U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-SB/A
GENERAL
FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS
ISSUERS
UNDER
SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number 0-51696
Trulite,
Inc.
Delaware
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24-5711620
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(State
or other jurisdiction of
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(I.R.S.
employer
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incorporation
or formation)
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identification
number)
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Three
Riverway
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Suite
1700
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Houston,
TX
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77056
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(Address
of Principal
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(Zip
Code)
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Executive
Offices)
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Issuer's
telephone number: (817) 846-9898
Copies
to:
David
N.
Feldman, Esq.
Feldman
Weinstein & Smith LLP
420
Lexington Avenue, Suite 2620
New
York,
NY 10170
(212)
869-7000
Securities
to be registered under Section 12(b) of the Act: none
Securities
to be registered under Section 12(g) of the Exchange Act:
Title
of each class:
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Name
of Exchange on which to be so
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registered
each class is to be registered:
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Common
Stock, $.0001 par value per share
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N/A
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ITEM
1.
DESCRIPTION OF BUSINESS
(a)
Overview of the Company, Products and Target Markets
Trulite,
Inc. (“Trulite”, “we”, “us”, “our”, the “Company” or the “Registrant”) is an
emerging technology company engaged in the development and production of
portable and stationary products that produce hydrogen for the generation of
electricity for the commercial and consumer markets. The Company has developed,
tested, sold and delivered its first hydrogen storage product - the HydroCell,
an environmentally-friendly alternative to battery power. The Company has
submitted two patent applications for the HydroCell.
In
August, 2005, the Company demonstrated its first, complete, commercially
packaged, integrated, hydrogen fuel cell power system. In September 2005, the
Company introduced its Kitty Hawk system. The
product consists of three technologies: one that generates hydrogen gas from
powered chemical compounds (the HydroCell, which is a patented technology);
and
one that transforms the hydrogen gas into electricity (the fuel cell stack,
which is not a patented technology) and, one that controls the flow of hydrogen
for the actual generation of electricity (the control technology, which is
not a
patented technology). The Company believes the Kitty Hawk is the least expensive
energy source on the market capable of producing
25 watts of power for several hours (as an example, 25 watts of power is
sufficient to power a DVD player for several hours while concurrently charging
a
cell phone). It was Trulite’s integration of its patented technology (the
Hydrocell) with its unpatented control program and unpatented fuel cell stack
that created an integrated hydrogen fuel cell power system called the Kitty
Hawk.
In
November 2005, the Company received its first orders for twenty-five Kitty
Hawk
systems. The units were manufactured in its Utah product development facility
and were delivered to a selected target audience in February and March, 2006.
Also in November, 2005, the Company received a $25,000 contract from Protonex
Technology (“Protonex”) to develop three high energy density prototype
HydroCells.
The
Company is currently developing enhanced versions of the Kitty Hawk system:
the
Kitty Hawk 3X and the Kitty Hawk 4. The Kitty Hawk 3X is designed to be a
50
Watt integrated power system that will be able to generate electricity for
3 to
4 hours. The first set of ten Kitty Hawk 3X systems is expected to be
manufactured and available in July 2006 to selected commercial customers
for
field testing. It is anticipated that an additional forty units will be
manufactured by the end of August, 2006 for sale to selected commercial
customers for more comprehensive and expansive field testing. Field testing
of
the units is expected to last 6 weeks. Upon completion of field testing of
the
Kitty Hawk 3X and receipt of the appropriate regulatory approvals, we anticipate
units will be available for sale and delivery into selected commercial and
consumer markets some time during the fourth quarter of 2006. The expected
development and manufacturing costs of the Kitty Hawk 3X units are $500,000,
including capital expenditures of $200,000.
Trulite
is also developing the Kitty Hawk 4 system, a more robust and powerful Kitty
Hawk system capable of generating up to two times the power output of the
current Kitty Hawk 3X unit. The Kitty Hawk 4 system is designed to be a 100
Watt
integrated power system able to generate electricity for up to 4 hours. The
Kitty Hawk 4 system is anticipated to be available for field testing by the
end
of the second quarter, 2007. We anticipate manufacturing approximately 50
units
for sale to selected commercial customers for field testing. Field testing
is
anticipated to take 8 to 10 weeks. Upon completion of field testing of the
Kitty
Hawk 4 system by the end of the third quarter of 2007, we anticipate units
will
be available for sale and delivery into selected commercial and consumer
markets. The expected development and manufacturing costs of the Kitty Hawk
4
units will be approximately $1,500,000, including capital expenditures of
$279,000. Funding for product development and manufacturing are expected
to come
from bridge loans provided by Contango Capital Partners, LP (“CCP”), external
investors and revenues generated from sales of the Kitty Hawk 4 units.
In
2006,
we anticipate hiring a Chief Operating Officer and a Vice President of Product
Development. The objectives of hiring additional senior management personnel
will be to ensure the successful operations of the Company and to ensure
the
on-going product development of the Kitty Hawk integrated power system.
Trulite’s
strategy is to leverage its unique hydrogen source technology and fuel cell
technology to develop fuel cell products to address end-user applications in
two
identified markets: Industrial Remote Monitoring, specifically, the pipeline
and
well head market for remote sensing and monitoring of operating conditions
in
oil and gas fields and Recreational Off-Site Usage. The market segment for
recreational off-site usage is focused on camping including a very specific
niche target of environmentally conscious camper.
Since
inception, the Company has sought to develop alternative energy sources to
conventional portable and stationary technologies, such as batteries and diesel
generation units, for the commercial and consumer markets. Although the Company
is not focused on the military market, the Company anticipates pursuing
opportunities in this market through strategic relationships with companies
such
as Protonex, as well as measuring the risks and rewards to the Company for
developing more specialized products for the military market.
(b)
History of Trulite
Trulite
was incorporated in Delaware on July 15, 2004. Later that month, Trulite
purchased all membership interests of Trulite Technology, LC (“Trulite
Technology”), a Utah limited liability company, and merged with Trulite
Technology, whereby Trulite survived the merger. The Company is engaged in
researching, developing, manufacturing and commercializing hydrogen generation
and storage technology and integrated fuel cell products.
In
January, 2002, members of Trulite Technology submitted a proposal in response
to
a Small Business Innovation Research (“SBIR”) solicitation from the Defense
Threat Reduction Agency (“DTRA”) to research and develop a high energy density,
hydrogen source to ultimately power nuclear, chemical and biological detection
equipment in the field. The intended applications of the hydrogen fuel source
were for use by the military as a source of portable power.
Trulite
Technology was incorporated in May 20, 2002, upon receipt of notification from
the DTRA that Trulite Technology would receive a 6 month, $100,000, Phase 1
SBIR
award to develop a hydrogen fuel source (that is, a technology for producing
hydrogen gas) that could convert hydrogen gas into electricity. All patent,
software and other technical rights in any products are retained by Trulite.
Work
on
the project commenced in August 2002, and in January, 2003, Trulite Technology
built and tested its first, dry, chemical hydride, hydrogen fuel source. In
January, 2003 Trulite Technology submitted a proposal to the United States
Air
Force (“USAF”) for a very high energy density hydrogen source for larger fuel
cell systems. Trulite Technology received notification from the USAF in May,
2003 that it had been selected for another six month, $100,000 Phase 1 SBIR
award. All patent, software and other technical rights in any products are
retained by Trulite.
In
January, 2004, Trulite Technology received an order from Jadoo Power Systems
for
two prototype chemical hydride cartridges. These were shipped in March, 2004.
Trulite Technology also received an order from the Naval Research Laboratory
for
four larger cartridges. These were shipped in July, 2004. In October of 2003,
Trulite had been introduced to William Jackson Berger (a.k.a. “John Berger”) of
CCP through Jadoo Power Systems. CCP became interested in Trulite Technology’s
hydrogen source technology, and Trulite Technology concluded its first round
of
private funding with CCP in July, 2004. Also in July, 2004, Trulite Technology
merged with, and transferred all if its interests to, the Company, a
newly-formed Delaware corporation.
In
February 2005, the Company entered into a strategic relationship with Synexus
Energy, Inc., a supplier of fuel cell stack and control technology
("Synexus"). Synexus, a research and development company is working on a
product that can be used in conjunction with Trulite's Hydrocell and is
primarily funded by CCP. Trulite has a Non-Disclosure Agreement (NDA) and
a Memorandum of Understanding (MOU) in place with Synexus, who was chosen as
the
preferred provider to Trulite because it was willing to develop its fuel cell
technology at a pace that was driven by Trulite’s timeframe. In January,
2006, Trulite reached an agreement for an option to purchase Synexus for cash
and Trulite common stock if Synexus achieves established performance goals
(the
"Option Agreement"). Prior to final execution of the Option Agreement, CCP
made the decision to stop providing funds to Synexus, which is expected to
deplete its funds not later than May 31, 2006. Synexus
is expected to dissolve in the near future, and its equipment is expected to
be
transferred to CCP. Once Synexus is dissolved, CCP is expected to transfer
the equipment to Trulite at no cost.
(c)
Overview of the Alternative Fuel Industry
There
are
a number of factors which management believes are creating significant changes
in the landscape of the alternative fuel industry, which in turn, present
significant opportunities for hydrogen generation and fuel cell
technologies:
1)
Conventional hydrocarbon energy sources (oil and natural gas) face increasing
problems with maintaining supply in the face of growing global demand (Simmons
& Co, a Houston based investment bank focused on energy, predicts oil will
average $200 per barrel in 2010);
2)
Power
reliability (that is, the electric power provided to commercial and consumer
markets through the electrical grid) is becoming an increasing problem in the
US
and other countries due to aging infrastructure, necessitating an alternative
off-grid power source;
3)
The
increasing proliferation of electronic devices from cell phones to portable
digital movie and music players to personal computers are becoming increasingly
power hungry as their capabilities increase; it is becoming more challenging
for
conventional battery technology to keep pace with increasing power requirements
resulting in power supply problems in these devices;
4)
Increasing global environmental and regulatory issues are making the use of
hydrocarbons ever more difficult; and
5)
Increasing geopolitical issues are causing global security concerns related
to
availability and price of oil and natural gas.
Due
to
these pressures, we believe the energy industry will change dramatically before
the end of this decade. Trulite also believes both portable and stationary
hydrogen fuel cell products provide practical, cost efficient solutions to
the
reliability and longevity demands of today’s high technology devices, as well as
providing new, alternative solutions to existing power requirement problems
by
providing reliable alternative power sources.
Fuel
cell
and alternative fuel source technology is still being developed and refined.
In
many applications applied research and technology development remains a vitally
important part of the industry. Reliability, cost and safe deployment of this
technology will be key to initial successes.
A
fuel
cell is a non-mechanical device (it is a very thin membrane similar to a
computer chip) which converts hydrogen gas (the fuel source) and oxygen into
electricity and water. The water is a non-toxic by-product resulting from the
process of generating electricity and is eliminated during the electricity
conversion process. Each fuel cell (that is, each “chip”) produces a given
amount of power when the hydrogen and water are combined (the power output
is
measured in watts). When several fuel cells are combined or “stacked”, they
create a fuel cell stack. For example, when several fuel cells are combined
into
a fuel cell stack, the fuel cell stack is capable of producing in excess of
25
watts of power. The power output is capable, for example, of powering a DVD
player and charging a cell phone simultaneously.
There
will be winners and losers in the commercialization process as the technology
develops. However, it is too early to tell which technologies will ultimately
dominate in certain applications, although the future direction appears clear
in
some major application areas, such as Proton Exchange Membrane Fuel Cell (PEMFC)
technology in fuel cell cars.
Products
utilizing fuel cell technology include fuel cell buses, numerous military
applications, auxiliary power units, remote power and other transportation
applications. Broad commercialization of fuel cell usage depends on reducing
per
unit costs. Products will be commercialized at price points that make sense
to
both commercial and consumer markets. Stationary and portable applications
currently lead the way, as fuel cells replace batteries in the portable and
stationary, light industrial and transportation applications.
Portable
applications such as premium battery markets, where fuel cells improve run
time
and can be cost competitive, appear to be leading the early efforts of
commercialization. This initial focus should also help demonstrate product
performance, reliability and durability, reduce production costs, establish
codes and standards for fuel cell technology, build a skilled labor force,
develop a hydrogen infrastructure and create public awareness and
acceptance.
An
industry survey indicated that approximately 60% of the companies surveyed
are
focusing their efforts on PEM (Proton Exchange Membrane) fuel cells (or closely
related Direct Methanol fuel cell) technologies. PEM fuel cells continue to
be
of most interest to fuel cell developers. The report also suggests that
government actions to address fuel costs, supply risks, and the environment
could positively and dramatically impact fuel cell industry prospects in the
next two to three years.
The
industry survey also indicated that approximately 38 companies are expected
to
offer pre-commercial (demonstration units) or commercial products in 2006.
General trends indicate that in the next three to five years delays in product
launch might occur due to either fuel cell performance issues or non technical
issues such as lack of codification of codes and standards. These delays may
result in slow adoption of fuel cell products in both the commercial and
consumer markets.
(d)
Trulite’s Products
Trulite
has two products: the HydroCell, a hydrogen generation and storage product,
and
the Kitty Hawk power system, a commercially packaged, integrated, hydrogen
fuel
cell power system.
Trulite’s
HydroCell is a technology that utilizes a cartridge filled with a chemical
hydride (sodium borohydride) that, when injected with water, produces hydrogen
on demand for portable and stationary power devices. Each cartridge can generate
up to 500 milliliters/minute of hydrogen. Each cartridge is compact and
lightweight, weighing only 175 grams. Power to weight ratio (the ability to
generate the same or more energy by cutting the weight of the generating device)
is one of many important factors in gaining market acceptance for alternative
power sources. The HydroCell technology enables fuel cells to run at least
two
to three (2-3) times longer than existing fuel cell and battery technology,
while weighing significantly less than these technologies. The key to the
HydroCell's efficient design is that it uses moist air exiting a Proton Exchange
Membrane (PEM) fuel cell to produce hydrogen for the PEM fuel cell stack. Water
recycling not only enables the HydroCell to produce several liters of hydrogen
from a lightweight package, but also means that the HydroCell produces hydrogen
only when the fuel cell stack is operating. The proprietary control technology
used inside the HydroCell and the cartridges make possible the safe production
of hydrogen. The internal cartridge components allow the energy dense chemical
hydride to react with the injected water in a controlled manner while providing
for complete reactivity of the material.
The
initial product we seek to market (the HydroCell) is a metallic cylinder
approximately 2 inches in diameter and 6 inches in height which holds the
chemical hydride. When water is injected into the cylinder, it creates a
chemical reaction which generates hydrogen gas. The hydrogen gas is transformed
into electricity via the fuel cell, which then powers the product in which
it is
installed. The container is sealed to prevent moisture from entering the
cylinder and to ensure the chemical hydride does not escape the cylinder. The
cylinder is robust and will not break if dropped, resulting in a reliable,
robust product which is easy to manufacture.
Trulite
believes the significance of the HydroCell is the proprietary, chemical hydride
mixture and chemical reaction process wherein the generation of hydrogen does
not occur until water is added to the chemical hydride. Given that the hydride
is inert until water is added, a Trulite cartridge can be kept in storage for
a
minimum of three years without losing its energy density. In other words, the
energy level doesn’t get weaker over time. We believe the Hydrocell has the
highest energy density of any known portable hydrogen source currently available
in the market. This is a significant difference from offerings from some of
our
competitors, as we believe there are no “dry hydride” technologies currently
available to the consumer market. Trulite’s dry hydride technology for
generating hydrogen makes it possible to build HydroCell cartridges capable
of
generating hydrogen for up to 72 hours continuously by increasing the size
of
the cartridge and adding more chemical hydride.
We
believe the HydroCell’s design offers the following advantages:
-
SAFETY:
Hydrogen is produced only as it is needed, resulting in increasing
safety;
-
RELIABILITY: The HydroCell has few moving parts, making it a reliable fuel
source;
-
REUSABILITY AND COST: The HydroCell capsules are inexpensive compared with
the
costs associated with generating an equal amount of energy from conventional
energy sources over the life span of one HydroCell cartridge, thus reducing
the
total cost of ownership to consumer;
-
DISPOSABILITY: The HydroCell capsules are disposable. The by-product is an
inert, solid, chemical oxide with minimal health hazard capable of being
discarded in landfills; and
-
SHELF
LIFE: The HydroCell can lie dormant for up to thirty-six (36) months without
losing its energy density.
The
Company has submitted two patent applications for the HydroCell.
The
second product we seek to market is the Kitty Hawk power system, a commercially
packaged, integrated, hydrogen fuel cell power system. The Kitty Hawk product
consists of three technologies: one that generates hydrogen gas from powered
chemical compounds (the HydroCell, which is patented); one that transforms
the
hydrogen gas into electricity (the fuel cell stack, which is unpatented) and
one
that controls the flow of hydrogen for the actual generation of electricity
(the
control technology, which is unpatented). The Kitty Hawk unit is rectangular
in
shape, weighs almost eight pounds and is easily portable.
The
control technology is an integrated, programmable electronic circuit (that
is,
the circuit can be programmed to perform specific tasks) that is used to control
the flow of hydrogen and oxygen to the fuel stack. The purpose of the control
technology is to ensure the proper amount of hydrogen is generated to power
the
device which is attached to the Kitty Hawk product. If too much or too little
hydrogen is generated, the efficiency of the Kitty Hawk is significantly
reduced, which results in power loss and the unit’s inability to power the
devices attached to the Kitty Hawk.
Trulite
manufactures the fuel cell stack, develops product enhancements and engages
in
new product development on the fuel cell stack. The Kitty Hawk power system
was
introduced by Trulite in September, 2005. The Kitty Hawk product uses the
HydroCell system to generate hydrogen for up three hours and is capable of
generating 25 watts of useable power. That is, although the product generates
approximately 40 to 50 watts of power, the system requires approximately 15
to
20 watts of power internally to run the unit. The result is 25 watts of usable
power, which is more than sufficient to run a radio while concurrently charging
a cell phone. Trulite manufactured and delivered twenty-five units to selected
customers in February and March, 2006.
Although
the Kitty Hawk power system is an integrated, hydrogen fuel cell power system,
the HydroCell can be marketed and sold separately to companies wanting a dry
hydride technology for generating hydrogen. For example, Trulite has sold the
HydroCell to Protonex for military applications. Although the fuel cell stack
can be marketed and sold separately, Trulite has no plans to either market
or
sell the fuel cell stack separately. Trulite has no plans to market and sell
the
control technology separately.
(e)
Current Status of Projects
Trulite
is currently developing the next generation of the Kitty Hawk (the KH-3X),
which
is expected to have a number of enhancements: improved physical design; noise
reduction; faster start up cycle (several seconds versus 2 to 3 minutes); fuel
level gauge to indicate the level of energy remaining in the cartridge; an
attached carrying handle; a status display screen indicating the power output
of
the unit; interior technical modifications to eliminate hose pinching; and
increased power output to 35 to 40 watts of power. Each of these enhancements
will require several steps including designing and building the enhancement;
testing the enhancement to ensure it performs as specified; incorporating and
testing the enhancement in the Kitty Hawk unit; and, finally testing the Kitty
Hawk unit in a customer environment.
The
design, build and test of the enhancements began in March, 2006 and are expected
to be completed by the third quarter of 2006. The testing of the enhancements
is
an on-going process. As each enhancement is built, it is tested. Each time
a new
enhancement is added to the Kitty Hawk unit, the entire Kitty Hawk 3X system
is
tested to ensure all of the enhancements work as an integrated system. Beginning
in mid-June, 2006, ten units will be manufactured for delivery to selected
customers for field testing. If the Kitty Hawk 3X unit successfully completes
field testing by the end of September, 2006, it is expected to be commercially
available for sale and delivery into selected commercial and consumer markets
shortly thereafter.
Trulite
is also developing the Kitty Hawk 4. The product will be designed to have a
power output two times great than the Kitty Hawk 3X. Product enhancements to
the
Kitty Hawk 4 will include: reducing the overhead required to run the Kitty
Hawk
4 power system; increased ruggedness; and enhanced ergonomics and physical
design. Each of these enhancements will also require going through the proving
process set forth above prior to commercial availability.
The
design of the Kitty Hawk 4 system is anticipated to commence in September,
2006
and is anticipated to be completed by December, 2006. The Kitty Hawk 4 system
is
anticipated to be available for field testing by the end of the first quarter
of
2007. Field testing is anticipated to take eight to ten weeks. Upon completion
of field testing of the Kitty Hawk 4 system, expected to be by the end of the
second quarter of 2007, we anticipate units will be available for sale and
delivery into selected commercial and consumer markets.
In
November, 2005, Trulite established a manual production line sufficient to
meet
a 5 fuel cell per month and 35 HydroCell (the hydrogen cartridge) per month
rate. Our near term goal is for the manufacturing facilities to ramp up to
meet
a potential demand of 20 fuel cells per month and 200 HydroCell per month.
At
such time as demand reaches a run rate of 80 fuel cells per month and 800
HydroCells per month, we anticipate that manufacturing will transition from
manual to automated processes. Thereafter, outsourcing relationships are
expected to be established for a few simple, non-proprietary sub-components.
Full outsourcing likely will begin once volume demand approaches 250 fuel cells
per month and 1500 HydroCells per month. This outsourcing event will trigger
the
beginning of the shift to a final assembly and test facility at our own
manufacturing site located in Texas.
In
2005,
Trulite generated $16,667 in revenues from the sale of the HydroCell. There
are
outstanding purchase orders for the sale of Kitty Hawk and HydroCells units
valued at $11,178.
Management
intends to focus its initial efforts on the industrial remote monitoring (the
monitoring and remote sensing of oil and gas pipelines, oil wells and gas wells)
and recreational camping markets, both of which have a need for a large amount
of portable power on demand.
(f)
Market Opportunities
Trulite
believes its integrated Kitty Hawk units powered by Trulite’s HydroCell
technology provides consumers with a superior alternative energy product
as
compared to existing products powered by lithium-ion batteries. As compared
to
conventional battery technologies, the HydroCell does not lose the ability
to
generate electricity even when put in storage for long periods of time (up
to
three years). By comparison, conventional lithium ion batteries will lose
their
ability to generate energy if they are not used before their expiration date.
Trulite believes it has the ability to bring this power to numerous kinds
of
portable electronic devices through its Kitty Hawk power system. The primary
markets we currently seek to enter for Trulite’s products are the pipeline and
well head market for remote sensing and monitoring of operating conditions
in
oil and gas fields, and the high end recreational camping market. The
opportunity in the pipeline market resulted from estimating the number of
oil
and gas wells in the United States (the data was obtained from available
public
information from companies such as Shell, ChevronTexaco and British Petroleum),
estimating the existing operating and maintenance costs to service and repair
these wells, assuming a 20% adoption rate over the next five years for companies
implementing a Trulite Kitty Hawk solution and calculating the cost differential
between existing operating costs and Trulite’s Kitty Hawk solution. Trulite
intends to seek out oil field service companies, trying to identify the most
viable operators and influence both large and small energy companies, as
well as
other providers to the oil and gas industry, to adopt the Kitty Hawk integrated
power system as an alternative power source. As currently envisioned, the
manufacture and distribution of the Kitty Hawk power system to alliance partners
will occur from the Company’s manufacturing facilities, most likely located in
Houston, Texas.
The
anticipated opportunity in the recreational camping market for remote power
devices comparable to the Kitty Hawk product was based upon analyzing the
available products in this sector such as the Anton Bauer 2702 battery charger,
SunWize AC 40/65 40 Watt remote power system, the Frezzi M1000P video power
charger, the HPC 6624A 40 Watt power system as well as several other companies
which provide products comparable to the Kitty Hawk power system. Trulite
believes the Kitty Hawk product is well suited for recreational camping
applications such as providing power for travel refrigerators/coolers, cell
phone chargers, portable TVs, portable DVD players, and powering air and water
purification units.
The
Company plans to distribute its consumer Kitty Hawk products through three
different channels: (1) direct to consumer sales (expected to be on a limited
basis); (2) bundling; and (3) retail stores. The Company also plans on using
the
Internet, through sites such as eBay, Amazon, Overstock and Yahoo, to sell
directly to consumers on a limited basis in order to test market its products,
as well as establish consumer price points. The Company is also targeting
original equipment manufacturers (“OEM”) in an attempt to bundle its products
with those of the OEM. Advantages to partnering with an OEM include leveraging
the OEM’s customer base and cross-selling Trulite’s products with existing OEM
products. Lastly, the Company intends to attempt to market the Kitty Hawk to
major high-end retail stores, such as REI, Northface, Patagonia and Brookstone,
Orvis and Cabela’s in an attempt to attract the high end camping market.
(g)
Business Strategy
The
Company believes the HydroCell powered Kitty Hawk is substantially less
expensive than comparable energy sources capable of producing 25 watts of power
for several hours in this market segment. Based upon interviews with outside
engineers from a major energy company, as well as analysis developed by
Trulite’s own engineers, the power output of the Kitty Hawk system is capable of
supporting typical user applications in the pipeline and well head markets.
Trulite is currently testing a HydroCell capable of powering a Kitty Hawk system
for seventy two continuous hours. Product enhancements are planned to develop
a
HydroCell capable of generating 10,000 watt hours of power which is equivalent
to running a Kitty Hawk unit for seven hundred and twenty contiguous hours.
Trulite’s
strategy is to leverage its unique hydrogen generation technology and its fuel
stack technology to develop and sell integrated fuel cell products to address
end-user applications in two identified markets: Industrial Remote Monitoring
and Recreational Off-Site. Trulite’s business model is based upon the sale of
its product, the Kitty Hawk, to specific target markets as an integrated
solution. That is, since Trulite is able to bundle the fuel source with the
fuel
cell, Trulite is able to sell the integrated unit in line with the price point
of competing fuel cell products. Trulite believes it is the only known source
of
the dry power fuel source and consequently, expects to receive follow up orders
for HydroCell replacement cartridges. For example, for each Kitty Hawk unit
sold, Trulite estimates a customer will purchase 25 HydroCell cartridges every
year in the consumer market. Ongoing sales of replacement cartridges could
represent a continuous revenue stream resulting in the generation of profits
over the life of the Kitty Hawk unit.
Trulite
seeks to make its hydrogen source technology the de-facto standard in the
industry and, through the sale of its Kitty Hawk integrated power system
product, capture a significant percentage of the industrial and consumer markets
in which the Company intends to enter. The following are the main components
of
Trulite’s strategy.
Trulite
is focusing its initial efforts on two distinct markets:
Industrial
Remote Monitoring:
Specifically,
the pipeline and well head market for remote sensing and monitoring of operating
conditions in oil and gas fields. Characteristically, these fields tend to
be in
remote locations with harsh operating environments, making access difficult.
The
conventional power sources used to operate these facilities are solar panels
and
batteries. Solar panels turn sunlight into electricity that powers the batteries
which, in turn, operate the sensing and monitoring devices. However, there
are a
number of challenges with solar energy: if the weather is cloudy for three
days
or more, electricity can’t be generated to power the batteries, making
consistent and reliable monitoring of such facilities difficult, if not
impossible. Solar panels are also subject to a variety of abuses, from vandalism
to roaming animals knocking down the panels, rendering them inoperative. The
repair and maintenance of these facilities is time consuming and costly,
especially in remote environments. The impact of the lack of monitoring data
may
result in significant loss of revenue and potentially, may create an operational
hazard. Trulite seeks to penetrate this market for the following
reasons:
-
The
major oil producers have indicated an interest in replacing the common lead
acid
battery/solar panel combination due to high staffing requirements and operating
costs required to maintain conventional batteries and a lack of reliability,
especially in adverse weather conditions;
-
As the
price of crude oil remains high, formerly abandoned or plugged wells are coming
on-line thanks to smaller oil producers, thereby substantially increasing the
size of the total available market. It is even more important for these smaller
producers to address operational issues such as increased reliability and
reduced operating expenses;
-
We feel
this market segment represents one of our best opportunities to implement our
existing products (the HydroCell and the Kitty Hawk power system) and generate
near-term revenue; and
-
The
management team of Trulite has a deep knowledge of this segment, as well as
numerous industry relationships at the most senior levels of
management.
The
Company believes the HydroCell powered Kitty Hawk is less expensive than
comparable sources of energy on the market capable of producing 25 watts of
power for several hours. Based upon interviews with engineers from a major
energy company, as well as analysis developed by Trulite’s own engineers, the
power output of the Kitty Hawk system is capable of supporting typical user
applications in the pipeline and well head markets. Trulite is currently testing
a HydroCell capable of powering a Kitty Hawk system for seventy two continuous
hours. Product enhancements are planned to develop a HydroCell that is capable
of generating 10,000 watt hours of power which is equivalent to running a Kitty
Hawk unit for seven hundred and twenty contiguous hours.
Recreational
Off-Site Usage:
This
market segment is focused on high end recreational camping, including a very
specific niche target of environmentally conscious campers. Trulite seeks to
enter this market for the following reasons:
-
Belief
that environmentalism continues its rise and this segment of the market is
willing to pay a premium for environmentally friendly technology;
-
We hope
that entering this market will broaden the visibility of our products
(specifically, the Kitty Hawk power system) to the consumer market, which is
the
first step to entering the retail market space;
-
This
market segment will provide Trulite with a good test for product performance
(e.g., reliability, ease of use, new applications) as well as “new learnings”,
which will enable the Company to enhance and adapt its product offerings based
on consumer feedback; and
-
The
existing Trulite product has attributes ideally suited to this market segment:
compact, portable, significantly lighter than batteries, environmentally
friendly (water is the only by-product), high reliability, low maintenance,
ease
of use and long shelf life.
Trulite
has received numerous comments and feedback from the initial set of Kitty Hawk
users related to the performance, design and use of the product. The input
from
these initial customers was used to develop the product enhancement plan for
subsequent versions of the Kitty Hawk power system.
· |
Utilize
Strategic Relationships
|
Strategic
relationships are critical to Trulite for research, product development and
volume manufacturing. As used in this context, these relationships are
transactions with companies to perform specific activities on Trulite’s behalf
and for which Trulite does not have or may not want to develop the competencies
to accomplish these activities. In return, Trulite will offer activities or
provide competencies that are not available to the companies. It is expected
that these relationships will be dissolvable at any time and may be formed
for
the objective of entering a market or developing a technology. Trulite expects
to seek out relationships with companies for product design and product
development. As the Company enters into volume production, Trulite intends
to
seek out strategic relationships for manufacturing, distribution and logistics.
Trulite
currently does not intend to actively pursue markets other than as set forth
herein. However, if opportunities arise through strategic relationships with
companies specializing in non-competitive markets, we expect to carefully
evaluate the opportunity before making a final determination.
· |
Continuous
Technology and Product
Innovation
|
Trulite
is committed to continuous technology and product innovation as a means of
achieving and maintaining sustainable competitive advantage. Trulite’s research
and product development group in Utah is narrowly focused on new technology
innovation. The group’s responsibility is to create a portfolio of emerging
technologies specific to the hydrogen generation and fuel cell space. The senior
management team reviews the portfolio, and those projects which have the highest
likelihood of commercialization will be selected for the research agenda.
Quarterly milestones, as well as performance and test metrics, are established
to determine the viability of commercialization of the technology. If the test
criteria are met, the technology is transferred to the Company’s advanced
manufacturing team in Houston, Texas for product development and optimization.
Once
the
product is tested and optimized, it is turned over to the manufacturing team
for
volume production. The manufacturing team is responsible for continuous
innovation of the product’s performance, as well as design for manufacture.
Trulite’s goal is to enhance its existing product line every quarter and develop
at least one new product every fiscal year.
· |
Strong
Corporate Culture
|
Trulite
believes a strong corporate culture is the foundation for a successful, enduring
enterprise. There are two principles which have been imbedded in the culture
of
the Company since its inception:
-
Integrity
above reproach:
All
members of the Trulite team and its strategic relationships are committed to
conducting business in an ethical manner with its customers, suppliers,
partners, employees and the communities in which it operates. There is zero
tolerance for behavior at any level that does not adhere to this
principle.
-
Frugality:
Both
Trulite and its strategic relationships are committed to the prudent allocation
of resources. In every aspect of normal business activities, resource
allocations are carefully weighed before making a decision. Alternatives are
thoroughly discussed to determine if there is a better, more efficient option.
Trulite intends to make investments in technology and people in order to retain
and enhance its competitive position and return a fair profit to its
stakeholders.
(h)
Intellectual Property
We
have
filed two patent applications for the Hydrocell, and we make every effort to
protect our knowledge of our processes and procedures.
(i)
Competition
Trulite
has two products: the HydroCell, a hydrogen generation and storage product,
and
the Kitty Hawk power system, a commercially packaged, integrated, hydrogen
fuel
cell power system. Trulite’s Kitty Hawk power system is an integrated system
consisting of the HydroCell hydrogen generation and storage product; the fuel
cell which converts hydrogen into electricity; and the control technology,
which
controls the flow of hydrogen to the fuel cell.
Trulite
believes its HydroCell technology to be unique and offers significant advantages
over hydrogen generation technology offered by its competitors. The HydroCell
is
a lightweight, compact fuel cell system that, to the Company’s knowledge, when
combined with water recycling, produces more hydrogen for its size and weight
than any other hydrogen source currently available on the market.
Our
primary competition for hydrogen generation technology is
Millennium Cell, Inc. (MCEL). MCEL, a development stage company, develops
hydrogen batteries comprised of a fuel cell and hydrogen storage technology
for
use in portable electronic devices for the military, medical, industrial, and
consumer markets. MCEL utilizes a “wet” sodium hydride technology for the
generation of hydrogen. The fuel blends used in the hydrogen battery technology
are comprised of a combination of water, sodium borohydride, and other
chemicals. As compared to MCEL’s wet hydride technology, the HydroCell does not
lose energy density during long periods of storage (up to three years). We
believe there are technical limitations with respect to weight and shelf life
that limit MCEL’s ability to achieve higher levels of energy density.
Although
there are a number of competitors that provide fuel cell technologies, these
competitors do not offer a single vendor, integrated solution consisting of
the
hydrogen source, the control technology and the fuel cell. We believe Trulite’s
HydroCell and the Kitty Hawk integrated power system products have created
a
business model that gives Trulite a competitive advantage. We believe our
business model affords us the opportunity to sell the Kitty Hawk integrated
unit
in line with the price point of competing fuel cell products.
(j)
Employees
Trulite
currently has 12 full time employees, 11 of whom are involved in research and
development. The 12th
employee
is involved with the financial affairs of Trulite.
(k)
Reports to security holders.
(1)
The
Company files reports with the Securities and Exchange Commission (the “SEC”).
The Company is a reporting company and will comply with the requirements of
the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(2)
The
public may read and copy any materials the Company files with the SEC at
the
SEC's public reference section at Room 1580, 100 F Street N.E., Washington,
D.C.
20549. The public may obtain information on the operation of the public
reference section by calling the SEC at 1-800-SEC-0330. Additionally, the
SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, which can be found at http://www.sec.gov.
ITEM
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited financial statements for the twelve
months ended December 31, 2005 and the period from inception (July 15, 2004)
to
December 31, 2004, with their explanatory notes for the years included as part
of the Form 10SB.
Overview
Trulite
Technology, LC was created in May 2002 to develop a hydrogen fuel source
for
fuel cells. The intended applications were used by the military as a source
of
portable power and use by consumers as a source of recreational or back up
power. This entity was funded by grants from two governmental agencies to
conduct fuel cell research and development. In July 2004 Trulite Technology,
LC
merged with, and transferred all of its interests to the Company, then a
newly-formed Delaware corporation. In the fourth quarter of 2005, the Company
initiated production of demonstration products for sale to selected individuals.
The demonstration units were manufactured at the Company’s research facilities
in Utah.
The
Company, from inception (July 15, 2004) through December 31, 2004, had $1,750
in
sales and $16,667 in sales for the year ended December 31, 2005. The
revenue for both years was with a related party. We believe the main sources
of
initial revenue will be revenues from the oil and gas pipeline monitoring
market
and the high end recreational camping consumer market. Management anticipates
revenues to increase quarter over quarter during 2006 as our manufacturing
operation in Houston comes on line and the demand for our product increases.
The
Company, from inception (July 15, 2004) through December 31, 2004 had $1,750
in
sales and $16,667 in sales for the year ended December 31, 2005. The revenue
for
both years was with a related party. We believe the main sources of initial
revenue will be revenues from the oil and gas pipeline monitoring market
and the
high end recreational camping consumer market. Management anticipates an
increase in revenues in 2006 as additional demonstration units are provided
to
selected users. Management estimates that it will begin to have commercially
viable products resulting from the ongoing research and development and product
development by the fourth quarter of 2007. Research and development expenditures
will be made to further enhance the performance of the hydrogen fuel sources,
to
develop the electronics that control the process to generate electricity,
to
improve the performance of the fuel cells and other components, to increase
the
electrical output of the products, and to test the performance and reliability
of the products. Management estimates it will spend approximately $1.8MM
in
research and development in 2006 and $1.0MM in 2007 prior to having the first
products commercially available. The Company will have ongoing research and
development and product development expenditures for the foreseeable future
as
products are developed for new applications and markets. The manufacturing
operation in Houston is expected to be operational by the second quarter
of
2007. The timing, amount and success of the research and development and
manufacturing estimates are dependent on a number of factors that are difficult
to project, including but not limited to the availability of qualified people,
the success of the technologies under development, the cost to implement
technologies, the cost of the product, the requirements of the marketplace,
regulatory requirements, the availability of funds, and other factors.
Selected
statements of operating data for the twelve months ended December 31, 2005,
2004
and the three months ended March 31, 2006 and 2005
Please
see the audited Financial Statements of the Company for the year ended December
31, 2005 set forth on Pages F-14 - F-32.
|
|
(Audited)
December
31,
2005
|
|
(Audited)
December
31,
2004
|
|
(Unaudited)
Three
Months
Ended
March
31,
2006
|
|
(Unaudited)
Three
Months
Ended
March
31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
16,667
|
|
$
|
1,750
|
|
$
|
8,333
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
12,216
|
|
|
650
|
|
|
5,912
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
MARGIN
|
|
|
4,451
|
|
|
1,100
|
|
|
2,421
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
410,958
|
|
|
713,109
|
|
|
148,546
|
|
|
74,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,823
|
|
|
1,140
|
|
|
2,720
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
412,877
|
|
|
164,873
|
|
|
230,801
|
|
|
101,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
830,658
|
|
|
879,122
|
|
|
382,067
|
|
|
177,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(826,207
|
)
|
|
(878,022
|
)
|
|
(379,646
|
)
|
|
(177,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(663
|
)
|
|
-
|
|
|
(59
|
)
|
|
-
|
|
Interest
income
|
|
|
5,329
|
|
|
-
|
|
|
471
|
|
|
-
|
|
Other
|
|
|
(4,411
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
255
|
|
|
-
|
|
|
412
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(825,952
|
)
|
|
(878,022
|
)
|
|
(379,234
|
)
|
|
(177,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(825,952
|
)
|
$
|
(878,022
|
)
|
$
|
(379,234
|
)
|
$
|
(177,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED
DIVIDENDS
|
|
|
(84,074
|
)
|
|
(6,624
|
)
|
|
(29,095
|
)
|
|
(9,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHAREHOLDERS
|
|
$
|
(910,026
|
)
|
$
|
(884,646
|
)
|
$
|
(408,329
|
)
|
$
|
(186,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.25
|
)
|
$
|
(0.28
|
)
|
$
|
(0.11
|
)
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.25
|
)
|
$
|
(0.28
|
)
|
$
|
(0.11
|
)
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,606,195
|
|
|
3,157,001
|
|
|
3,631,500
|
|
|
3,530,280
|
|
Diluted
|
|
|
3,606,195
|
|
|
3,157,001
|
|
|
3,631,500
|
|
|
3,530,280
|
|
Revenues
and Gross Margins
Revenue
for the twelve month period ended December 31, 2005 was $16,667, as compared
to
$1,750 for the period from July 15, 2004 (inception) through December 31, 2004.
Gross margin for the twelve month period ended December 31, 2005 was $4,451
as
compared to a gross margin of $1,100 for the period July 15, 2004 (inception)
through December 31, 2004. During these periods, the Company was a research
and
development company. In the fourth quarter of 2005, the Company began low volume
production of its demonstration products.
Total
revenues were $8,333 for the three month period ending March 31, 2006 compared
to no revenue for the corresponding period ended March 31, 2005. The increase
was due to a research contract the Company obtained in 2005. The contract ended
on January 31, 2006.
Operating
Expenses
Expenses
from operations were $830,658 for the twelve months ended December 31,
2005. This compares to operating expenses of $879,122 for the period July
15, 2004 (inception) through December 31, 2004. This is an overall decrease
of
6%. Operating expenses consisted of research and development, depreciation,
and
general and administrative expenses. Research and development expenses decreased
to $410,958 for the twelve months ended December 31, 2005 compared to $713,109
for the five and one half month period from July 15, 2004 (inception) through
December 3l, 2004. The overall decrease of 42% was mainly due to the research
and development costs that occurred from the business combination on July 22,
2004, which resulted in a one time expense of $606,098. The decrease was offset
by higher research and development costs and the longer period of twelve months
for 2005 as compared to five and one half months for 2004. Depreciation
increased 500% from 2005 as compared to 2004 and this is mainly attributed
to
the longer time period of operations in that 2005 was twelve months and 2004
was
five and one half months and the purchase of additional equipment. For the
twelve months ended December 31, 2005, general and administrative expenses
increased to $412,877 from $164,873 as compared to the five and one half month
period from July 15, 2004 (inception) through December 31, 2004. The overall
increase of 154% is attributed to the longer time period and the increase cost
of audits and legal fees of $122,434 for the purpose of going
public.
Operating expenses from operations was $382,067 for the three months ended
March
31, 2006 as compared to $177,346 for the same period in 2005. This is an overall
increase of 46%. Operating expenses consisted of research and development,
depreciation and general and administrative expense. Research and development
increased to $148,546 for the three months ended March 31, 2006 as compared
to
$74,915 for the three months ended March 31, 2005 which is a 50% increase.
The
increase was due to increased research and development activities. Depreciation
increased from $2,720 for the three month period ending March 31, 2006, as
compared to $891 for the same period in 2005. The increase was due to additional
equipment purchased for research and development. For the three months ended
March 31, 2006, general and administrative expenses increased to $230,801 from
$101,540 for the three months ended March 31, 2005. The $129,261 or 127%
increase was due to the purchase of directors and officers insurance, the hiring
of a chief financial officer and the increased legal and accounting fees
associated with a public offering.
Loss
from
Operations
Losses
from operations were $825,952 for the twelve months ended December 31, 2005
as
compared to operating losses of $878,022 for the period July 15, 2004
(inception) through December 31, 2004. This
is a
6% decrease for the twelve months ending December 31, 2005 as compared to the
five and half months from July 15, 2004 (inception) through December 31, 2004.
The decrease was due to decreases in operating expenses.
Loss
from
operations were $379,646 for the three months ended March 31, 2006 as compared
to operating losses of $177,346 for the three months ended March 31, 2005.
This
increase of 114% was due mainly to the increases in operating
expenses.
Other
Income and Expense
Other
income and expenses for the twelve months ended December 31, 2005 totaled $255,
as compared to $0 for the period from July 15, 2004 (inception) through December
31, 2004. This increase was due to the Company’s investing part of its proceeds
of approximately $950,000 raised from a private placement of its preferred
stock
in a savings account at a local bank.
Other
income and expenses for the three months ended March 31, 2006 totaled $412,
as
compared to $0 for the three months ended March 31, 2005. This increase was
due
to the Company’s investing part of its June 2005 proceeds of a private placement
of its preferred stock in a savings account at a local bank.
Net
Loss
Net
loss
for the twelve months ended December 31, 2005 was $825,952, as compared to
$878,022 for the period from July 15, 2004 (inception) through December 31,
2004. The loss decreased due to increased activity in research and development
purchase of an insurance policy, hiring of a chief financial officer and the
costs of a public offering.
Net
loss
for the three months ended March 31, 2006 was $379,234, as compared to $177,346
for the three months ended March 31, 2005 due to increased activity in research
and development purchase of an insurance policy, hiring of a chief financial
officer and the costs of a public offering.
To
date,
we have financed operations through the private placement of equity securities.
In June 2005, we raised $750,000 through a private placement of 934,725 shares
of preferred stock. The Company has since had another private placement of
equity securities in April 2006 in which we raised $1,000,000 through a private
placement of 1,000,000 shares of common stock and an equal amount of warrants.
We have not employed any significant leverage of debt. However, there can be
no
assurance we will not undertake debt obligations in the future in order to
finance our operations.
Historical
Sources of Cash
During
the period from July 15, 2004 (inception) though December 31, 2004, the Company
financed its operations principally through the sale of an aggregate of $300,000
worth of preferred stock, with $100,000 of such preferred stock sold in July,
2004 and $200,000 sold in November, 2004. The Company, for the year ended
December 31, 2005, financed its operations through the sale of an aggregate
of
$950,000 of preferred stock, with $200,000 of such stock sold in February 2005
and the balance of $750,000 in June 2005 along with sales of three Kitty Hawk
units. The Company had another private placement in April 2006 and raised
$1,000,000 through the sale of 1,000,000 shares of common stock and 1,000,000
warrants.
Cash
position and sources and uses of cash
Our
cash
position at December 31, 2005 was $235,982, as compared to $126,465 at December
31, 2004.
Our
operating activities in 2005 used cash in the amount of $810,732 as compared
to
the period July 15, 2004 (inception) to December 31, 2004 of $168,741. Cash
used
in operating activities for the twelve month period ended December 31, 2005
and
for this five and half month period in 2004 reflected a net loss of $825,952
and
$878,022 respectively. The Company had $29,751 and $4,794 of cash out flows
used
in investing activities from the purchase of property and equipment for the
year
ended 2005 and 2004 respectively. The Company had cash flows from financing
activities of $950,000 and $300,000 from issuances of preferred stock as set
forth in the year 2005 and 2004 respectively.
Our
cash
position at March 31, 2006 was $36,013, as compared to $147,288 at March 31,
2005.
Our
operating activities for the three months ended March 31, 2006 used cash in
the
amount of $199,969 as compared to the three months ended March 31, 2005 of
$172,806. Cash used in operating activities for the three month period ending
March 31, 2006 and March 31, 2005 reflected a net loss of $379,234 and $177,346
respectively. The Company had $0 and $6,371 of cash out flows used in investing
activities from the purchase of property and equipment for the three months
ended March 31, 2006 and 2005 respectively. The Company had cash flows from
financing activities of $0 and $200,000 from issuances of preferred stock as
set
forth herein the three months ended March 31, 2006 and 2005,
respectively.
Capital
Resources Going Forward
The
Company had $126,465 at December 31, 2004, and $235,982 in cash and cash
equivalents at December 31, 2005. Our intended plan of operations for the twelve
month period beginning January 1, 2006 is to manufacture, sell and distribute
our product, and to continue to develop our product. In the past, the Company
primarily used funds derived from the private placement of its securities to
fund its operations.
The
Company had $36,013 at March 31, 2006, and $147,288 in cash and cash equivalents
at March 31, 2005. Our intended plan of operations for the twelve month period
beginning January 1, 2006 is to manufacture, sell and distribute our product
in
2006, and to continue to develop our product. In the past, the Company primarily
used funds derived from the private placement of its securities to fund its
operations.
Cash
on
hand as of March 31, 2006 and cash generated by operations in conjunction with
our working capital will not be sufficient to continue our business for the
next
twelve months. We continually review our overall capital and funding needs,
taking into account current business needs, as well as the Company’s future
goals and requirements. Based on our business strategy, we believe we will
need
to increase our net capital and that the best way to do this is through the
sale
of additional securities.
Should
our costs and expenses prove to be greater than we currently anticipate, or
should we change our current business plan in a manner that will increase or
accelerate our anticipated costs and expenses, the depletion of our working
capital would be accelerated. To the extent it becomes necessary to raise
additional cash in the future as our cash on hand and working capital resources
are depleted, we intend to raise additional capital through the sale of
additional equity securities, public or private sale of debt or equity
securities, debt financing or short term loans, or a combination of these
options. We may also seek to satisfy indebtedness through the private issuance
of debt or other securities. We currently do not have a binding commitment
for,
or readily available sources of, additional financing. We cannot give any
assurance that we will be able to secure the additional cash or working capital
that we may require to continue our operations under such circumstances or
that
it will be on terms that would not hinder our ability to execute our business
strategy.
Our
anticipated costs are estimates based upon our current business plan. Our actual
costs could vary materially from these estimates. Further, we could change
our
current business plans, which may also result in a change in our anticipated
costs.
Off
Balance Sheet Arrangements
There
are
no guarantees, commitments, lease and debt agreements or other agreements that
would trigger adverse changes in our credit rating, earnings, or cash flows,
including requirements to perform under stand by agreements.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations
are
based upon our financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the United State of
America.
On
an
ongoing basis, we evaluate our estimates and impairment of long lived assets.
We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates, including those for the above described items
are
reasonable.
Our
accounting policies are more fully described in Note B - Summary of Significant
Accounting Policies in our financial statements. As disclosed in Note B the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination
of
estimates requires the exercise of judgment. Actual results will inevitably
differ from those estimates, and such differences may be material to the
financial statements.
At
this
stage of our development, we believe that of our significant accounting polices,
the following may involve a higher degree of judgment, estimation or complexity
than other accounting policies.
Impairment
of Long Lived Assets
The
Company reviews the recoverability of its long-lived assets, such as property
and equipment, when events or changes in circumstances occur that indicate
the
carrying value of the asset or asset group may not be recoverable. The
assessment of possible impairment is based on the Company’s ability to recover
the carrying value of the asset or asset group from the expected future pre-tax
cash flows (undiscounted) of the related operations. If these cash flows are
less than the carrying value of such asset, an impairment loss is recognized
for
the difference between estimated fair value and carrying value.
Revenue
Recognition
Although
at this stage in our development we have had no significant revenues, we
consider revenue recognition a critical accounting policy as it affects timing
of earnings recognition. We recognize revenues on delivery and to date our
operations have not involved any uncertainty of accounting treatment, subjective
judgment or estimates over revenue recognition.
Being
a
new company we are unable to comment on the accuracy of any prior estimates
or
assumptions, however, we believe that our estimates are based on reasonable
judgment.
RISK
FACTORS
An
investment in the Company is highly speculative in nature and involves an
extremely high degree of risk. If any of the events, contingencies,
circumstances or conditions described in this risk factors section actually
occurs, our business, financial condition or results of operations could be
seriously harmed.
Our
business is difficult to evaluate because we are a development stage
company.
The Company is a development stage company that was formed in July 2004 to
further the research and development of fuel source and fuel cell systems.
To
date, we have manufactured and marketed only twenty-five Kitty Hawk integrated
power systems to selected customers. The Kitty Hawk products were delivered
to a
selected customer in February and March, 2006. Accordingly, there is only
a
limited basis upon which you can evaluate our business and prospects. An
investor in our Company should consider the challenges, expenses and
difficulties we will face as a development stage company seeking to develop
and
manufacture a new product in a relatively new market.
Our
independent registered public accounting firm has expressed substantial doubt
about our ability to continue as a going concern.
We
received an audit report from our independent registered accounting firm
containing an explanatory paragraph expressing substantial doubt about our
ability to continue as a going concern. The
Company has no significant operating history as of December 31, 2005, and
since
inception, the Company has not had significant revenues. Management raised
additional equity financing to fund operations and to provide additional
working
capital. However, there is no assurance that such financing will be in amounts
sufficient to meet the Company’s needs.
These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern.
We
expect to have a need for additional capital as we continue to execute our
business plan.
To
achieve and maintain competitiveness and continue our growth, we expect to
raise
substantial funds. Our forecasts for the period for which our financial
resources will be adequate to support our operations involves risks and
uncertanties and actual results could fail as a result of a number of factors.
We anticipate the need to raise additional capital to develop, promote and
distribute our product. Such additional funding may be raised through public
or
private equity or debt financings. Additional funding may not be available
under
favorable terms, if at all. If adequate funds are not available, we may be
required to curtail operations significantly or to obtain funds on terms not
as
favorable as we would hope. Trulite hopes to raise an additional $10 million
in
funding. It is anticipated that Trulite will need to raise an additional $5
million in funds by the end of the third quarter of 2006 and an additional
$5
million in funds by the end of the second quarter of 2007. These funds will
be
required for recruiting and hiring additional technical staff, purchasing
materials for the manufacture of Kitty Hawk 3X and Kitty Hawk 4 units, labor
costs associated with manufacturing, and for product development and
enhancements to the Kitty Hawk product line.
Technological
changes could force us to drastically alter our business
plan.
The
quest
for alternate energy sources is being undertaken by numerous governments,
corporations, univeristies and other institutions and individuals throughout
the
world. Many of these participants have far greater experience and resources
than
Trulite and have been engaged in these activities for a longer period of time.
In the event that commerical ready applications for alternative energy sources
similar in nature to ours are introduced into the marketplace, we may be forced
to alter our business plan. This can be expected to be costly and cause
substantial delays in, or prevent us entirely from, realizing our objectives.
The
Company must demonstrate value and reliability in order to gain consumer
acceptance.
The
cost
of our fuel cell system is more than that of existing and competing energy
providers. If we are unable to reduce our manufacturing and materials costs
to
produce products that are more cost effective and reliable than those of our
competitors, consumers may be unlikely to purchase our products. The price
of
our fuel cell system depends, in large part, on material and manufacturing
costs. We cannot guarantee we will be able to lower these costs without
affecting the reliability and performance of our product.
The
Company has limited experience manufacturing or selling fuel cells and fuel
cell
systems.
The
Company has limited experience in producing, marketing or selling any products
or services on a commercial basis. To date, we have focused primarily on
research and development and have only limited experience manufacturing fuel
cells or fuel source systems on a large volume, commercial basis. We believe
in
order to make our products profitable we would have to produce our products
through a high volume automated process. We do not know whether or when we
would
be able to develop efficient, automated, low-cost manufacturing capabilities.
Even if we are successful in developing such capabilities, we cannot ensure
we
will do so in time to meet our product commercialization schedule or to satisfy
the requirements of our customers or shareholders.
We
expect that some of our fuel source products will only be commercially viable
as
a component of other companies’ products, and these companies may choose not to
include our fuel source system in their products.
Certain
of our fuel source products must be integrated into products manufactured by
OEM’s. We cannot guarantee that OEMs will manufacture these products. If they
manufacture such products, no assurances can be given whether they will choose
to incorporate our products or that such integration will be on financial and
other business terms acceptable or profitable to us. In addition, any
integration, design, marketing, manufacturing or other problems encountered
by
an OEM could adversely affect the market for our products, and we would have
no
ability to control the response to such problems.
We
will need to rely on third parties for the proper execution of our business
strategy.
Strategic
relationships are critical to Trulite for research, product development and
volume manufacturing. Trulite will seek out strategic relationships for product
design and development. As the Company enters into volume production, Trulite
will seek out strategic relationships for manufacturing, distribution and
logistics.
Outsourcing
is expected to happen in phases. First, Trulite will work with raw material
and
individual component manufacturing. The Company will control all the
development, manufacturing and quality internally for the initial small volume
ramp up to 1,000 HydroCell cartridges per month. During this time, the Company
will seek to develop relationships with suppliers, which will enable the Company
to move some subassemblies out to them and automate the core technology
in-house. These relationships will continue to be built as market demand
increases. The second phase of outsourcing will begin once volume demand
approaches 1,500 cartridges per month. This volume is expected to trigger the
beginning of a shift to a final assembly and test facility in Houston, Texas.
The
Company does not believe it should have difficulty obtaining contractors for
any
of this work or to supplement or replace existing contractors if any of those
relationships were to be insufficient or terminate, or if the sales volume
were
such that the Company needed additional contractors to support the increases
in
sales volume. No assurance can be given that a suitable contractor can be found
or that once found, it will consistently meet the Company’s demands with regard
to timing or quality. It is possible, however, that difficulties in
supplementing or replacing current contractors could develop in the future
because of factors which the Company cannot predict at this time, creating
a
potential material adverse effect on the Company. The availability of raw
materials may have a material adverse effect on the Company’s results of
operations. Because the Company uses only the highest quality components, any
restriction on the availability or use of such raw materials, whether as the
result of a reduction in supply, through natural disaster or environmental
restrictions, could have a material adverse effect on the business, financial
condition and results of operations of the Company.
Although
the Company believes it has established a close relationship with its principal
manufacturers and distributors, its future success may depend on its ability
to
maintain these relationships and establish new ones as the Company increases
its
sales volume and geographic customer base. If relationships with current
manufacturers and distributors were to be interrupted for any reason, it may
be
difficult for the Company to locate other sources with similar or greater
production and distribution capacity, which could have a material adverse effect
on the Company’s business, financial condition and results of operations.
Furthermore, the establishment of new manufacturing and distribution
relationships involves numerous uncertainties including costs, terms of payment
and timeliness of delivery, all of which such terms and conditions may be
unsatisfactory to the Company and could result in additional costs to the
Company.
We
may not receive the assets and other technology as a result of the anticipated
dissolution of Synexus.
As
set
forth elsewhere herein, Synexus is expected to dissolve in the near future
and
its equipment is expected to be transferred to CCP. CCP
is
then expected to transfer the equipment to Trulite. In
the
event CCP does not receive the equipment from
Synexus or
CCP
does not transfer the equipment to us, as anticipated, our costs of operations
and future business prospects will be materially and adversely affected as
we
will need to find another source for fuel cell stack technology or undertake
to
develop such technology on our own. In the event CCP or Trulite receives such
equipment, CCP or Trulite may be subject to claims from creditors of Synexus
or
other third parties having relationships with Synexus, which could prevent
or
delay CCP’s transfer of the equipment to us or materially subject us to a risk
of litigation or otherwise materially adversely affect our future business
prospects.
We
may be unable to raise additional capital to pursue our commercialization
strategy.
Our
product development and commercialization schedule may be delayed if we are
unable to properly fund the Company and execute our business plan. We do not
know whether we will be able to secure additional funding or funding on terms
that are acceptable to us.
If
additional capital is raised through the issuance of stock, stockholders’
ownership interest may be diluted.
One
of
the factors which generally affect the market price of publicly traded equity
securities is the number of shares outstanding in relationship to assets, net
worth, earnings or anticipated earnings. If a public market develops for the
Company’s shares, or if the Company determines to register for sale to the
public those shares of Common Stock granted in any business combination, a
material amount of dilution can be expected to cause the market price of our
Common Stock to decline. Furthermore, the public perception of future dilution
can have the same effect even if the actual dilution does not
occur.
In
order
for us to obtain additional capital, we may find it necessary to issue
securities conveying rights senior to those of the holders of Common Stock.
Those rights may include voting rights, liquidation preferences and conversion
rights. To the extent we convey senior rights, the value of our Common Stock
can
be expected to decline.
If
we incur indebtedness, we may become too highly leveraged and would be in risk
of default.
There
is
no contractual or regulatory limit to the amount of debt we can take on,
although we intend to follow a conservative debt policy. If our policy were
to
change or be eliminated due to unforeseen circumstances, we could become more
highly leveraged, which could adversely affect our ability to meet our
obligations and we would then be in risk of default, which could have a material
adverse effect on our financial condition, results of operations, business
prospects and long term future viability.
A
large scale consumer market for our products may never develop or take longer
to
develop than we anticipate.
A
large
scale consumer market for our products may never develop or may develop more
slowly than we anticipate. Fuel cell technology is an emerging market, and
we
are unsure whether there will ever be popular demand for such products. The
development of a large scale market may be affected by many factors, some of
which are beyond our control, including:
- |
the
competitive cost of fuel cell systems,
|
- |
the
emergence of newer and more competitive
technology,
|
- |
the
future cost of raw materials,
|
- |
regulatory
requirements,
|
- |
consumer
perceptions regarding the safety of our product,
and
|
- |
consumer
reluctance to try new products and technologies.
|
If
a
large-scale consumer market fails to develop or develops more slowly than we
anticipate, we may be unable to recover losses incurred in the development
of
our products.
Changes
in environmental policies could hurt the market for our products and deter
potential investors.
Although
many governments have made the development of alternative energy sources, fuel
cells in particular, a priority, we cannot assure you these governments will
not
change their environmental policies or that any change would not negatively
affect our business. Research for alternative energy is influenced by government
regulations and policies concerning energy research or conservation. Depending
on the nature of the government regulations, it could be easier and more cost
efficient, or more difficult and costly, to raise funds, conduct research,
manufacture, market or sell our products in a given country. Government
regulations may also impose more stringent requirements for the transport of
the
hydrogen fuel source, thereby increasing the costs of distribution.
Changes
in governmental regulation could hurt the market for our products and negatively
affect our ability to attract potential consumers.
The
energy industry is influenced by state and federal regulations and policies.
Any
change in the present policies could affect additional investment in alternative
forms of energy and decrease demand for our products.
Fuel
cell
technology may be subject to future governmental regulation which could affect
the market for our product. As our products are introduced to the market, we
may
be subject to additional laws and regulations. We do not know the extent to
which this will affect our ability to distribute our products. In addition,
any
future regulation may increase our production costs and the cost of our final
product.
We
currently face and continue to face significant competition.
Our
products, the HydroCell hydrogen generation system and the Kitty Hawk integrated
power system are expected to face significant competition. Many companies with
substantially greater resources are developing similar hydride hydrogen
generation technologies and are enhancing their fuel cell technologies. We
cannot assure that customers will use Trulite products in lieu of competitor’s
product offerings in the target markets we have identified. Further,
the development of new technology may affect the popularity and profitability
of
our products or render our products obsolete.
We
depend on our intellectual property, and our failure to protect that technology
could adversely affect our future success.
We
rely
on our two patent applications to protect our intellectual property.
Additionally, we make every effort to protect our knowledge of our processes
and
procedures. Failure to protect our existing intellectual property could cause
the loss of our exclusivity or the right to use the technology we developed.
If
we do not adequately protect our intellectual property rights, we may have
to
pay others for the right to use their technology.
We
could
face litigation regarding the legitimacy of our patents, and we cannot ensure
that we will be successful in such suits. These suits may result in the
invalidation of our patent rights or the licensing of these rights to
others.
We
protect our proprietary intellectual property, including intellectual property
that may not be patented, through the use of confidentiality agreements. We
cannot assure you that these agreements will not be breached or that we will
have an adequate remedy in the event that they are breached.
The
Company may be unable to attract or retain key personnel, which would adversely
affect our operations.
Our
management team consists of several scientists, and we also employ engineers
and
researchers to help develop our products. Our future success depends on our
ability to attract and retain a highly skilled workforce, consisting of
scientists, engineers, researchers and marketing professionals. We cannot
assure
you we will be able to attract and retain such personnel. Our inability to
do so
could negatively impact our success.
On
March
24, 2006, Dr. Kevin Shurtleff, the Company’s founder, resigned as a member of
the Company’s Board of Directors and as an officer of the Company to pursue
other interests and opportunities in areas not related to hydrogen fuel source
and fuel cell technology. Dr. Shurtleff agreed to continue to work for the
Company on a part-time basis for twenty hours per week to assist the Company
in
developing its control program technology and to transfer his knowledge of
its
hydrogen source technology.
We
believe we have taken due care and diligence to capture all intellectual
property developed by Dr. Shurtleff during his tenure with Trulite, Inc.
and
have taken other measures to ensure the Company’s progress in the area of
hydrogen fuel source development will not be impeded if Dr. Shurtleff leaves
its
employ. A technical resource has been dedicated to working with Dr. Shurtleff
for the past two years on the hydrogen source product development. This
individual is fully competent to continue the product development if Dr.
Shurtleff is no longer with the Company. The Company also plans to hire a
part
time chemist to assist in the capture of the hydrogen fuel source technology
as
well as product development.
We
believe the measures taken to ensure the capture of all intellectual property
and the competencies of the current staff will not impact the continuation
of
product development of the hydrogen fuel source or compromise the Company’s
ability to continue product development in the hydrogen fuel source area
in the
future. However, there can be no assurances that we will not be impacted
by Dr.
Shurtleff’s resignation as director and officer or his possible future departure
from the Company.
There
is currently no trading market for our Common Stock.
Outstanding
shares of Common Stock cannot be offered, sold, pledged or otherwise transferred
unless subsequently registered pursuant to, or exempt from registration under,
the Securities Act of 1933, as amended (the “Securities Act”) and any other
applicable federal or state securities laws or regulations. These restrictions
will limit the ability of our stockholders to liquidate their investment.
Authorization
of Preferred Stock
Our
Certificate of Incorporation authorizes the issuance of up to 1,500,000 shares
of preferred stock with designations, rights and preferences determined from
time to time by our Board of Directors. Accordingly, our Board of Directors
is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the
voting power or other rights of the holders of the Common Stock. As of December
31, 2005, there were 1,454,725 outstanding shares of Preferred Stock. All of
the
preferred is Series A 8% Cumulative Convertible Preferred Stock, par value
$0.0001 per share. On May 2, 2006, all holders of these shares converted them
to
shares of Common Stock. If additional shares of Series A 8% Cumulative
Convertible Preferred Stock are issued, such shares could affect the rights
of
holders of our Common Stock.
Forward-looking
statements should not be relied on because they are inherently
uncertain.
This
registration statement contains forward-looking statements and information
relating to us, our industry and to other businesses. These forward-looking
statements are based on the beliefs of our management, as well as assumptions
made by and information currently available to our management. When used in
this
prospectus, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. These statements reflect our current views with respect to future
events and are subject to risks and uncertainties that may cause our actual
results to differ materially from those contemplated in our forward-looking
statements. We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus. We do not
undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
of
this prospectus or to reflect the occurrence of unanticipated
events.
ITEM
3.
DESCRIPTION OF PROPERTY.
The
Company leases space in Bluffdale, Utah. The facility serves as Trulite’s
research, product development and manufacturing center. The facility encompasses
approximately 5,500 square feet rented by the Company at a monthly rate of
$1,350 for a total lease commitment in 2006 of $6,750. The lease expired on
May
31, 2006. We renewed the lease for nine months, and the extension expires on
February 28, 2007. The Company has no other leases.
ITEM
4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) |
Security
ownership of certain beneficial
owners.
|
The
following table sets forth, as of the date of this Registration Statement,
the
number of shares of Common Stock owned of record and beneficially by executive
officers and directors, and persons who hold 5% or more of the outstanding
Common Stock, of the Company. Also included are the shares held by all executive
officers and directors as a group.
Name
and Address
|
|
Amount
and Nature of Beneficial Ownership
|
|
Percentage
of Class
|
|
|
|
|
|
|
|
|
|
Kevin
Shurtleff (a)
14807
South Heritagecrest Way, Suite A
Bluffdale,
UT 84065
|
|
|
2,734,763
(b
|
)
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
Andrew
Nielson
14807
South Heritagecrest Way, Suite A
Bluffdale,
UT 84065
|
|
|
1,120,745
(c
|
)
|
|
9.51
|
%
|
|
|
|
|
|
|
|
|
Eric
Ladd
4987
West Woodbend Road
West
Jordan, UT 84084
|
|
|
648,794
(d
|
)
|
|
5.22
|
%
|
|
|
|
|
|
|
|
|
John
Berger (e)
Three
Riverway
Suite
1700
Houston,
TX 77056
|
|
|
1,489,206
(f
|
)
|
|
11.86
|
%
|
|
|
|
|
|
|
|
|
Contango
Capital Partners, L.P. (g)
Three
Riverway
Suite
1700
Houston,
TX 77056
|
|
|
768,778
(h
|
)
|
|
6.12
|
%
|
|
|
|
|
|
|
|
|
John
Sifonis (i)
P.O.
Box 201887
Arlington,
TX 76006-1887
|
|
|
46,113
(j
|
)
|
|
0.39
|
%
|
|
|
|
|
|
|
|
|
General
Randolph House (k)
Three
Riverway
Suite
1700
Houston,
TX 77056
|
|
|
3,423
(l
|
)
|
|
0.03
|
%
|
|
|
|
|
|
|
|
|
James
A. Longaker (m)
2002
Woodland Valley Drive
Kingwood,
TX 77339
|
|
|
3,700
(n
|
)
|
|
0.03
|
%
|
|
|
|
|
|
|
|
|
Eric
Melvin (o)
Three
Riverway
Suite
1700
Houston,
TX 77056
|
|
|
0
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Thomas
F. Samson (p)
1307
Barrington Drive
Coppell,
TX 75019
|
|
|
0
|
|
|
--
|
|
|
|
|
|
|
|
|
|
William
Flores (q)
25
Beacon Hill
Sugar
Land, TX 77479
|
|
|
433,402
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
Contango
Venture Capital Corporation (r)
3700
Buffalo Speedway, Suite 960
Houston,
TX 77098
|
|
|
2,001,014
|
|
|
16.98
|
%
|
|
|
|
|
|
|
|
|
Richard
Hoesterey (s)
7852
La Cosa Drive
Dallas,
TX 75248
|
|
|
0
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Gerald
Sullivan
2
Colony Park Drive
Galveston,
TX 77551
|
|
|
815,879
|
|
|
6.92
|
%
|
|
|
|
|
|
|
|
|
All
Directors and Officers as a Group (8 individuals)
|
|
|
1,975,844
|
|
|
15.67
|
%
|
(a) |
Dr.
Shurtleff resigned from his position as member of the Board of Directors
and Vice President of Technology on March 24, 2006. Dr. Shurtleff
continues to work for Trulite as an
employee.
|
(b) |
Represents
2,035,460 shares of Common Stock and options to purchase up to 699,303
shares of Common Stock at a price of $.88 per share, which such options
vest on April 10, 2006.
|
(c) |
Effective
March 2, 2005, Mr. Nielson gave an option to Eric Ladd to purchase
up to
473,968 shares of his Common Stock for an aggregate purchase price
of
$48,000, exercisable at any time.
|
(d) |
Represents
options to purchase 174,826 shares of Common Stock from the Company
and a
currently exercisable option to purchase up to 473,968 shares of
Common
Stock from Andrew Nielson for an aggregate purchase price of $48,000.
This
option to purchase Mr. Nielson’s Common Stock expires March 2, 2014.
|
(e) |
Mr.
Berger is the Chairman of the Board of Directors of Trulite and the
managing partner of CCP.
|
(f) |
Represents
720,428 shares of Common Stock Mr. Berger owns in his individual
name and
warrants to purchase 592,500 shares of Common Stock and options to
purchase 176,278 shares of Common Stock owned by CCP. Although he does not
have sole dispositive power over the warrants and options owned by
CCP, he
may be deemed to be the beneficial owner thereof.
|
(g) |
The
general partners of CCP are John Berger, Kenneth R. Peak, Todd Sullivan,
Gerald Sullivan, Eric Melvin and John D.
White.
|
(h) |
Represents
options to purchase up to 176,278 shares of Common Stock at a price
of
$.88 per share, which such options vest on April 10, 2006, and warrants
to
purchase 592,500 shares of Common Stock at a strike price of $1.50
per
share.
|
(i) |
Mr.
Sifonis is the President and a director of
Trulite.
|
(j) |
Represents
options to purchase up to 46,113 shares of Common Stock at a price
of $.88
per share, which such options vest on April 11,
2006.
|
(k) |
General
House is a director of Trulite.
|
(l) |
Represents
options to purchase up to 3,423 shares of Common Stock at a price
of $.88
per share, which such options vest on April 11,
2006.
|
(m) |
Mr.
Longaker is the Chief Financial Officer and Secretary of Trulite.
|
(n) |
Represents
options to purchase up to 3,700 shares of Common Stock at a price
of $.88
per share, which such options vest on July 15,
2006.
|
(o) |
Mr.
Melvin is a director of Trulite.
|
(p) |
Mr.
Samson is a director of Trulite.
|
(q) |
Mr.
Flores is a director of Trulite.
|
(r) |
Contango
Venture Capital Corporation, LLC is owned by Contango Oil & Gas
Company, which is managed by Kenneth R. Peak, Lesia Bautina, Sergio
Castro
and Marc Duncan. The Board of Directors of Contango Oil & Gas Company
includes Kenneth R. Peak, Jay D. Brehmer, Darrell W. Williams, Charles
M.
Reimer and Steven L. Schoonover.
|
(s) |
Mr.
Hoesterey was appointed to the Company’s Board of Directors on May 5,
2006.
|
ITEM
5.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a)
Identification of Directors and Executive Officers.
A.
Identification of Directors and Executive Officers. The current officers and
directors will serve for one year or until their respective successors are
elected and qualified. They are:
Name
|
|
Age
|
|
Position
|
John
Sifonis
|
|
65
|
|
President
and Director
|
|
|
|
|
|
James
A. Longaker
|
|
60
|
|
Chief
Financial Officer and Secretary
|
|
|
|
|
|
John
Berger
|
|
32
|
|
Chairman
of the Board of Directors
|
|
|
|
|
|
William
Flores
|
|
52
|
|
Director
|
|
|
|
|
|
Richard
Hoesterey
|
|
63
|
|
Director
|
|
|
|
|
|
General
Randolph House
|
|
59
|
|
Director
|
|
|
|
|
|
Eric
Melvin
|
|
40
|
|
Director
|
|
|
|
|
|
Thomas
Samson
|
|
65
|
|
Director
|
John
Sifonis, President and Director.
John
Sifonis joined Trulite in 2004. Prior to joining the Company, from July, 1998
to
October, 2004 Mr. Sifonis was the Managing Director of the Internet Business
Solutions Group at Cisco Systems, Inc. Prior to joining Cisco Systems, Inc.,
from December, 1991 to July, 1998, Mr. Sifonis was the Chief Executive Officer
of SAI International, LLC. Prior to forming SAI International, from January,
1976 to August, 1989 Mr. Sifonis was a Senior Partner in the Management
Consulting Group of Ernst & Young. While at Ernst & Young, Mr. Sifonis
also served as the National Director of the Strategic Management Consulting
Group. He received a Bachelor of Science Degree in Management Science from
Case
Institute of Technology in 1963 and has completed additional post graduate
studies at Case Institute in Operations Research.
James
A. Longaker, Chief Financial Officer and Secretary.
James
A.
Longaker is the Company’s Chief Financial Officer and Secretary. Prior to
joining Trulite in May of 2005, Mr. Longaker worked from December 2001 to May
2005 as a partner at the Forte Group, LLC, a management consulting firm that
specialized in emerging businesses. From February 1999 to December 2001, Mr.
Longaker worked as a consultant with Glass and Associates serving as an interim
Chief Financial Officer for companies in financial difficulty. From 1990 to
1999, he had his own business working with distressed companies. Mr. Longaker
received his bachelor’s degree from Louisiana Polytechnic Institute and a
Master’s degree in Business Administration in 1969 from Louisiana State
University. Mr. Longaker has four certifications: Certified Public Accountant
licensed to practice public accounting in Louisiana and Texas, Certified Fraud
Examiner, Certified Turnaround Professional and a Certified Insolvency and
Restructuring Advisor.
William
Jackson Berger, Chairman of the Board of Directors.
William
Jackson Berger (a.k.a. “John Berger”) has more than nine years of experience in
the energy industry. Prior to joining Trulite, during 1996-2001, Mr. Berger
worked as a trader at Enron, an energy trading entity. From January 2002 through
December 2003, Mr. Berger was employed by the Federal Energy Regulatory
Commission, advising on trading activities in the natural gas and power markets.
In addition, he assisted the FERC with regard to how a commercial trading
operation is set up with information services and models to predict power loads
of utilities. He also helped analyze regulatory issues with distributed
generation and interconnection into the power grid. Finally, he was able to
show
the FERC how to analyze the impact of credit quality of market participants
on
liquidity in the power and natural gas markets. He also served as an advisor
to
the drafters of the Standard Market Design regulatory document, which is
currently being considered by the United States Congress. Mr. Berger graduated
cum laude from Texas A&M with a B.S. in civil engineering in 1996. In 2003,
Mr. Berger graduated from Harvard Business School.
William
Flores, Director.
William
(Bill) Flores, a director of Trulite, is currently the President and Chief
Executive Officer of Phoenix Exploration Company, a private equity funded oil
and gas company focused upon exploration and acquisition operations along the
Gulf Coast and in the shallow and medium water depths of the Gulf of Mexico.
Prior to forming Phoenix Exploration in January 2006, Mr. Flores was a Senior
Vice President and Chief Financial Officer with Gryphon Exploration Company
from
January 2002 until August 2006. Gryphon Exploration Company was a private equity
funded (formed in October 2000 by Warburg Pincus) oil and gas company with
operations concentrated in the Gulf of Mexico. From August 1999 through October
2002, Mr. Flores was a self-employed investor/consultant. During this period,
Mr. Flores managed investments and served as a consultant to two small privately
held corporations operating in the oilfield service and e-commerce industries.
He also served on the boards of a private company and two non-profit entities.
Mr. Flores received an MBA from Houston Baptist University in 1985 and a BBA
in
Accounting from Texas A &M University in 1976. He is also a Certified Public
Accountant (Texas).
Richard
K. Hoesterey, Director.
Richard
(Dick) Hoesterey, a director of Trulite, is an experienced executive with over
thirty-five years in general management and manufacturing operations management
in a variety of industries including electronics, industrial goods and power
regulation. His management experience includes roles as officer and/or board
member of private and public companies. Mr. Hoesterey is currently the President
and Chief Executive Officer of Components Corporation of America, a position
he
has held since 1997. Components Corporation of America (CCA) operates as a
holding company and currently has three wholly-owned subsidiary companies which
function as self contained, stand-alone companies. These businesses are focused
on design, manufacture and sale of electrical control technology components
and
subsystems for industrial, commercial, military, and government markets. Prior
to becoming the CEO of Components Corporation, Mr. Hoesterey was a Senior
Partner with Thomas Group, Inc. from 1990 to 1997. In this capacity, he was
a
Program Results Manager and Change Agent for several clients. From 1986 to
1990,
Mr. Hoesterey was an Executive Vice President for EPI Technologies. In the
capacity of Executive Vice President, he directed the growth and development
of
the Component Processing Division. He also directed the corporate level
functions of Human Resources, Facilities and Sales. From 1984 to 1986, Mr.
Hoesterey was a Director, Material Services with Compaq Telecommunications
Corporation, a start-up company in the Computer Telephone industry. He was
responsible for Purchasing, Production Planning & Control and Material
Services. From 1978 to 1986, Mr. Hoesterey was employed by Harris Corporation
in
a number of management positions including Director/Plant Manager, Equipment
Refurbishment; Director, Manufacturing Systems Implementation; and, Director,
Materials. From 1969 to 1976, Mr. Hoesterey worked for the Xerox Corporation
in
a number of management positions in the areas of operations, logistics, new
product introductions, business improvement programs, and several MRP
implementations. From 1966 to 1969, Mr. Hoesterey was a 1st
Lieutenant in the U.S. Army. Mr. Hoesterey received a BBA in Industrial
Management from Clarkson University in 1965 and has completed additional post
graduate studies for his MBA at Rochester Institute of Technology. He also
has
an APICS Certification in Production and Inventory management.
General
Randolph House, Director.
General
House is a retired U.S. Army Lieutenant General. Prior to his retirement in
2003, General House served the Army for thirty-three years. Notably, General
House was Deputy Commandant, US Army Command and General Staff College at Fort
Leavenworth, Kansas. In 1996, General House was assigned to the Pentagon as
Senior Military Assistant to the Secretary of Defense, Dr. William Perry. In
1997, General House was assigned as the Assistant Chief of Staff for
Installation Management, Department of the Army. Later that year, he assumed
command of the Eighth United States Army and Chief of Staff, United Nations
Command/Combined Forces Command/United States Forces in Seoul, Korea. In 1998,
General House received his second three star assignment as the Deputy
Commander-in-Chief and Chief of Staff, United States Pacific Command. General
House earned a Bachelor’s Degree in 1968 from Texas A&M University. He also
received a Master’s Degree from Clemson University.
Eric
Melvin, Director.
Eric
Melvin, a director of Trulite, is the founder, President and Chief Executive
Officer of Mobius Risk Group, a provider of energy risk management outsourcing
and advisory services. Prior to forming Mobius Risk Group, from 2000 to 2001,
Mr. Melvin worked as the VP, New Business Ventures at Enron Energy Services,
an
Energy Trading entity. Mr. Melvin received his BGS from the University of
Michigan, Ann Arbor in 1985. He also earned a JD from the University of Detroit,
School of Law in 1990.
Thomas
Samson, Director.
Thomas
(Tom) Samson, a director of Trulite, is the President and Chief Executive
Officer of Teamwork Dynamics, Inc. which he founded in 1990. Teamwork Dynamics
(formerly WeCoachTeams, Inc.) is a professional services firm providing
executive level support to CEOs of firms seeking to drive results though the
focused actions of executive and management teams based on collaborative problem
solving, individual commitments and personal accountability. During the past
decade Mr. Samson has personally undertaken, through Teamwork Dynamics, a number
of client assignments which have included roles as CEO, President, COO and
CIO.
Mr. Samson is a Certified Public Accountant with over twenty-five years in
the
public accounting profession where he was a partner with Arthur Young &
Company, one of the accounting profession’s big eight accounting firms. During
his career with Arthur Young, he focused on technology industries and started
Arthur Young’s Technology Center which served the investors and management of
technology companies from startup to full operations. He received his BSBA
degree from Creighton University.
The
term
of office of each director expires at the Company's annual meeting of
stockholders or until their successors are duly elected and qualified. Directors
are not compensated for serving as such. Officers serve at the discretion of
the
board of Directors.
Employment
Agreements
The
Company is currently a party to employment agreements with John Sifonis, the
Company’s President, James A. Longaker, the Company’s Secretary and Chief
Financial Officer, Jerry Metz, Eric Ladd, Dr. Kevin Shurtleff, Christopher
Brydon and John Patton.
John
Sifonis entered into an employment agreement with the Company as of October
20,
2004 (the “Sifonis Agreement”). The Sifonis Agreement continued until January 1,
2005, whereupon the employment of Mr. Sifonis by the Company became a month
to
month, at will employment, but otherwise still subject to the Sifonis Agreement.
Pursuant to the Sifonis Agreement, Mr. Sifonis receives a management fee of
$1,000 per month (such amount was increased to $3,500 per month in July, 2005)
and options to purchase Common Stock of approximately three percent (3%) of
the
outstanding equity of the Company at the time the options were granted. These
options vest on an annual basis over a four year period. The Sifonis Agreement
contains customary confidentiality and non-disclosure provisions, as well as
a
two year, worldwide non-compete provision with respect to any business that
competes in whole or in part with the services, products or activities of the
Company relating to its hydrogen fuel technology.
James
A.
Longaker is the Chief Financial Officer of Trulite, Inc. He was hired on May
23,
2005 and is responsible for all activities and processes related to financial
management and reporting of the Company. These activities include preparing
the
financial statements of the Company, preparing financial reports for senior
management of the Company and working directly with the auditors (UHY) in the
preparation of all required financial statements. Mr. Longaker is also the
Secretary of the Company and, as such, is responsible for assembling the minutes
of the Board meeting for review and approval by the Board and senior management
of the Company. Mr. Longaker has a base salary of $65,000 per year and is
eligible for $20,000 in bonuses based upon attaining specific performance goals
agreed upon by Mr. Longaker and the CEO of the Company. Mr. Longaker received
20,000 options for shares of Common Stock when he became an employee. Employment
with the Company is for no specified period and constitutes “at-will”
employment. As a result, both the Company and Mr. Longaker are free to terminate
his employment at any time, for any reason or for no reason. Mr. Longaker is
entitled, during the term of his employment, to the Company’s standard vacation
and benefits covering employees. Mr. Longaker signed the Company’s standard form
of Confidential Information, Inventions Assignment, and Non-Competition
Agreement.
Jerry
Metz is the Vice President, Manufacturing and reports to the CEO of Trulite,
Inc. He was hired on March 29, 2005 and is responsible for all activites and
processes related to the manufacture of the Kitty Hawk product line. He is
also
responsible for establishing and maintaining vendor relationships, supply chain
management, quality control and for formulating the Company’s outsourcing
strategy. Mr. Metz receives a base salary of $113,000 per year and is eligible
for $20,000 in bonuses based upon attaining specific performance goals agreed
upon by Mr. Metz and the CEO of the Company. Mr. Metz received 62,315 options
for Common Stock when he became an employee. Employment with the Company is
for
no specified period and constitutes “at-will” employment. As a result, both the
Company and Mr. Metz are free to terminate his employment at any time, for
any
reason or for no reason. Mr. Metz is entitled during the term of his employment
to the Company’s standard vacation and benefits covering employees. Mr. Metz
signed the Company’s standard form of Confidential Information, Inventions
Assignment, and non-competition agreement.
Eric
Ladd
entered into an amended employment agreement with the Company as of March 26,
2006 (the “Ladd Agreement”). Mr. Ladd’s position with the Company is a Control
and Systems Engineer. The Ladd Agreement continues until January 31, 2007,
whereupon the employment of Mr. Ladd will become a month to month, at will
employment, but otherwise still subject to the Ladd Agreement. Mr. Ladd agrees
to work full time in service to the Company and receives an annual salary of
$80,000. In addition, Mr. Ladd received an $11,000 sign on bonus and is also
eligible to receive a one time bonus of $5,000 on or before December 22, 2006.
The total commitment on behalf of the Company is approximately $83,000. The
Ladd
Agreement contains customary confidentiality and non-disclosure provisions,
as
well as a two year, worldwide non-compete provision with respect to any business
that competes in whole or in part with the services, products or activities
of
the Company relating to its hydrogen fuel technology.
Dr.
Kevin
Shurtleff entered into a second amended employment agreement with the Company
as
of March 27, 2006 (the “Shurtleff Agreement”). Dr. Shurtleff’s employment
continues until January 1, 2007, whereupon the employment of Dr. Shurtleff
will
become a month to month, at will employment, but otherwise still subject to
the
Shurtleff Agreement. Dr. Shurtleff agrees to spend 20 hours a week in service
to
the Company and receives an annual salary of $65,000. The total commitment
on
behalf of the Company is approximately $49,000. The Shurtleff Agreement contains
customary confidentiality and non-disclosure provisions, as well as a one year,
worldwide non-compete provision with respect to any business that competes
in
whole or in part with the services, products or activities of the Company
relating to its hydrogen fuel technology.
Christopher
Brydon entered into an employment agreement (the “Brydon Agreement”) on April 5,
2006. Mr. Brydon is employed as a Senior Design Engineer and Team Leader. The
Brydon Agreement continues until April 30, 2007, whereupon the employment of
Mr.
Brydon will become a month to month, at will employment, but otherwise still
subject to the Brydon Agreement. Mr. Brydon is a full time employee and receives
an annual salary of $76,000. The total commitment on behalf of the Company
is
approximately $84,000. The Brydon Agreement contains customary confidentiality
and non-disclosure provisions, as well as a one year, worldwide non-compete
provision with respect to any business that competes in whole or in part with
the services, products or activities of the Company relating to its hydrogen
fuel technology.
John
Patton entered into an employment agreement (the “Patton Agreement”) on April 5,
2006. Mr. Patton is employed as a Senior Design Engineer and Team Leader. The
Patton Agreement continues until April 30, 2007, whereupon the employment of
Mr.
Patton will become a month to month, at will employment, but otherwise still
subject to the Patton Agreement. Mr. Patton is a full time employee and receives
an annual salary of $58,000. The total commitment on behalf of the Company
is
approximately $63,000. The Patton Agreement contains customary confidentiality
and non-disclosure provisions, as well as a one year, worldwide non-compete
provision with respect to any business that competes in whole or in part with
the services, products or activities of the Company relating to its hydrogen
fuel technology.
Consulting
Agreements
Effective
June 1, 2006, the Company entered into a consulting agreement with Ken Pearson
(the “Pearson Agreement”), pursuant to which Mr. Pearson shall perform certain
services. Mr. Pearson’s roles and responsibilities shall include: product
development, regulatory and government regulations, strategic product and
technology alliances and acquisitions, advanced supply chain agreements and
alliances, research and development, intellectual property management and
strategy formulation and operational responsibilities. In exchange for his
services, the Company shall pay Mr. Pearson compensation equal to a prorated
fee
of $115,000 per year ($9,583 per month). Additionally, the Company shall
pay Mr.
Pearson a $15,000 signing bonus. Mr. Pearson shall be eligible for a $15,000
performance bonus payable on or before November 30, 2006 to be based on agreed
upon performance goals. Pursuant to the Pearson Agreement, Mr. Pearson shall
receive an option to purchase 12,000 shares of Common Stock, as previously
agreed upon in a consulting agreement dated November 9, 2005, at
an
option price of $0.88 per share, which option shall be accelerated and fully
vested pending
review by the Compensation Committee and approval by the Board of Directors.
Mr.
Pearson shall also receive an option to purchase 300,000 shares of Common
Stock
(based
upon an option share price at fair market value on the date the options are
granted) effective upon signing the employment agreement and subject to the
Board of Directors approval. The grant of the options shall be subject to
the
terms and conditions set forth in the Company’s Amended and Restated Stock
Option Plan and shall be granted as soon as reasonably practicable after
the
date of the Pearson Agreement. According to the Pearson Agreement, Mr.
Pearson is also eligible for a bonus equal to options to purchase 40,000
shares
of Common Stock, where such bonus shall be awarded based on criteria established
by Mr. Pearson, the CEO and the Chairman of the Board of Directors. The term
of
this agreement is for seven months beginning June 1, 2006 and ending on December
31, 2006. The Company and Mr. Pearson may terminate this agreement at any
time
for any reason during the term; however the circumstances of such termination
affect the salary and stock options owed to Mr. Pearson. This agreement contains
customary confidentiality and non-disclosure provisions to be in effect during
and following the termination of the agreement, as well as a one year,
non-compete provision with respect to any business that competes in whole
or in
part with the services, products or activities of the Company relating to
its
hydrogen fuel technology.
Effective
June 15, 2006, the Company entered into a consulting agreement with Jonathan
Godshall (the “Godshall Agreement”), pursuant to which Mr. Godshall shall
perform certain services to be assigned by the Board of Directors, which
may
include those services customarily assigned to senior management. Mr. Godshall
shall develop a cash incentive plan for the Company’s employees, which he shall
present to the Board of Directors no later than December 15, 2006. In exchange
for his services, the Company shall pay Mr. Godshall compensation equal to
$10,000 per month, which shall increase to $16,666.66 per month at the earlier
of (i) the Company’s current round of financing or (ii) November 30, 2006.
Additionally, the Company shall compensate Mr. Godshall for all reasonable
and
documented expenses associated with providing these services, including travel
and entertainment expenses and office supplies. Subject to the approval of
the
Board of Directors, the Company shall grant Mr. Godshall an option to purchase
5% of the outstanding shares of Common Stock as of the date of the grant,
at an
exercise price equal to fair market value. The term of this agreement regarding
Mr. Godshall’s services to the Company but not his directorship, if
any, shall end on December 31, 2006. The Company and Mr. Godshall may
terminate this agreement at any time for any reason during the term. This
agreement contains customary confidentiality and non-disclosure provisions
to be
in effect for five years following the termination of the agreement, as well
as
a one year, non-compete provision with respect to any business that competes
in
whole or in part with the services, products or activities of the Company
relating to its hydrogen fuel technology.
B.
Significant Employees. None.
C.
Family
Relationships. None.
D.
Involvement in Certain Legal Proceedings.
There
have been no events under any bankruptcy act, no criminal proceedings and no
judgments, injunctions, orders or decrees material to the evaluation of the
ability and integrity of any director, executive officer, promoter or control
person of Registrant during the past five years.
E.
Audit
Committee Financial Expert.
The
Board
approved Mr. Thomas Samson as a Director on October 19, 2005. Mr. Samson has
formed an Audit and Budget Committee (the “Audit Committee”) and holds the
position as Chairman of the Audit Committee. Under the SEC rules, Mr. Samson
qualifies as an audit committee financial expert. Mr. Samson is a
Certified Public Accountant with 25 years experience in public accounting where
he was a partner with Arthur Young, which at that time was one of the big eight
accounting firms. Mr. Samson has extensive experience preparing, auditing,
analyzing and evaluating financial statements comparable to those he is expected
to encounter in connection with Trulite’s financial statements. He also has
experience in internal controls, working with boards of directors, preparing,
auditing and analyzing financial statements and has used his knowledge of
accounting principles and understanding of financial statements and GAAP in
connection with accounting for estimates, accruals and reserves.
On
April
13, 2006, the Board approved Mr. William Flores as a Director. Mr. Flores will
also serve on the Audit Committee.
In
April,
2006, Trulite formed a compensation committee. The committee has three members:
Mr. John Berger, General Randolph House and Mr. Richard Hoesterey. Mr.
Hoesterey is the Chairman of the compensation committee.
ITEM
6.
EXECUTIVE COMPENSATION
The
following table sets forth the cash compensation paid by the Company to its
President and all other executive officers for services rendered during the
fiscal years ended December 31, 2005 and 2004 and the compensation expected
to
be paid for the fiscal year ended December 31, 2006.
Name
and Position
|
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Other
Compensation
|
|
Kevin
Shurtleff, Vice President
|
|
|
2006
2005
2004
|
|
$
$
$
|
65,000
42,500
42,500
|
|
|
--
--
|
|
|
Options
to purchase
699,303
shares of
Common
Stock at
$.88
per share (1).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Sifonis, President
|
|
|
2006
2005
2004
|
|
$
$
$
|
120,000
42,000
12,000
|
|
|
--
--
|
|
|
Options
to purchase
291,478
shares of
Common
Stock at
$.88
per share (2);
And
options to
purchase
20,000
shares
of Common
Stock
at $1.00 per
share
(3).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
A. Longaker, Chief Financial Officer and Secretary
|
|
|
2006
2005
2004
|
|
$
$
|
65,000
65,000
|
|
$
|
20,000
|
|
|
Option
to purchase
20,000
shares of
Common
Stock at
$.88
per share. (1)
and
another 35,000
shares
of Common
Stock
at $0.88 per
share
(3).
|
|
(1)
All
listed options vested in April 2006.
(2)
All
listed options vest over a four year period as follows: 18.5% in 2006, 22.50%
in
2007, 26.50% in 2008 and 32.50% in 2009.
(3)
All
listed options vest over a four year period as follows: 18.5% in 2007, 22.50%
in
2008, 26.50% in 2009 and 32.50% in 2010.
ITEM
7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The
initial investor in the Company was Trulite Energy Partners, L.P., which
invested $100,000 and received 100,000 shares of Preferred Stock on July 28,
2005. Trulite Energy Partners, L.P. merged with and into CCP. John Berger,
the
Chairman of the Board of Directors of Trulite, is the Chairman of the Board
of
Directors of CCP and the managing partner of Contango Capital Partnership
Management LLC (“CCPM”), an entity which is the general partner of CCP. The
Company had a management agreement with CCPM, which was transferred to CCP.
In
exchange for managing the day-to-day operations of the Company, CCP received
68,770 shares of Common Stock (343,850 shares of common stock, post stock split)
on July 28, 2004, and six months later received an additional 65,070 shares
of
Common Stock (325,350 shares of common stock, post stock split). The management
agreement with CCP ended on January 28, 2005, and no further payments are due
or
owing from Trulite.
We
currently share office space with Synexus, and Synexus reimburses Trulite for
its portion of the facility in Utah, salaries paid by Trulite on its behalf
and
other additional expenses. As of December 31, 2005, Synexus owed Trulite
$23,773. Historically, Synexus pays its amount owed to Trulite each quarter.
Synexus has its own funding and cash to pay its current expenses. There is
no
note, interest payable or fixed term. Please see Note G of the attached
financial statements. Also, William Flores, a member of the Company’s Board of
Directors, formerly served as a director of Synexus.
Trulite
had revenue in 2004 of $1,750 and in 2005 of $16,667. All of the revenue was
obtained from Protonex. CCP owns approximately 6.4% of Protonex’s stock and John
Berger, Chairman of Trulite and a partner with CCP, is a member of the Board
of
Directors of Protonex. The revenues derived from Protonex were from military
contracts obtained by Protonex and Trulite, Inc. was chosen through a
competitive bidding process as the sub-contractor on the projects.
On
March
31, 2006, the Company entered into lock-up agreements (the “Lock-Up Agreements”)
with each of CCP, Dr. Kevin Shurtleff, James Longaker, John Sifonis and Eric
Ladd (for purposes of this paragraph only, the “Stockholders”). Pursuant to the
Lock-Up Agreements, the Stockholders shall not, without the prior written
consent of the Company or the managing underwriter, if any, during the period
commencing on the date of the final prospectus relating to a public offering
of
the Company’s equity securities and ending on the date specified by the Company
or the managing underwriter, if any, enter into certain transactions with
respect to the equity securities of the Company.
In
March
2006, Trulite entered into a consulting agreement with Boru Enterprises, Inc.
(“Boru”). Pursuant to the agreement, Boru shall (i) assist in the Company
identifying an NASD member to make the 15C-211 filing; (ii) assist the Company
in raising additional capital; (iii) facilitate the Company’s registration of
its securities; and (iv) provide the Company with other consulting services.
The
term of the agreement has not been determined, though both Boru and the Company
anticipate such services to be provided by Boru for at least two years. In
exchange for these services, the Company shall (i) issue to Boru 250,000 shares
of Common Stock, which shall be included in the Company’s anticipated filing of
a registration statement on Form SB-2 and (ii) issue to Boru 250,000 five-year
warrants to purchase Common Stock at a strike price of $3 per share. Boru shall
pay all of its reasonable expenses. Of the 250,000 shares of Common Stock and
the 250,000 warrants to be issued as compensation, Boru is retaining 200,000
shares of Common Stock and 200,000 warrants. The remaining 50,000 shares of
Common Stock shall be issued to five different charities, 10,000 shares to
each.
John Moran, the President of Boru, owns stock in Empire Financial Group, Inc.,
of which the Company has approved the future engagement for its market maker.
On
April
25, 2006, Trulite entered into a consulting agreement with John Ligums of Jelco,
LLC (“Jelco”) for investment banking services. Pursuant to the agreement, Jelco
shall (i) assist in the Company identifying an NASD member to make the 15C-211
filing; (ii) assist the Company in raising additional capital; (iii) facilitate
the Company’s registration of its securities; and (iv) provide the Company with
other consulting services. The term of the agreement has not been determined,
though both Mr. Ligums and the Company anticipate such services to be provided
by Jelco for at least two years. In exchange for these services, the Company
shall issue to Jelco 50,000 shares of Common Stock, which shall be included
in
the Company’s anticipated filing of a registration statement on Form SB-2 and
150,000 five-year warrants to purchase Common Stock at a strike price of $3
per
share. Jelco shall pay all of its reasonable expenses. Separately, Mr. Ligums’
son, Jeb Ligums, purchased 50,000 shares of Common Stock in April 2006, as
discussed in Part II Item 4, and Mr. Ligums’ daughter, Jenny Ligums, owns
options to purchase 5,000 shares of Common Stock. Jenny Ligums was formerly
employed by CCP and now works with an affiliate of CCP.
On
May 5,
2006, the Board of Directors of the Company approved the future engagement
of
Empire Financial Group, Inc. (“Empire”) as its market maker. Empire shall assist
the Company in its filing of its 15c-211, which is expected occur in the near
future. No written agreement has yet been entered into. John Ligums, who entered
into the consulting agreement with Trulite on behalf of Jelco, owns stock in
Empire. Further, John Moran, the President of Boru, which Trulite has also
engaged as a consultant, also owns stock in Empire.
ITEM
8.
DESCRIPTION OF SECURITIES.
(a)
Common and Preferred Stock.
The
Company is authorized by its Certificate of Incorporation to issue an aggregate
of 21,500,000 shares of capital stock, comprised of 20,000,000 shares of
common
stock, par value $.0001 per share (the "Common Stock") and 1,500,000 shares
of
preferred stock, par value $.0001 per share (the “Preferred Stock”). As of July
6, 2006, 11,785,491 shares of Common Stock and no shares of Preferred Stock
were
issued and outstanding.
Common
Stock
All
shares of Common Stock are of the same class and have equal rights and
attributes. The holders of Common Stock are entitled to one vote per share
on
all matters submitted to a vote of stockholders of the Company. All stockholders
are entitled to share equally in dividends, if any, as may be declared from
time
to time by the Board of Directors out of funds legally available. In the event
of liquidation, the holders of Common Stock are entitled to share ratably in
all
assets remaining after payment of all liabilities. The stockholders do not
have
cumulative or preemptive rights.
On
April
10, 2005, the Board of Directors authorized a five for one split on all Common
Stock issued prior to that date. The Preferred Stock outstanding as of April
10,
2005 would also split five for one if any preferred holder prior to that time
converted the preferred to Common Stock at some later date.
Preferred
Stock
Trulite
is authorized by its Certificate of Incorporation to designate and issue up
to
1,500,000 shares of Preferred Stock. The Company has designated Series A 8%
Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). The
Series A Preferred Stock ranks, as to the payment of dividends and the
distribution of assets upon liquidation or winding up of the Company, (i) senior
to or on parity with all other classes and series of the Preferred Stock and
(ii) senior to the Common Stock. Holders of Series A Preferred Stock are
entitled to receive preferential cumulative dividends at an annual rate of
8% of
the original issue price, payable at the option of the Company in cash or in
shares of Series A Preferred Stock. Any dividends declared by the Board are
payable quarterly. Upon any liquidation, winding up or dissolution of the
Company, holders of the Series A Preferred Stock receive $1.00 per share (the
original issue price) plus any dividends, whether or not declared by the Board,
accrued and unpaid.
Each
share of the Series A Preferred Stock may be converted, in whole or part, at
the
option of the holder, at any time, into a number of duly authorized, validly
issued, fully paid and non assessable shares of Common Stock, as is determined
by dividing the original issue price of the Series A Preferred Stock by the
conversion price, which is subject to adjustment, but which was $1.00 per share
upon issuance. Each share of the Series A Preferred Stock automatically converts
into shares of Common Stock on or after (i) the closing of a underwritten,
public sale of Common Stock, at a price per share which results in the Company
having a market value of at least $50,000,000 or (ii) the date specified by
written consent by the holders of a majority of the outstanding shares of the
Series A Preferred Stock.
Each
holder of shares of the Series A Preferred Stock is entitled to the number
of
votes equal to the number of whole shares of Common Stock into which the shares
of Series A Preferred Stock held by such holder are convertible.
The
conversion price of the Series A Preferred Stock is subject to adjustment:
(i)
upon any stock split, dividend or other distribution (whether of Common Stock
or
other form of distribution), (ii) if the Common Stock issuable upon conversion
of the Series A Preferred Stock shall be changed to the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, combination, substitution or otherwise, (iii) upon any capital
reorganization of the Company or a merger or consolidation of the Company with
or into another corporation or other business entity, or the sale of all or
substantially all of the Company’s properties or assets, (iv) if the Company
issues any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (“Convertible Securities”), other than the Series A
Preferred Stock, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold (collectively,
the “Common Stock Equivalents”) and the price per share for which additional
shares of Common Stock may be issuable thereafter pursuant to such Common Stock
Equivalent shall be less than the applicable conversion price of the Series
A
Preferred Stock then in effect or if, after any such issuance of Common Stock
Equivalents, the price per share for which additional shares of Common Stock
may
be issuable thereafter is amended or adjusted, and such price as so amended
shall be less than the applicable conversion price of the Series A Preferred
Stock, (v) upon any merger or consolidation, dependent on the price paid by
or
to the Company in such transaction or (vi) if the Company, at any time prior
to
the latest to occur of the (A) first anniversary of the issuance date of the
Series A Preferred Stock or (B) date of the consummation of a financing
transaction of the Company resulting in at least $500,000 of gross proceeds
to
the Company, issues any options to purchase Common Stock to any employees of
the
Company.
The
Company cannot amend, alter or repeal the preferences, rights, powers or other
terms of the Series A Preferred Stock to adversely affect the Series A Preferred
Stock without the written consent or affirmative vote of at least 66.6% of
the
then-outstanding shares of the Series A Preferred Stock.
As
of
December 31, 2005, there were three record holders of 1,454,725 outstanding
shares of Series A Preferred Stock. On May 2, 2006, these three holders
converted their shares of Series A Preferred Stock into 6,562,630 shares of
Common Stock. As of the date hereof, there are no shares of Series A Preferred
Stock issued and outstanding.
The
description of certain matters relating to the securities of the Company is
a
summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation and bylaws, copies of which have been filed as
exhibits to this Form 10-SB/A.
(b)
Debt
Securities. None.
(c)
Other
Securities To Be Registered. None.
PART
II
ITEM
1.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a)
Market Information. The Company's Common Stock is not trading on any stock
exchange. The Company is not aware of any market activity in its stock during
the fiscal year ended December 31, 2005 or during the current fiscal
year.
The
Company has issued and outstanding options to purchase 1,747,031 shares of
its
Common Stock and warrants to purchase 1,400,000 shares of Common Stock.
Additionally,
the Company has 11,785,491 shares of Common Stock deemed restricted stock for
purposes of Rule 144 under the Securities Act and, accordingly, may not be
sold
absent their registration under the Securities Act or pursuant to Rule 144
following their being held for the applicable holding periods set forth in
Rule
144. In general, under Rule 144 as currently in effect, a person or group of
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate of ours, would be entitled to sell, within any three month
period, a number of shares that does not exceed the greater of:
· |
1%
of the number of then outstanding shares of the Company’s Common Stock,
or
|
· |
the
average weekly trading volume of the Company’s Common Stock during the
four calendar weeks preceding the
sale;
|
provided,
that public information about the Company as required by Rule 144 is available
and the seller complies with manner of sale provisions and notice requirements.
The
Company has zero shares of Common Stock being publicly offered for sale to
the
public.
(b)
Holders. As of July 6, 2006, there were 55 record holders of 11,785,491 shares
of Common Stock. There are no shares of Series A Preferred Stock issued and
outstanding.
(c)
Dividends. On April 13, 2006, the Company’s Board of Directors approved the
issuance of dividends equal to an aggregate of $113,138, to be paid in the
form
of Common Stock to all of the holders of the Series A Preferred Stock. This
dividend had accrued from July 28, 2004 to March 31, 2005. On May 5, 2006,
the
Company’s Board of Directors approved an additional dividend, which had accrued
from April 1, 2006 to May 2, 2006 but had not been paid, to be paid in the
form
of Common Stock to all the previous holders of the Series A Preferred Stock.
Accordingly, 291,361 shares of Common Stock were issued: 283,118 shares to
CCP;
2,576 shares to Dr. Kevin Shurtleff; and 5,667 shares to Andrew Nielson. The
stock certificates evidencing these dividends have not yet been issued. The
holders of the Series A Preferred Stock have since converted their shares to
shares of Common Stock, and no more dividends shall be declared and paid on
those shares of Series A Preferred Stock.
(d)
Securities authorized for issuance under equity compensation plans.
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Equity
compensation plans not approved by security holders (1)
|
|
|
1,647,031
100,000
|
(2)
|
$
$
|
.88
1.00
|
|
|
1,363,774
|
|
Total
|
|
|
1,747,031
|
(3)
|
$
|
.89
|
|
|
1,363,774
|
|
(1)
The
Company’s Board of Directors adopted the Trulite, Inc. Stock Option Plan (the
“Plan”) on April 11, 2005. In April 2005, the Company granted options to
Randolph House, Evan Hughes, Jerry Metz and John Sifonis. Options were granted
again in July 2005 to Howard, Paul and Stephen Anderson, Chris Brydon and Jim
Longaker. In October 2005, options were granted to Randolph House, Evan Hughes,
Tom Samson, Jerry Metz and John Sifonis. In January 2006, options were granted
to Jenny Ligums. In April 2006, options were granted to Chris Brydon, CCP,
Evan
Hughes, Eric Ladd, Jim Longaker, John Patton and Kevin Shurtleff.
(2)
In
May 2006, options to purchase 20,000 shares of Common Stock were granted to
Bill
Flores, Richard Hoesterey, John Berger, Eric Melvin and John Sifonis.
(3)
All
of the options were pursuant to the Plan. These options have an exercise price
of $.88 per share. All options granted under the Plan vest, so long as the
employee remains employed by the Company, within four years of the grant,
according to a vesting schedule contained therein. The options granted under
the
Plan may not be exercised more than seven years after the date of the grant.
The
Plan
is to be administered by the Board of Directors and consists of up to 3,110,805
shares of Common Stock which may be granted in the form of options to employees,
directors, consultants and advisors to the Company. The number of options,
option price, vesting and exercise schedules and the duration of all options
shall all be determined by the Board of Directors at the time of grant;
provided, however, that the option price of any options granted under the Plan
shall be not less than fair market value at the time of grant. Incentive stock
options expire no later than seven years after the date of grant.
ITEM
2.
LEGAL PROCEEDINGS.
There
are
not presently any material pending legal proceedings to which the Registrant
is
a party or as to which any of its property is subject, and no such proceedings
are known to the Registrant to be threatened or contemplated against
it.
ITEM
3.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There
are
not and have not been any disagreements between the Registrant and its
accountants on any matter of accounting principles, practices or financial
statement disclosure.
ITEM
4.
RECENT SALES OF UNREGISTERED SECURITIES.
In
June
2005, pursuant to Rule 504 of Regulation D promulgated under the Securities
Act,
Trulite sold 1,134,725 shares of its Series A Preferred Stock to one investor,
CCP, for an average cash consideration of $0.84 per share, for an aggregate
investment of $950,000.
On
April
13, 2006, pursuant to Rule 504 of Regulation D promulgated under the Securities
Act, Trulite issued 1,000,000 shares of Common Stock and 1,000,000 warrants
to
purchase Common Stock, at an exercise price of $1.50 per share, to 12 accredited
investors for an aggregate purchase price of $1,000,000.
In
addition, in April 2006, the Company issued 300,000 shares of Common Stock
and
warrants to purchase 400,000 shares of Common Stock at an exercise price of
$3.00 per share to Jelco and Boru, pursuant to each of their consulting
agreements.
All
purchasers of the Company’s securities represented in writing that they were
accredited investors and acquired the securities for their own accounts. A
legend was placed on the stock certificates stating that the securities have
not
been registered under the Securities Act and cannot be sold or otherwise
transferred without an effective registration or an exemption therefrom.
ITEM
5.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145
of the Delaware General Corporation Law provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against expenses including attorneys' fees, judgments, fines and amounts paid
in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or
in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys' fees
incurred in connection with the defense or settlement of such actions and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation.
The
statute provides that it is not exclusive of other indemnification that may
be
granted by a corporation's certificate of incorporation, bylaws, agreement,
a
vote of stockholders or disinterested directors or otherwise.
The
Company’s Certificate of Incorporation provides that it will indemnify and hold
harmless, to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such section
grants us the power to indemnify.
The
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for:
·
any
breach of the director's
duty of loyalty to the corporation or its stockholders;
·
acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law;
·
payments of unlawful dividends or
unlawful stock repurchases or redemptions; or
·
any transaction from which the
director derived an improper personal benefit.
The
Company’s Certificate of Incorporation provides that, to the fullest extent
permitted by applicable law, none of our directors will be personally liable
to
us or our stockholders for monetary damages for breach of fiduciary duty as
a
director. Any repeal or modification of this provision will be prospective
only
and will not adversely affect any limitation, right or protection of a director
of our company existing at the time of such repeal or modification.
PART
F/S
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
CONTENTS
|
|
Page
|
|
|
|
Balance
Sheets
|
|
F-2
|
|
|
|
Statements
of Operations
|
|
F-3
|
|
|
|
Statements
of Stockholders’ Equity (Deficit)
|
|
F-4
|
|
|
|
Statements
of Cash Flows
|
|
F-6
|
|
|
|
Notes
to Financial Statements
|
|
F-7
|
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
BALANCE
SHEETS
|
|
March
31,
2006
|
|
December
31,
2005
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
36,013
|
|
$
|
235,982
|
|
Due
from affiliate
|
|
|
-
|
|
|
23,773
|
|
Accounts
receivable (net of allowance for doubtful accounts
of $0 at March 31, 2006 and December
31, 2005
|
|
|
8,333
|
|
|
16,667
|
|
Patent
application fees
|
|
|
19,843
|
|
|
19,843
|
|
Prepaid
expenses and other current assets
|
|
|
2,700
|
|
|
7,844
|
|
TOTAL
CURRENT ASSETS
|
|
|
66,889
|
|
|
304,109
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
Equipment
|
|
|
41,001
|
|
|
41,001
|
|
Less:
accumulated depreciation
|
|
|
10,683
|
|
|
7,963
|
|
NET
PROPERTY AND EQUIPMENT
|
|
|
30,317
|
|
|
33,038
|
|
TOTAL
ASSETS
|
|
$
|
97,206
|
|
$
|
337,147
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
130,303
|
|
$
|
44,821
|
|
Accounts
payable - affiliate
|
|
|
53,811
|
|
|
-
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
184,114
|
|
|
44,821
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
-
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
8%
Cumulative Convertible, Series A Preferred Stock; $0.0001
par value, 1,500,000 shares authorized,
1,454,725 issued
and outstanding as of March 31, 2006 and December
31, 2005, liquidation value of $1.00 per
share plus preferred dividend per share of $0.0823,
and $0.0623 as of March 31, 2006 and
December 31, 2005, respectively (aggregate liquidation
of $1,574,448 as of March 31, 2006 and $1,545,354
as of December 31,
2005)
|
|
|
119,938
|
|
|
90,843
|
|
Common
stock; $0.0001 par value, 20,000,000 shares authorized,
3,631,500 shares issued and outstanding as
of March 31, 2006 and December 31, 2005
|
|
|
363 |
|
|
363 |
|
Additional
paid-in-capital
|
|
|
1,875,999
|
|
|
1,905,094
|
|
Deficit
accumulated during the development stage
|
|
|
(2,083,208
|
)
|
|
(1,703,974
|
)
|
TOTAL
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
(86,908
|
)
|
|
292,326
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
$
|
97,206
|
|
$
|
337,147
|
|
The
accompanying notes are an integral part of these financial
statements.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
|
|
Three
Months
Ended
March
31,
2006
|
|
Three
Months
Ended
March
31,
2005
|
|
Period
from
Inception
(July
15, 2004)
Through
March
31,
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
8,333
|
|
$
|
-
|
|
$
|
26,750
|
|
COST
OF SALES
|
|
|
5,912
|
|
|
-
|
|
|
18,778
|
|
GROSS
MARGIN
|
|
|
2,421
|
|
|
-
|
|
|
7,972
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
148,546
|
|
|
74,915
|
|
|
1,272,613
|
|
Depreciation
|
|
|
2,720
|
|
|
891
|
|
|
10,683
|
|
General
and administrative
|
|
|
230,801
|
|
|
101,540
|
|
|
808,551
|
|
TOTAL
OPERATING EXPENSES
|
|
|
382,067
|
|
|
177,346
|
|
|
2,091,847
|
|
LOSS
FROM OPERATIONS
|
|
|
(379,646
|
)
|
|
(177,346
|
)
|
|
(2,083,875
|
)
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(59
|
)
|
|
-
|
|
|
(722
|
)
|
Interest
income
|
|
|
471
|
|
|
-
|
|
|
5,800
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
(4,411
|
)
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
412
|
|
|
-
|
|
|
667
|
|
LOSS
BEFORE PROVISION FOR INCOME
TAXES
|
|
|
(379,234
|
)
|
|
(177,346
|
)
|
|
(2,083,208
|
)
|
INCOME
TAXES
|
|
|
-
|
|
|
-
|
|
|
-
|
|
NET
LOSS
|
|
|
(379,234
|
)
|
|
(177,346
|
)
|
$
|
(2,083,208
|
)
|
PREFERRED
DIVIDENDS
|
|
|
(29,095
|
)
|
|
(9,030
|
)
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(408,329
|
)
|
$
|
(186,376
|
)
|
|
|
|
NET
LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
$
|
(0.05
|
)
|
|
|
|
Diluted
|
|
$
|
(0.11
|
)
|
$
|
(0.05
|
)
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,631,500
|
|
|
3,530,280
|
|
|
|
|
Diluted
|
|
|
3,631,500
|
|
|
3,530,280
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE
PERIOD FROM INCEPTION (JULY 15, 2004) THROUGH MARCH 31, 2006
|
|
8%
Cumulative
Convertible
Series A
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Cash
issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
28, 2004, 100,000 shares @ @
$1.00 per share
|
|
|
100,000
|
|
$
|
10
|
|
|
-
|
|
$
|
-
|
|
$
|
99,990
|
|
$
|
-
|
|
$
|
100,000
|
|
November
5, 2004, 190,000 shares @
$1.00 per share
|
|
|
190,000
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
189,981
|
|
|
-
|
|
|
190,000
|
|
November
12, 2004, 10,000 shares @
$1.00 per share
|
|
|
10,000
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
9,999
|
|
|
-
|
|
|
10,000
|
|
Non
cash issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
22, 2004, 20,000 shares @ $1.00
per share for acquisition of Trulite Technology, LC based on
fair value of
the stock
|
|
|
20,000
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
19,998
|
|
|
-
|
|
|
20,000
|
|
July
22, 2004, 592,460 shares @ $1.00 per share for acquisition of
Trulite Technology, LC based on fair value of the stock (post stock
split
2,962,300 shares)
|
|
|
-
|
|
|
-
|
|
|
2,962,300
|
|
|
296
|
|
|
592,164
|
|
|
-
|
|
|
592,460
|
|
July
28, 2004, 68,770 shares @ $1.00
per share for management services based on fair value of
services received
(post stock split, 343,850
shares)
|
|
|
-
|
|
|
-
|
|
|
343,850
|
|
|
34
|
|
|
68,736
|
|
|
-
|
|
|
68,770
|
|
Accretion
of dividends on 8% cumulative
convertible Series A preferred stock
|
|
|
-
|
|
|
6,624
|
|
|
-
|
|
|
-
|
|
|
(6,624
|
)
|
|
-
|
|
|
-
|
|
Net
loss from inception (July 14, 2004)
through December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(878,022
|
)
|
|
(878,022
|
)
|
Balances,
December 31, 2004
|
|
|
320,000
|
|
|
6,656
|
|
|
3,306,150
|
|
|
330
|
|
|
974,244
|
|
|
(878,022
|
)
|
|
103,208
|
|
The
accompanying notes are an integral part of these financial
statements.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE
PERIOD FROM INCEPTION (JULY 15, 2004) THROUGH MARCH 31, 2006
(CONTINUED)
|
|
8%
Cumulative
Convertible
Series A
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Cash
issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2005, 200,000 shares @1.00
per share
|
|
|
200,000
|
|
|
20
|
|
|
-
|
|
|
-
|
|
|
199,980
|
|
|
-
|
|
200,000
|
June
1, 2005, 934,725 shares @
$0.802375 per share
|
|
|
934,725
|
|
|
93
|
|
|
-
|
|
|
-
|
|
|
749,907
|
|
|
-
|
|
750,000
|
Non
cash issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
28, 2005, 65,070 shares @ $1.00
per share for management services based on fair value of
services received
(post stock split, 325,350
shares)
|
|
|
-
|
|
|
-
|
|
|
325,350
|
|
|
33
|
|
|
65,037
|
|
|
-
|
|
65,070
|
Accretion
of dividends on 8% cumulative convertible Series A
preferred
stock
|
|
|
-
|
|
|
84,074
|
|
|
-
|
|
|
-
|
|
|
(84,074
|
)
|
|
-
|
|
-
|
Net
loss for year ended December
31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(825,952
|
)
|
(825,952)
|
Balances,
December 31, 2005
|
|
|
1,454,725
|
|
|
90,843
|
|
|
3,631,500
|
|
|
363
|
|
|
1,905,094
|
|
|
(1,703,974
|
)
|
292,326
|
Accretion
of dividends on 8% cumulative
convertible Series A preferred stock
(unaudited)
|
|
|
-
|
|
|
29,095
|
|
|
-
|
|
|
-
|
|
|
(29,095
|
)
|
|
-
|
|
-
|
Net
loss for the three months ended
March 31, 2006 (unaudited)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(379,234
|
)
|
(379,234)
|
Balances
(deficit), March 31, 2006
|
|
|
1,454,725
|
|
$
|
119,938
|
|
|
3,631,500
|
|
$
|
363
|
|
$
|
1,875,999
|
|
$
|
(2,083,208
|
)
|
$
(86,908)
|
The
accompanying notes are an integral part of these financial
statements.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
|
|
Three
Months
Ended
March
31,
2006
|
|
Three
Months
Ended
March
31,
2005
|
|
Period
from
Inception
(July
15, 2004)
Through
March
31,
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
Net
loss
|
|
$
|
(379,234
|
)
|
$
|
(177,346
|
)
|
$
|
(2,083,208
|
)
|
Adjustments
to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,720
|
|
|
891
|
|
|
10,683
|
|
Management
fees
|
|
|
-
|
|
|
65,070
|
|
|
133,840
|
|
Research
and development expenses
|
|
|
-
|
|
|
-
|
|
|
606,798
|
|
Effect
of changes in operating asset and liabilities (net of effects
of acquisition of Trulite Technology, LC):
|
|
|
|
|
|
|
|
|
|
|
Due
from affiliate
|
|
|
23,773
|
|
|
(47,162
|
)
|
|
-
|
|
Accounts
receivable
|
|
|
8,334
|
|
|
1,850
|
|
|
(7,483
|
)
|
Patent
application fees
|
|
|
-
|
|
|
-
|
|
|
(19,843
|
)
|
Prepaid
expenses and other current assets
|
|
|
5,144
|
|
|
1,884
|
|
|
3,765
|
|
Accrued
expenses
|
|
|
85,483
|
|
|
(6,148
|
)
|
|
122,195
|
|
Accounts
payable - affiliate
|
|
|
53,811
|
|
|
(11,845
|
)
|
|
53,811
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(199,969
|
)
|
|
(172,806
|
)
|
|
(1,179,442
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
(6,371
|
)
|
|
(34,545
|
)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
-
|
|
|
(6,371
|
)
|
|
(34,545
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
-
|
|
|
200,000
|
|
|
1,250,000
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
-
|
|
|
200,000
|
|
|
1,250,000
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(199,969
|
)
|
|
20,823
|
|
|
36,013
|
|
CASH
AND CASH EQUIVALENTS, Beginning of period
|
|
|
235,982
|
|
|
126,465
|
|
|
-
|
|
CASH
AND CASH EQUIVALENTS, End of period
|
|
$
|
36,013
|
|
$
|
147,288
|
|
$
|
36,013
|
|
NON
CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for acquisition of Trulite Technology, LC:
|
|
|
|
|
|
|
|
|
|
|
8%
Cumulative Convertible Series A Preferred Stock
|
|
$
|
-
|
|
$
|
-
|
|
$
|
20,000
|
|
Common
Stock
|
|
|
-
|
|
|
-
|
|
|
592,460
|
|
|
|
$ |
- |
|
$
|
-
|
|
$
|
612,460
|
|
Common
stock issued for management services
|
|
$
|
-
|
|
$
|
65,070
|
|
$
|
133,840
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
-
|
|
$
|
663
|
|
The
accompanying notes are an integral part of these financial
statements.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
NOTE
A -
NATURE OF OPERATIONS
Trulite,
Inc. (the “Company”) was incorporated on July 15, 2004 in the State of Delaware.
The Company is a development stage entity and is primarily engaged in the
development of compact, lightweight hydrogen generators for fuel cell systems.
The
Company from inception (July 15, 2004) through March 31, 2006 did not have
significant revenues. The Company has no significant operating history as of
March 31, 2006. The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. From inception (July
14,
2004) through March 31, 2006, management has raised additional equity financing
to fund operations and to provide additional working capital. However, there
is
no assurance that such financing will be in amounts sufficient to meet the
Company’s needs.
The
accompanying financial statements do not include any adjustments to reflect
the
possible future effects on the recoverability and classification of assets
or
the amounts and classifications of liabilities that may result from the possible
inability of the Company to continue as a going concern.
Effective
February 22, 2006, the Company’s Form 10-SB/A (General Form for Registration of
Securities of Small Business Issuers) was deemed effective with the United
States Securities and Exchange Commission.
NOTE
B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents:
Cash
and cash equivalents include short-term investments with original maturities
of
three months or less.
Accounts
Receivable and Allowance for Doubtful Accounts:
Accounts receivable are reported at outstanding principal less allowance
for
doubtful accounts. Earnings are charged with a provision for doubtful accounts
based on a current review of the collectibility of the accounts. Accounts
deemed
uncollectible are applied against the allowance for doubtful
accounts.
As
of and
for the three months ended March 31, 2006, all of the Company’s sales were from
an affiliated entity.
Concentrations
of Credit Risk:
The
Company maintains cash balances at a financial institution which at times
exceeds federally insured amounts. The Company has not experienced any
material
losses in such accounts.
Revenue
Recognition:
Revenue
from sales is recognized on delivery.
Property
and Equipment:
Property and equipment is carried at cost. The Company depreciates property
and
equipment using the straight-line method over the estimated useful lives
of the
related assets ranging from 3 to 7 years. Maintenance and repairs are charged
to
expense as incurred and expenditures for major improvements are capitalized.
Gains and losses from retirement or replacement of property and equipment
are
included in operations.
Depreciation
expense was $2,720 (unaudited) and $891 for the three months ended March
31,
2006 and 2005, respectively.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
NOTE
B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment
of Long-Lived Assets:
The
Company reviews the recoverability of its long-lived assets, such as property
and equipment, when events or changes in circumstances occur that indicate
the
carrying value of the asset or asset group may not be recoverable. The
assessment of possible impairment is based on the Company’s
ability to recover the carrying value of the asset or asset group from the
expected future pre-tax cash flows (undiscounted) of the related operations.
If
these cash flows are less than the carrying value of such asset, an impairment
loss is recognized for the difference between estimated fair value and carrying
value.
Income
Taxes:
The
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The realizability of deferred tax assets are evaluated
annually and a valuation allowance is provided if it is more likely than
not
that the deferred tax assets will not give rise to future benefits in the
Company’s tax returns.
Use
of
Estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based
Compensation Plan:
The
Company has granted options to purchase common stock to employees, consultants
and outside directors under the Trulite, Inc. Stock Option Plan (the “Plan”).
Prior to January 1, 2006, the Company accounted for grants of options using
the
intrinsic value method under the recognition and measurement principles of
Accounting Principles Board Opinion (“APB”)
No. 25, Accounting
for Stock Issued to Employees
and
related interpretations, and applied SFAS No. 123, Accounting
for Stock-Based Compensation,
as
amended by SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure,
for
disclosure purposes only. Under APB No. 25, stock-based compensation cost
related to stock options was not recognized in net income since the options
granted under those plans had exercise prices greater than or equal to the
market value of the underlying stock on the date of grant.
Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based
Payment,
which
revises SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires that
all
share-based payments to employees be recognized in the financial statements
based on their fair values at the date of grant. The calculated fair value
is
recognized as expense over the requisite service period, net of estimated
forfeitures, using the straight-line method under SFAS No. 123R. The statement
was adopted using the modified prospective method of application which requires
compensation expense to be recognized in the financial statements for all
unvested stock options beginning in the quarter of adoption. No adjustments
to
prior periods have been made as a result of adopting SFAS No. 123R. Under this
transition method, compensation expense for share-based awards granted prior
to
January 1, 2006, but not yet vested as of January 1, 2006, and not previously
amortized through the pro forma disclosures required by SFAS No. 123, will
be
recognized in the Company’s financial statements over their remaining service
period. The cost was based on the grant-date fair value estimated in accordance
with the original provisions of SFAS No. 123. As required by SFAS No. 123R,
compensation expense recognized in future periods for share-based compensation
granted prior to adoption of the standard will be adjusted for the effects
of
estimated forfeitures.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
NOTE
B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
During
the first quarter of 2006, the Company issued options to purchase 5,000 shares
of common stock under the Plan (see Note H). These options have an exercise
price equal to the fair value estimate of $0.88 on the date of grant, varying
vesting over four years, and a 7 year contractual life. These options are being
accounted for in accordance with the guidance in SFAS No. 123R.
The
Company estimates the fair value of stock options under SFAS No. 123R at
the
date of grant using a Black-Scholes valuation model, which is consistent
with
the valuation technique previously utilized to value options for the footnote
disclosures required under SFAS No. 123. The following table provides the
weighted average assumptions used in the Black-Scholes option valuation model
to
value options granted in the first quarter of 2006. The risk-free rate is
based
on the U.S. Treasury yield curve in effect at the time of grant. The expected
term (estimated period of time outstanding) of options granted in 2006 is
based
on the “simplified” method of estimating expected term for “plain vanilla”
options allowed by SEC Staff Accounting Bulletin No. 107, and varies based
on
the vesting period and contractual term of the option. Expected volatility
for
options granted in 2006 is based on an evaluation of similar Companies’ trading
activity. The Company has not issued dividends on its common
stock.
|
|
Three
Months Ended March
31, 2006
|
|
|
|
|
|
Risk-free
rate
|
|
|
5.4
|
%
|
Expected
life (in years)
|
|
|
4
|
|
Expected
volatility
|
|
|
-
|
|
Weighted
average volatility
|
|
|
48
|
%
|
Expected
dividends
|
|
|
-
|
|
As
no
stock options were issued during the three months ended March 31, 2005, the
proforma information required under FAS 123 is not considered
applicable.
New
Accounting Pronouncements:
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 155, Accounting
for Certain Hybrid Financial Instruments.
SFAS
No. 155 provides entities with relief from having to separately determine
the
fair value of an embedded derivative that would other wise be required to
be
bifurcated from its host contract in accordance with SFAS No. 133. SFAS No.
155
allows an entity to make an irrevocable election to measure such a hybrid
financial instrument at fair value in its entirety, with changes in fair
value
recognized in earnings. SFAS No. 155 is effective for all financial instruments
acquired, issued or subject to a remeasurement event occurring after the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
The Company believes that the adoption of SFAS No. 155 will not have a material
impact on its consolidated financial statements.
In
March
2006, the FASB issued SFAS No. 156 Accounting
for Serving of Financial Assets an
Amendment to FASB Statement No. 140.
Once
effective, SFAS No. 156 will require entities to recognize a servicing asset
or
liability each time they undertake an obligation to service a financial asset
by
entering into a serving contract in certain situations. This statement also
requires all separately recognized servicing assets and servicing liabilities
to
be initially measured at fair value and permits a choice of either the
amortization or fair value measurement method for subsequent measurements.
The
effective date of this statement is for annual periods beginning after September
15, 2006, with earlier adoption permitted as the beginning of an entity’s fiscal
year provided the entity has not issued any financial statements for that
year.
The Company does not believe that this pronouncement will have a material
impact
on its financial statements.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
NOTE
C -
INCOME TAXES
Since
inception, the Company has incurred net operating losses and, accordingly,
no
provision for current income taxes has been recorded in these financial
statements. In addition, no benefit for income taxes has been recorded in
respect of the net deferred tax assets, which principally comprises the benefit
of the net operating loss carryforward of approximately $708,000 and $579,000
as
of March 31, 2006 and December 31, 2005, respectively, as management believes
it
is more likely than not that the deferred tax assets will not be fully
realizable. Accordingly, the Company has provided for a full valuation allowance
against its net deferred tax assets at March 31, 2006 and December 31, 2005.
During the quarter ended March 31, 2006, the valuation allowance for net
deferred tax assets increased by approximately $129,000. For the year ended
December 31, 2005, the valuation allowance for net deferred tax assets increased
by approximately $280,000.
As
of
March 31, 2006, the Company has a net operating loss carryforward of
approximately $2,083,000 which will expire in the years 2024 and 2026 if not
utilized earlier.
NOTE
D -
RESEARCH AND DEVELOPMENT COSTS
Expenditures
for research activities relating to product development and improvement are
charged to expense as incurred. Such expenditures amounted to $148,546 and
$74,915 for the quarter ended March 31, 2006 and March 31, 2005,
respectively.
NOTE
E -
SERIES A PREFERRED STOCK
The
8%
Cumulative Convertible Series A Preferred Stock (“Series A Preferred Stock”) has
a liquidation value of $1.00 per share plus dividends whether or not earned
or
declared from the issuance date thereof at the annual rate of eight percent
(8%)
(the “Preferred Dividends”) of $1.00 per share (the “Original Issue Price”),
payable at the option of the Company in cash or in shares of Series A Preferred
Stock. In addition, the Preferred Stock has preferential treatment in
liquidation to all Common Stock and any other stock of the Company ranking
junior to the Series A Preferred Stock. Accretion of cumulative dividends
outstanding on these shares was $29,095 and $9,030 during the quarter ended
March 31, 2006 and March 31, 2005, respectively.
Each
share of Series A Preferred Stock is convertible at any time into common shares
of the Company by dividing the original issue price by a conversion price as
defined. 520,000 shares of Series A Preferred Stock are convertible into common
shares on a five for one basis due to the subsequent common stock split (see
Note G).
The
Series A Preferred Stock is redeemable at the option of the majority holders
in
cash at $1.00 per share plus all accrued and unpaid Preferred Dividends on
the
fifth anniversary of the date of initial issuance or other events relating
to
change in 25% or more of the outstanding voting stock of the Company or a merger
or consolidation as defined.
Each
holder of Series A Preferred Stock is entitled to the number of votes equal
to
the number of whole shares of Common Stock into which the shares of Series
A
Preferred Stock is convertible.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
NOTE
F -
RELATED PARTY TRANSACTIONS
During
the quarter ended March 31, 2006, all sales were to an entity affiliated to
Contango Capital Partners, LP (a preferred stockholder of the Company). Accounts
receivable from this affiliated entity amounted to $8,333 as of March 31,
2006.
During
the quarter ended March 31, 2006, the Company received advances of $53,811
form
an affiliated entity.
As
consideration for certain administrative services performed, valued at $65,020,
the Company issued 65,020 shares of its common stock to Contango Capital
Partners, LP during quarter ended March 31, 2005 (323,350 shares of common
stock, post stock split) (see Note G). The Company based the value of these
common shares upon the hours spent providing such services at hourly rates
commonly paid for these types of services.
NOTE
G -
COMMON STOCK SPLIT
In
April
2005, the Company’s Board of Directors authorized a five-for-one split of the
Company’s common stock. In conjunction with the stock split, the Company amended
its certificate of incorporation to increase its authorized common stock to
20,000,000 shares and retained the par value of $0.0001 per share. Accordingly,
all references to the number of common shares authorized and common shares
issued and outstanding in the accompanying financial statements have been
adjusted to reflect the effects of the common stock split on a retroactive
basis.
NOTE
H -
COMMON STOCK OPTIONS
In
March
2005, the Company established the Trulite, Inc. Stock Option Plan (the “Plan”).
The Plan is administered by the Board of Directors (the “Board”) of the Company
or a committee of the Board and provides for the grant of 1,721,665 shares
of
the Company’s common stock to eligible employees, directors, consultants and
advisors as non-qualified stock options or incentive stock options. The Plan
was
amended in March 2006 and increased the number of shares allowed for grant
as
options by 1,389,140 shares. The revised number of shares as of March 31, 2006
in the Plan is 3,110,805.
Option
exercise price, number of options, duration and time of exercise are as
determined by the Board except that incentive stock options are to be granted
within ten years from date of adoption of the Plan and incentive stock options
must be exercised no later than seven years from date of grant. For the three
months ended March 31, 2006, the Company granted incentive stock options
to
certain employees and officers for 5,000 shares of its common stock at an
exercise price of $0.88 per share, as adjusted to reflect the five-for-one
split
of the Company’s common stock. These options vest over a four year period from
date of grant and in accordance with the terms of the Plan expire in seven
years
from date of grant. The compensation expense for the 5,000 optioned shares
for
the quarter ended March 31, 2006 and for the portion of awards (that were
outstanding as of the January 1, 2006, the date of adoption of SFAS
No. 123R) for which requisite service has been rendered up to March 31,
2006, is not considered significant.
No
options were forfeited during the quarter ended March 31, 2006. As of March
31,
2006, the Company had options outstanding on 451,692 shares, none of which
were
exercisable, at an average remaining contractual life of 6.49 years at a
weighted average exercise price of $0.88 per share.
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
NOTE
I -
COMMITMENTS
Leases
Rent
expense during the three months ended March 31, 2006 and 2005, was $2,915
(unaudited) and $1,275, respectively. Rent expense is included in general and
administrative expenses in the accompanying statements of
operations.
As
of
March 31, 2006, future rental commitment for a lease expiring in May 2006 was
approximately $2,700.
Other
As
of
March 31, 2006, the Company had employment agreements with certain employees
that expire through 2007, under which the total obligations were approximately
$279,000.
As
of
March 31, 2006, the Company had entered into a consulting agreement for
investment banking services, under which the Company is required to issue
250,000 shares of restricted common stock and 250,000 five-year warrants to
purchase the Company’s common stock at $3 per share. The term of the agreement
has not been determined but is estimated to be two years, extending through
March 2008.
NOTE
J -
NET LOSS PER SHARE
|
|
Three
Months Ended,
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net
loss per statements of operations
|
|
$
|
(379,234
|
)
|
$
|
(177,346
|
)
|
Increase
net loss by:
|
|
|
|
|
|
|
|
Accretion
of preferred dividends
|
|
|
(29,095
|
)
|
|
(9,030
|
)
|
|
|
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
|
(408,329
|
)
|
$
|
(186,376
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share - weighted average shares
outstanding
|
|
|
3,631,500
|
|
|
3,530,280
|
|
|
|
|
|
|
|
|
|
Effect
of potentially dilutive common shares:
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted earnings per share
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
3,631,500
|
|
|
3,530,280
|
|
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
$
|
(0.11
|
)
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
Diluted
loss per share
|
|
$
|
(0.11
|
)
|
$
|
(0.05
|
)
|
TRULITE,
INC. (A DEVELOPMENT STAGE COMPANY)
NOTES
TO
FINANCIAL STATEMENTS
FOR
THE
QUARTERLY PERIODS ENDED MARCH 31, 2006 AND 2005
(Unaudited)
NOTE
J -
NET LOSS PER SHARE (Continued)
Basic
and
diluted net loss per share for the three months ended March 31, 2006, and March
31, 2005 is the same since the effect of all common stock equivalents is
antidilutive to the Company’s net loss in accordance with Statement of Financial
Accounting Standard 128, Earnings
per Share.
The
following securities were not included in the computation of diluted loss per
share as its effect would have been anti-dilutive:
|
|
Three
Months Ended,
|
|
|
|
|
|
|
|
8%
Cumulative Convertible, Series A
|
|
|
|
|
|
Preferred
Stock
|
|
|
3,435,725
|
|
|
3,435,725
|
|
NOTE
K -
SUBSEQUENT EVENTS
In
April
2006, options totaling 1,175,339 (inclusive of the options for 699,303 share
mentioned above) were granted by the Company.
In
April
2006, the Company declared a dividend of $129,973 on the 8% Cumulative
Convertible Series A Preferred Stock. This dividend is payable in the Company’s
common stock.
In
April
2006, the Company entered into a consulting agreement for investment banking
services. Under the terms of this agreement, in exchange for investment banking
services, the Company is required to issue 50,000 shares of its restricted
common stock and 150,000 five year warrants to purchase the Company’s common
stock at an exercise price of $3 per share.
The
Company raised additional equity of $1,000,000 during April 2006 through the
issuance of common stock for cash consideration of $1.00 per share. These
issuances of common stock also included one year warrants to purchase an
additional 1,000,000 shares of common stock of the Company at an exercise price
of $1.50 per common share that shall expire on April 13, 2007.
In
May
2006, the Company granted 100,000 options at an exercise price of $1.00 per
share to certain officers and directors. These options vest over a four year
period that expires May 2013.
In
May
2006, all of the preferred stockholders agreed to convert their shares of Series
A Preferred Stock to Common shares of the Company.
TRULITE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS (RESTATED)
FOR
THE
YEAR ENDED DECEMBER 31, 2005 AND FOR THE PERIOD FROM
INCEPTION
(JULY
15,
2004) THROUGH DECEMBER 31, 2004
CONTENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-15
|
|
|
Balance
Sheet
|
F-16
|
|
|
Statement
of Operations
|
F-17
|
|
|
Statement
of Stockholders’ Equity
|
F-18
|
|
|
Statement
of Cash Flows
|
F-19
|
|
|
Notes
to Financial Statements
|
F-20
|
12
Greenway Plaza, Suite 1202
Houston,
Texas 77046-1289 Phone
713-561-6500 Fax
713-968-7128 Web
www.uhy-us.com
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
Trulite,
Inc.
Houston,
Texas
We
have
audited the accompanying balance sheets of Trulite, Inc., (a development stage
company) (the “Company”) as of December 31, 2005 and 2004, and the
related statements of operations, stockholders’ equity and cash flows for the
year ended December 31, 2005 and for the period from inception (July 15, 2004)
through December 31, 2004. These financial statements are the responsibility
of
the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Trulite, Inc. as of
December 31, 2005 and 2004, and the results of its operations and its cash
flows for the year ended December 31, 2005 and for the period from inception
(July 15, 2004) through December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the financial statements, the
Company has incurred significant losses and negative cash flows from operations
since inception. Those conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to those
matters also are described in Note A. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
As
more
fully described in Note L, the financial statements for the period from
inception (July 14, 2004) through December 31, 2004, and for the year ended
December 31, 2005, have been restated for the correction of certain errors.
Houston,
Texas
May
16,
2006
TRULITE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEETS (RESTATED)
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
ASSETS |
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
235,982
|
|
$
|
126,465
|
|
Due
from affiliate
|
|
|
23,773
|
|
|
-
|
|
Accounts
receivable - affiliate (net of allowance for doubtful accounts of
$0)
|
|
|
16,667
|
|
|
2,700
|
|
Patent
applications fees
|
|
|
19,843
|
|
|
6,465
|
|
Prepaid
expenses and other current assets
|
|
|
7,844
|
|
|
6,916
|
|
TOTAL
CURRENT ASSETS
|
|
|
304,109
|
|
|
142,546
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
Equipment
|
|
|
41,001
|
|
|
11,250
|
|
Less:
accumulated depreciation
|
|
|
7,963
|
|
|
1,140
|
|
NET
PROPERTY AND EQUIPMENT
|
|
|
33,038
|
|
|
10,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
337,147
|
|
$
|
152,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
44,821
|
|
$
|
37,603
|
|
Accounts
payable - affiliate
|
|
|
-
|
|
|
11,845
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
44,821
|
|
|
49,448
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
8%
Cumulative Convertible, Series A Preferred stock; $0.0001 par value,
1,500,000 shares authorized, 1,454,725 and 320,000 shares issued
and
outstanding as of December 31, 2005 and December 31, 2004, respectively.
Liquidation value of $1.00 per share plus preferred dividend per
share of
$0.0623 and $0.0207 as of December 31, 2005 and December 31, 2004,
respectively. (Aggregate liquidation value of $1,545,354 and $326,624
as
of December 31, 2005 and December 31, 2004, respectively)
|
|
|
90,843
|
|
|
6,656
|
|
Common
stock; $0.0001 par value, 20,000,000 shares authorized, 3,631,500
and
3,306,150 shares issued and outstanding as of December 31, 2005 and
December 31, 2004, respectively
|
|
|
363
|
|
|
330
|
|
Additional
paid-in-capital
|
|
|
1,905,094
|
|
|
974,244
|
|
Deficit
accumulated during the development stage
|
|
|
(1,703,974
|
)
|
|
(878,022
|
)
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
292,326
|
|
|
103,208
|
|
|
|
|