward pressure on the price of our common stock and is dilutive to our
existing shareholders. While discussion regarding additional interim
and permanent financings are being actively conducted, management cannot predict
with certainty that the equity line of credit will be available to provide
adequate funds, or any funds at all, or whether any additional interim or
permanent financings will be available at all or, if it is available, if it will
be available on favorable terms. If we cannot obtain needed capital, our
research and development, and sales and marketing plans, business and financial
condition and our ability to reduce losses and generate profits will be
materially and adversely affected. Additionally risks specifically
relating to our equity line of credit with Dutchess are set forth at the end
of this section.
We
will need additional capital to repay certain short-term debt as it
matures.
We have
$896,720 remaining principal amount of convertible subordinated notes due
February 2009, August 2009, October 2009 and December 2009 to certain
investors. In January 2009, we issued $250,000 convertible notes in
our 2009 Winter Offering-I to certain investors, which will be due in April
2009. From February 13, 2009 to March 4, 2009 we issued $186,340 convertible
notes in our 2009 Winter Offering-II to certain investors, which will be due in
March 2010.
Due to
the Company’s limited capital resources, management cannot predict with
certainty that there will be cash available to repay these obligations, and
other obligations, on their respective maturity dates. If we do not
raise adequate funds, we would be unable to repay these obligations as they
mature during the next twelve months and we could default on such
obligations.
As
a company with an unproven business strategy, our limited history of operations
makes evaluation of our business and prospects difficult.
Our
business prospects are difficult to predict because of our limited operating
history, early stage of development and unproven business strategy. Since our
incorporation in 1998, we have been and continue to be involved in development
of products using our technology, establishing manufacturing and marketing of
these products to consumers and industry partners. Although we believe our
technology and products in development have significant profit potential, we may
not attain profitable operations and our management may not succeed in realizing
our business objectives.
If
we are not able to devote adequate resources to product development and
commercialization, we may not be able to develop our products.
Our
business strategy is to develop, manufacture and market products incorporating
our ZEFS, MK IV and ELEKTRA technologies, and, to a lesser extent, our CAT-MATE
technology. We also intend to develop, manufacture and market
products incorporating the ELEKTRA technology. We believe that our revenue
growth and profitability, if any, will substantially depend upon our ability
to:
|
|
●
|
raise
additional needed capital for research and development;
|
|
|
|
|
●
|
complete
development of our products in development; and
|
|
|
|
|
●
|
successfully
introduce and commercialize our new
products.
|
Certain
of our products are still under various stages of development. Because we have
limited resources to devote to product development and commercialization, any
delay in the development of one product or reallocation of resources to product
development efforts that prove unsuccessful may delay or jeopardize the
development of other product candidates. Although our management believes that
it can finance our product development through private placements and other
capital sources, if we do not develop new products and bring them to market, our
ability to generate revenues will be adversely affected.
The
commercial viability of the ZEFS and CAT-MATE technologies remains largely
unproven and we may not be able to attract customers.
Despite
the fact that have entered into various distribution agreements and made some
initial sales of our products to distributors, to the best of our knowledge, no
consumer or automobile manufacturer has used the products incorporating the ZEFS
or CAT-MATE technologies to reduce motor vehicle emissions to date. Accordingly,
the commercial viability of our devices is not known at this time. If commercial
opportunities are not realized from the use of products incorporating the ZEFS
and CAT-MATE technologies, our ability to generate revenue would be adversely
affected. There can be no assurances that we will be successful in
marketing our products, or that customers will ultimately purchase our products.
Failure to have commercial success from the sale of our products will
significantly and negatively impact our financial condition.
The
commercial viability of the ELEKTRA technology remains largely unproven and we
may not be able to attract customers.
To the
best of our knowledge, no consumer or automobile manufacturer has used the
products incorporating the ELEKTRA technology to reduce motor vehicle emissions
to date. Accordingly, the commercial viability of our devices is not known at
this time. If commercial opportunities are not realized from the use of products
incorporating the ELEKTRA technology, our ability to generate revenue would be
adversely affected. There can be no assurances that we will be
successful in marketing our products, or that customers will ultimately purchase
our products. Failure to have commercial success from the sale of our products
will significantly and negatively impact our financial condition.
If
our products and services do not gain market acceptance, it is unlikely that we
will become profitable.
The
market for products that reduce harmful motor vehicle emissions is evolving and
we have many successful competitors. Automobile manufacturers have historically
used various technologies, including catalytic converters, to reduce exhaust
emissions caused by their products. At this time, our technology is unproven,
and the use of our technology by others is limited. The commercial success of
our products will depend upon the adoption of our technology by auto
manufacturers and consumers as an approach to reduce motor vehicle emissions.
Market acceptance will depend on many factors, including:
|
|
●
|
the
willingness and ability of consumers and industry partners to adopt new
technologies;
|
|
|
|
|
●
|
the
willingness and ability of consumers and industry partners to adopt new
technologies;
|
|
|
|
|
●
|
the
willingness of governments to mandate reduction of motor vehicle
emissions;
|
|
|
|
|
|
|
●
|
our
ability to convince potential industry partners and consumers that our
technology is an attractive alternative to other technologies for
reduction of motor vehicle emissions;
|
|
|
|
|
|
|
●
|
our
ability to manufacture products and provide services in sufficient
quantities with acceptable quality and at an acceptable cost;
and
|
|
|
|
|
|
|
●
|
our
ability to place and service sufficient quantities of our
products.
|
If our
products do not achieve a significant level of market acceptance, demand for our
products will not develop as expected and it is unlikely that we will become
profitable.
We
need to outsource and rely on third parties for the manufacture, sales and
marketing of our products, and our future success will be dependent on the
timeliness and effectiveness of the efforts of these third parties.
We do not
have the required financial and human resources or capability to manufacture
market and sell our products. Our business model calls for the outsourcing of
the manufacture, and sales and marketing of our products in order to reduce our
capital and infrastructure costs as a means of potentially improving our
financial position and the profitability of our business. Accordingly, we must
enter into agreements with other companies that can assist us and provide
certain capabilities that we do not possess. We have entered into certain
distribution agreements, but we may not be successful in entering into
additional such alliances on favorable terms or at all. Even if we do succeed in
securing additional distribution agreements, we may not be able to maintain
them. Furthermore, any delay in entering into agreements could delay the
development and commercialization of our products and reduce their
competitiveness even if they reach the market. Any such delay related to our
existing or future agreements could adversely affect our business.
We do not
currently have an agreement in place for the manufacture of products
incorporating our ZEFS or MK IV technologies.
If
any party to which we have outsourced certain functions fails to perform its
obligations under agreements with us, the development and commercialization of
our products could be delayed or curtailed.
To the
extent that we rely on other companies to manufacture, sell or market our
products, we will be dependent on the timeliness and effectiveness of their
efforts. If any of these parties do not perform its obligations in a timely and
effective manner, the commercialization of our products could be delayed or
curtailed because we may not have sufficient financial resources or capabilities
to continue such development and commercialization on our own.
Any
revenues that we may earn in the future are unpredictable, and our operating
results are likely to fluctuate from quarter to quarter.
We
believe that our future operating results will fluctuate due to a variety of
factors, including:
|
|
·
|
delays
in product development;
|
|
|
|
|
|
|
·
|
market
acceptance of our new products;
|
|
|
|
|
·
|
changes
in the demand for, and pricing, of our products;
|
|
|
|
|
·
|
competition
and pricing pressure from competitive products;
|
|
|
|
|
·
|
manufacturing
delays; and
|
|
|
|
|
·
|
expenses
related to, and the results of, proceedings relating to our intellectual
property.
|
A large
portion of our expenses, including expenses for our facilities, equipment and
personnel, is relatively fixed and not subject to further significant reduction.
In addition, we expect our operating expenses will increase in 2009 as
we continue our research and development and increase our production and
marketing activities, among other activities. Although we expect to generate
revenues from sales of our products, revenues may decline or not grow as
anticipated and our operating results could be substantially harmed for a
particular fiscal period. Moreover, our operating results in some quarters may
not meet the expectations of stock market analysts and investors. In that case,
our stock price most likely would decline.
Nondisclosure
agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information.
In order
to protect our proprietary technology and processes, we rely in part on
nondisclosure agreements with our employees, licensing partners, consultants,
agents and other organizations to which we disclose our proprietary information.
These agreements may not effectively prevent disclosure of confidential
information and may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. In addition, others may independently
discover trade secrets and proprietary information, and in such cases we could
not assert any trade secret rights against such parties. Costly and
time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain trade secret
protection could adversely affect our competitive business position. Since we
rely on trade secrets and nondisclosure agreements, in addition to patents, to
protect some of our intellectual property, there is a risk that third parties
may obtain and improperly utilize our proprietary information to our competitive
disadvantage. We may not be able to detect unauthorized use or take appropriate
and timely steps to enforce our intellectual property rights.
The
manufacture, use or sale of our current and proposed products may infringe on
the patent rights of others, and we may be forced to litigate if an intellectual
property dispute arises.
If we
infringe or are alleged to have infringed another party’s patent rights, we may
be required to seek a license, defend an infringement action or challenge the
validity of the patents in court. Patent litigation is costly and time
consuming. We may not have sufficient resources to bring these actions to a
successful conclusion. In addition, if we do not obtain a license, do not
successfully defend an infringement action or are unable to have infringed
patents declared invalid, we may:
|
|
·
|
incur
substantial monetary damages;
|
|
|
|
|
·
|
encounter
significant delays in marketing our current and proposed product
candidates;
|
|
|
|
|
·
|
be
unable to conduct or participate in the manufacture, use or sale of
product
|
|
|
|
|
|
|
·
|
candidates or methods of
treatment requiring licenses;
|
|
|
|
|
|
|
·
|
lose
patent protection for our inventions and products; or
|
|
|
|
|
|
|
·
|
find
our patents are unenforceable, invalid, or have a reduced scope of
protection.
|
Parties
making such claims may be able to obtain injunctive relief that could
effectively block our ability to further develop or commercialize our current
and proposed product candidates in the United States and abroad and could result
in the award of substantial damages. Defense of any lawsuit or failure to obtain
any such license could substantially harm the company. Litigation, regardless of
outcome, could result in substantial cost to and a diversion of efforts by the
Company to operate its business.
We
may face costly intellectual property disputes.
Our
ability to compete effectively will depend in part on our ability to develop and
maintain proprietary aspects of our technologies and either to operate without
infringing the proprietary rights of others or to obtain rights to technology
owned by third parties. Our pending patent applications, specifically patent
rights of the MK IV, ELEKTRA and CAT-MATE technologies, may not result in the
issuance of any patents or any issued patents that will offer protection against
competitors with similar technology. Patents we have received for our ZEFS
technologies, and which we may receive, may be challenged, invalidated or
circumvented in the future or the rights created by those patents may not
provide a competitive advantage. We also rely on trade secrets, technical
know-how and continuing invention to develop and maintain our competitive
position. Others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade
secrets.
We
were involved in a patent infringement suit brought by our former sole director
and executive officer.
In
April 2005, Jeffrey A. Muller, the Company’s former sole director and
executive officer, filed a complaint against us seeking declaratory and
injunctive relief and alleging unfair competition in connection with a claimed
prior patent interest in the ZEFS technologies. Mr. Muller is seeking to
have the patent rights in the ZEFS technologies that were previously transferred
to us by Mr. Muller’s bankruptcy trustee declared null and void. Muller’s
claims for patent infringement against the Company were dismissed and the case
was closed on October 15, 2008, by order of George B. Daniels, United States
District Judge, Southern District of New York.
We
may not be able to attract or retain qualified senior personnel.
We
believe we are currently able to manage our current business with our existing
management team. However, as we expand the scope of our operations, we will need
to obtain the full-time services of additional senior management and other
personnel. Competition for highly-skilled personnel is intense, and there can be
no assurance that we will be able to attract or retain qualified senior
personnel. Our failure to do so could have an adverse effect on our ability to
implement our business plan. As we add full-time senior personnel, our overhead
expenses for salaries and related items will increase compensation packages,
these increases could be substantial.
If
we lose our key personnel or are unable to attract and retain additional
personnel, we may be unable to achieve profitability.
Our
future success is substantially dependent on the efforts of our senior
management, particularly Cecil Bond Kyte, our Chief Executive Officer, Charles
R. Blum, our President and Eugene E. Eichler, our Interim Chief Financial
Officer. The loss of the services of members of our senior management may
significantly delay or prevent the achievement of product development and other
business objectives. Because of the scientific nature of our business, we depend
substantially on our ability to attract and retain qualified marketing,
scientific and technical personnel, including consultants. There is intense
competition among specialized automotive companies for qualified personnel in
the areas of our activities. If we lose the services of, or do not successfully
recruit key marketing, scientific and technical personnel, the growth of our
business could be substantially impaired. We do not maintain key man insurance
for any of these individuals.
We
expect to incur increased costs under the Sarbanes-Oxley Act of
2002.
As a
public company, we incur significant legal, accounting and other expenses. In
addition, the Sarbanes-Oxley Act of 2002, as well as related rules adopted by
the SEC, has imposed substantial requirements on public companies, including
certain corporate governance practices and requirements relating to internal
control over financial reporting under Section 404 of the Sarbanes-Oxley
Act. We expect these rules and regulations to increase our legal and financial
compliance costs and to make some activities more time-consuming and costly.
Effective disclosure of controls and procedures and internal controls are
necessary for us to produce reliable financial reports and are important in
helping prevent financial fraud generally. In order to accomplish this, we have
retained an outside consulting firm to assist us in implementing proper
procedures. We will incur significant up-front expenses to do so. If we are
unable to achieve and maintain adequate disclosure controls and procedures and
internal controls, our business and operating results could be
harmed.
Changes
in stock option accounting rules may adversely affect our reported operating
results, our stock price, and our ability to attract and retain
employees.
In
December 2004, the Financial Accounting Standards Board (“FASB”) published
new rules that will require companies such as us to record all stock-based
employee compensation as an expense. The new rules apply to stock options
grants, as well as a wide range of other share-based compensation arrangements
including restricted share plans, performance-based awards, share appreciation
rights and employee share purchase plans. As required by FASB, we adopted these
rules effective January 1, 2006. As a small company with limited
financial resources, we have depended upon compensating our officers, directors,
employees and consultants with such stock based compensation awards in the past
in order to limit our cash expenditures and to attract and retain officers,
directors, employees and consultants. Accordingly, if we continue to grant stock
options or other stock based compensation awards to our officers, directors,
employees, and consultants, our future earnings, if any, will be reduced (or our
future losses will be increased) by the expenses recorded for those grants.
These compensation expenses may be larger than the compensation expense that we
would be required to record were we able to compensate these persons with cash
in lieu of securities. Since we are a small company, the expenses we may have to
record as a result of future options grants may be significant and may
materially negatively affect our reported financial results.
Currently,
there is only very limited trading in our stock, so you may be unable to sell
your shares at or near the quoted bid prices if you need to sell your
shares.
The
shares of our common stock are thinly-traded on the OTC Bulletin Board, meaning
that the number of persons interested in purchasing our common shares at or near
bid prices at any given time may be relatively small or non-existent. This
situation is attributable to a number of factors, including the fact that we are
a small company engaged in a high risk business which is relatively unknown to
stock analysts, stock brokers, institutional investors and others in the
investment community that can generate or influence daily trading volume and
valuation. Should we even come to the attention of such persons, they tend to be
risk-averse and would be reluctant to follow an unproven, early stage company
such as ours or purchase or recommend the purchase of our shares until such time
as we became more seasoned and viable. As a consequence, there may be periods of
several days or more when trading activity in our shares is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous trading
without negatively impacting our share price. We cannot provide any assurance
that a broader or more active public trading market for shares of our common
stock will develop or be sustained. Due to these conditions, we
cannot give any assurance that shareholders will be able to sell their shares at
or near bid prices or at all.
The
market price of our stock is volatile.
The
market price for our common stock has been volatile during the last year,
ranging from a closing bid price of $0.86
on March 18,
2008 to a closing bid price of $0.12 on November 21, 2008, and a closing bid
price of $0.40 on March 12, 2009. Additionally, the bid price of our stock has
been both higher and lower than those amounts on an intra-day basis in the last
year. Because our stock is thinly traded, its price can change dramatically over
short periods, even in a single day. The market price of our common stock could
fluctuate widely in response to many factors, including:
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developments
with respect to patents or proprietary rights;
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announcements
of technological innovations by us or our
competitors;
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announcements
of new products or new contracts by us or our
competitors;
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actual
or anticipated variations in our operating results due to the level of
development expenses and other factors;
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changes
in financial estimates by securities analysts and whether any future
earnings of ours meet or exceed such
estimates;
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conditions
and trends in our industry;
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new accounting
standards;
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general economic, political and
market conditions and other factors; and
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the
occurrence of any of the risks described in this Memorandum.
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Substantial
sales of common stock could cause our stock price to fall.
In the
past year, there have been times when average daily trading volume of our common
stock has been extremely low, and there have been many days in which no shares
were traded at all. At other times, the average daily trading volume of our
common stock has been high... Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public market may
adversely affect prevailing market prices for our common stock and could impair
our ability to raise capital through the sale of our equity
securities.
Potential
issuance of additional shares of our common stock could dilute existing
stockholders.
We are
authorized to issue up to 200,000,000 shares of common stock. To the extent of
such authorization, our Board of Directors has the ability, without seeking
stockholder approval, to issue additional shares of common stock in the future
for such consideration as the Board of Directors may consider sufficient. The
issuance of additional common stock in the future will reduce the proportionate
ownership and voting power of the common stock offered hereby.
Our
common stock is subject to penny stock regulation, which may make it more
difficult for us to raise capital.
Our
common stock is considered penny stock under SEC regulations. It is subject to
rules that impose additional sales practice requirements on broker-dealers who
sell our securities. For example, broker-dealers must make a suitability
determination for the purchaser, receive the purchaser’s written consent to the
transaction prior to sale, and make special disclosures regarding sales
commissions, current stock price quotations, recent price information and
information on the limited market in penny stock. Because of these additional
obligations, some broker-dealers may not effect transactions in penny stocks,
which may adversely affect the liquidity of our common stock and shareholders’
ability to sell our common stock in the secondary market. This lack of liquidity
may make it difficult for us to raise capital in the future.