ITEM 1. Business
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as revenue and expense levels and other statements regarding matters that are not historical are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report. Readers are urged to carefully review and consider the various disclosures made in this report, which attempt to advise interested parties of the risks factors that may affect our business, financial condition, results of operations and prospects.
Overview
For the last two years, we have been focused exclusively on efforts to develop a business centered around our metallic lithium battery technology.
On February 25, 2009, we entered into a Technology License Agreement with the Amendola Family Trust, a trust created by Steven Amendola. Pursuant to the License Agreement, we acquired an exclusive, worldwide, perpetual license to use certain proprietary technology for manufacturing metallic lithium for use in batteries and other applications. We believe this technology allows for the manufacture of metallic lithium more efficiently and more inexpensively than current methods.
Commencing in October 2010, working through a third party, we conducted a series of tests in a production environment to determine if the process covered by the Amendola patent works. The testing involved feeding lithium carbonate solution into an electrolysis tank containing a liquid metal cathode and an anode suspended in the lithium carbonate solution. Based on the results of this preliminary testing, we believe that the process is workable and can be scaled-up to a commercially feasible level.
On February 23, 2011, we entered into an Option Agreement with MXL Leasing, LP to prepare for the commercial manufacture of lithium metal and, subject to the terms of a definitive agreement, commence commercial manufacturing of lithium metal.
Metallic Lithium Technology License
On February 25, 2009, we entered into a Technology License Agreement with the Amendola Family Trust, a trust created by Steven Amendola. Pursuant to the License Agreement, we acquired an exclusive, worldwide, perpetual license to use certain proprietary technology for manufacturing metallic lithium for use in batteries and other applications. We believe this technology allows for the manufacture of metallic lithium more efficiently and more inexpensively than current methods. Lithium batteries are used in cell phones, digital cameras, i-pods and many other high technology devices and applications.
More broadly, the License Agreement grants to us the rights to use, further license, sublicense and subcontract the technology to third parties for the purification, manufacture, purchase of components, quality inspection, assembly, testing, installation, commissioning and operation of the manufacturing process and sale of metallic lithium in or for batteries and related devices and other fields. A patent application relating to the licensed technology is pending.
In consideration for the license grant, we issued 1,000,000 shares of our common stock to the Amendola Family Trust, and have agreed to pay the licensor a royalty of: (i) $1.00 per kilogram of lithium product manufactured and sold, and (ii) in the event sodium is produced out of the manufacture of lithium, $0.10 per kilogram of sodium manufactured and sold. The royalty is payable by us quarterly and subject to audit rights by the licensor.
Additionally, we have agreed to issue to the Amendola Family Trust a further 2,000,000 shares of our common stock, but which shares are restricted and subject to forfeiture if there has not been at least $1,000,000 in total commercial sales of licensed products by February 25, 2012 (three years after the date of the License Agreement).
We have also agreed to issue to the Amendola Family Trust, an option, exercisable only in the event commercial sales reach $1,000,000 as noted above and for five years after the date of the License Agreement, to purchase up to such number of shares of our common stock (“option shares”) such that the option shares, when added to the number of shares of common owned by the Amendola Family Trust or any of its affiliates prior to exercise of the option, will be equal to 19% of the total number of outstanding shares of our common stock after the exercise of the option, at an exercise price that is the same price as then current sales by us of our shares during the term of the License Agreement.
Steven Amendola, the executor of the Amendola Family Trust, has 25 years of scientific experience focused on metallurgy, chemistry and alternate energy. He holds more than 20 issued patents in these fields with others currently pending. Mr. Amendola developed the basic technology used by Millennium Cell, Inc. (a hydrogen development company) and is currently founder and Chief Executive Officer of RSI Silicon Products LLC (a silicon cell manufacturer for solar energy).
Metallic lithium is distinguishable from other existing forms of battery technology in that it has a higher energy density than zinc or nickel compounds used in conventional batteries. The market for metallic lithium is now in excess of $1.0 billion according to independent industry sources and, we believe, steadily increasing. There are a number of much larger and more established firms in the business of manufacturing metallic lithium. It is our belief that utilizing our new patent pending process we would have a significant advantage in manufacturing costs over the existing companies in the field, although no assurance can be given.
Preliminary Tests of Technology
Commencing in October 2010, working through a third party, we conducted a series of tests in a production environment to determine if the process covered by the Amendola patent works. The testing involved feeding lithium carbonate solution into an electrolysis tank containing a liquid metal cathode and an anode suspended in the lithium carbonate solution. Based on the results of this preliminary testing, we believe that the process is workable and can be scaled-up to a commercially feasible level. We intend to bring in a seasoned management team in the upcoming months to take the necessary steps to implement this process.
Commercial Manufacturing Agreement
On February 23, 2011, we entered into an Option Agreement with MXL Leasing, LP to prepare for the commercial manufacture of lithium metal and, subject to the terms of a definitive agreement, commence commercial manufacturing of lithium metal. Pursuant to the Option Agreement, we issued to MXL Leasing an option to purchase 1,000,000 shares of our common stock at an exercise price of $0.11 per share for a period of five years.
Market and Opportunity
Lithium is the lightest of all metals, has a high energy density and is used in a variety of industrial applications, including consumer electronics, chemical, pharmaceutical and nuclear. Until recently, research had stalled on the use of lithium metal as a power source, primarily because of its instability in the presence of air and water. Today, consumers are familiar with lithium in the form of lithium ion batteries, which for decades have been used as a source of safe, energy dense power for laptops, cell phones, digital cameras and digital music players, among other items. The safety and stability of lithium ions, however, come at a price when compared to metallic lithium. Lithium ions have a lower energy density than lithium metal, with the capacity to store just one-tenth of the energy of equivalent weight lithium metal.
With the advent of more advanced electronic products, most notably the recent introduction of battery-powered automobiles, the development of lithium battery-driven propulsion in the form of a lithium metal battery is generating an increasing level of interest among scientists and corporations. The lithium metal batteries reported to be under development would be lightweight, powerful (capable of producing as much as 10 times the energy of lithium ion batteries), and rechargeable. By way of example, it is reported that automobiles powered by lithium ion batteries can travel up to 40 miles on a charge; a lithium metal battery could potentially extend that range to over 400 miles using a lighter, less expensive power package.
Assuming that lithium metal battery technology is perfected, the question for manufacturers, including automobile companies, remains: “Can metallic lithium be produced cost-effectively and in sufficient quantities to support the introduction of products - like automobiles - powered by this technology?”
alpha-En’s Proposed Process
Based on results to date, including what we believe to be the validation of the proof of process, we believe that our licensed, proprietary technology offers a number of advantages over lithium extraction techniques currently in use. Traditionally, industrial production of lithium metal involved the electrolysis of molten salts at temperatures of 400-600 Celsius (752-1112 Fahrenheit). Maintaining these salts at high heat levels adds meaningful production costs to the process.
A well-known process exists which allows for lithium production at much lower temperatures, however that process requires large amounts of mercury which creates an unacceptable environmental risk profile. Other proposed low temperature processes also require the use of halide salts of lithium which release hazardous by-products, such as chlorine gas, during lithium separation. Containment and handling of these hazardous by-products adds to the manufacturing costs and increases the environmental risk profile.
Our licensed technology allows for separation temperatures of below 100 degrees Celsius, without the use of mercury, and allows for the use of lithium carbonate as a primary feed stock. The advantages are:
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Lower process temperatures mean lower manufacturing costs.
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Environmental risk is reduced by the absence of toxic mercury.
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Lithium carbonate can be used as the feed stock, reducing raw material and overall manufacturing costs, and eliminating the hazardous by-products typically produced when processing halide salts of lithium.
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The metal alloy which holds the separated lithium metal can be circulated for immediate extraction, or solidified to protect and stabilize the lithium metal for later extraction. This provides a previously unattainable degree of manufacturing flexibility.
Additional Business Information
Except for our Technology License Agreement and Option Agreement described above, we have no other material agreements as of March 31, 2011. We currently have no customers in place for our proposed metallic lithium battery technology. We are presently conducting preliminary marketing and sales activities. In the future, as manufacturing begins, we believe raw materials required for our operations will be widely available. We expect to compete in the future on the basis of our proprietary technology. We have filed one patent application relating to our technology with the U.S. Patent & Trademark Office. We own no trademarks. We have three employees as of March 31, 2011, none of whom is covered by a collective bargaining agreement.
Corporate Information and Background
alpha-En Corporation is a Delaware corporation. From 1969 to September 1996, operating as Wombat Productions, our primary focus was the production of one-hour profiles of Hollywood stars. In September 1996, we sold this business to former management and changed our name to Avenue Entertainment Group, Inc. From September 1996 to September 2005, we were an independent entertainment company that produced feature films, television films and made-for-television/cable movies.
Our company cut back daily operations in late 2005 and essentially ceased daily operations in May 2006. From May 2006 through the date we entered into a Technology License Agreement in February 2009 (as described above), we were substantially inactive. All monies disbursed by us from 2006 through January 2009 were used to pay previously-incurred accounting fees and for the payment of directors and officers’ insurance premiums. During that period, we had no employees and our board of directors did not meet.
On April 30, 2008, our board of directors and stockholders owning a majority of our outstanding shares of common stock voted to approve an amendment to our certificate of incorporation to (a) change our corporate name to alpha-En Corporation, and (b) increase the aggregate number of our authorized shares of common stock from 15,000,000 shares to 35,000,000 shares. On June 9, 2008, we filed the certificate of amendment to our certificate of incorporation, effecting these changes. Pursuant to the corporate name change, effective July 22, 2008, our company’s trading symbol was changed to “ALPE.”
ITEM 1A.
ITEM 1A. Risk Factors
An investment in our company is highly speculative in nature and involves an extremely high degree of risk. You should carefully consider the following material risks, together with the other information contained in this report, before you decide to buy our common stock. If any of the following risks actually occur, our business, results of operations and financial condition would likely suffer. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.
We have no relevant operating history; we have accumulated and working capital deficits; we are only in an initial commercialization stage with technology that is unproven on a large-scale commercial basis; and there is going concern disclosure in our independent auditors' report.
Our company cut back daily operations in late 2005 and essentially ceased daily operations in May 2006. Through January 2009, we have been substantially inactive. In February 2009, we entered into a Technology License Agreement and expect our future operations will be centered around this licensed metallic lithium battery technology. Accordingly, we have no relevant operating history upon which an evaluation of our performance and prospects can be made. We are subject to all of the business risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, failure of market acceptance, failure to establish business relationships and competitive disadvantages as against larger and more established companies. The report of our independent auditors with respect to our financial statements included in this report includes a "going concern" qualification, indicating that our significant operating losses and deficits in working capital and stockholders' equity raise substantial doubt about our ability to continue as a going concern.
We have generated no revenues over the past three years from our lithium license, and will not generate any meaningful revenues until after we successfully commercialize our technology to manufacture metallic lithium, of which no assurance can be given. As of December 31, 2010, we had a working capital deficit of $155,386 and an accumulated deficit of $7,832,316. Since December 31, 2010, we have continued to incur significant losses and anticipate that we may continue to incur significant losses in 2011 and beyond. There can be no assurance as to whether or when we will generate meaningful revenues or achieve profitable operations.
The metallic lithium battery technology that we have licensed has never been utilized on a large-scale basis, and there can be no assurance that this technology will perform successfully on a large-scale commercial basis or that it will be profitable for us. All of the tests conducted to date by us with respect to our new process and technology have been proven in the laboratory only, and there can be no assurance that the same or similar results could be obtained on a large-scale commercial basis. Additionally, our ability to operate our business successfully will depend on a variety of factors, many of which are outside our control, including competition, cost and availability of strategic components, changes in governmental initiatives and requirements, changes in regulatory requirements, and the costs associated with commencing pilot manufacturing at a third-party site.
There remains uncertainty of any market acceptance of our technology to manufacture metallic lithium.
Many prospective users of metallic lithium have already committed substantial resources to other existing forms of battery technology. Our growth and future financial performance will depend on our ability to demonstrate to prospective users the technical and economic advantages of our technology to manufacture metallic lithium over alternative technologies. There can be no assurance that we will be successful in this effort. Furthermore, it is possible that competing technologies may be perceived to have, or may actually have, certain advantages over our technology or metallic lithium in general for certain industries or applications.
Our technology is licensed and its patent is pending; therefore, protection of our technology is unpredictable at this time.
We license our technology from the Amendola Family Trust, which has filed a patent application on the technology in its name. We own no patents ourselves. Our success depends, in part, on our ability to maintain trade secrecy protection, and operate without infringing on the proprietary rights of third parties. There can be no assurance that the Amendola Family Trust’s pending patent application will be approved, that the Technology License Agreement between us and the Amendola Family Trust will provide us with competitive advantages or will not be challenged by third parties or that the patents of others will not have an adverse effect on our ability to conduct our business. Furthermore, there can be no assurance that others will not independently develop similar or superior technologies, or duplicate elements of our technology. It is possible that we may need to acquire licenses to, or to contest the validity of, issued or pending patents of third parties relating to metallic lithium. There can be no assurance that any license acquired under such patents would be made available to us on acceptable terms, if at all, or that we would prevail in any such contest. In addition, we could incur substantial costs in defending ourselves in suits brought against us or in bringing patent suits against other parties.
In addition to patent protection, we also rely on trade secrets, proprietary know-how and technology which we seek to protect, in part, by confidentiality agreements with our prospective working partners and collaborators, employees and consultants. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
We have a royalty payment obligation based on sales, regardless of whether we are profitable.
Pursuant to our February 2009 Technology License Agreement, we agreed to pay the licensor a royalty of (i) $1.00 per kilogram of lithium product manufactured and sold, and (ii) in the event sodium is produced out of the manufacture of lithium, $0.10 per kilogram of sodium manufactured and sold. Payment of such royalty to the Amendola Family Trust is based on our sales revenue and is not related to or contingent upon our attaining profitability or positive cash flow. As a result, such payment will adversely affect operating results and divert cash resources from use in our business, and possibly at times when our liquidity and access to funding may be limited.
We have a need for additional financing in the foreseeable future.
During the past three years, financing for all of our activities has been provided in the form of direct equity investments and advances from our officers and directors. Our future capital requirements could vary significantly and will depend on certain factors, many of which are not within our control. These include the ongoing development and testing of our technology to manufacture metallic lithium, the nature and timing of prospective commercial projects and permits required and the availability of financing. In the battery market, we may not be able to enter into favorable business collaborations and might thus be required to seek project contracts for our own account. If such efforts were successful, we would be required to make significant expenditures on personnel and capital equipment which would require significant financing. In addition, our lack of operational experience and limited capital resources could make it difficult, if not highly unlikely, to successfully secure major projects. In such event, our business development could be limited to smaller commercial projects with significantly lower potential for profit.
In addition, the expansion of our business will require the commitment of significant capital resources toward the hiring of technical and operational support personnel and the development of a manufacturing and testing facility. In the event we are presented with one or more significant projects, individually or in conjunction with collaborative working partners, we may require additional capital to take advantage of such opportunities. There can be no assurance that such financing will be available or, if available, that it will be on favorable terms. If adequate financing is not available, we may be required to delay, scale back or eliminate certain of our research and development programs, to relinquish rights to certain of our technologies, or to license third parties to commercialize technologies that we would otherwise seek to develop ourselves. To the extent we raise additional capital by issuing equity securities, stockholders will be diluted.
We face competition and technical alternatives in the overall battery market.
We anticipate that our primary market will be for metallic lithium batteries. We have had limited experience in manufacturing and marketing our technology and have not previously had any employees or personnel whose primary responsibilities consisted of these functions. Other participants include several large domestic and international companies and numerous small companies, many of whom have substantially greater financial and other resources and more manufacturing, marketing and sales experience than we do. In addition, as metallic lithium technology evolves, there exists the possibility that our technology may be rendered obsolete by one or more competing technologies. Any one or more of our competitors, or one or more other enterprises not presently known to us, may develop technologies which are superior to our technology. To the extent that our competitors are able to offer more cost-effective alternatives, our ability to compete could be materially and adversely affected.
There can be no assurance that we will enter into collaborative agreements or projects utilizing our technology in the future.
We propose to pursue opportunities in the battery market through collaborative joint working arrangements with companies that have a significant presence in well-established industries or markets, and that can introduce our technology to industry participants. However, neither we nor any of our prospective collaborative joint working partners have secured any project contracts. There can be no assurance that we will enter into any definitive joint project arrangements with our prospective working partners or others, or that any such definitive arrangements will be on terms and conditions that will enable us to generate profits. Furthermore, even if we are successful in obtaining one or more project awards, such projects may be curtailed or eliminated, or other problems may arise, which could materially adversely affect our business, financial condition and results of operations.
We depend on senior management and other personnel to run our business.
We are dependent on the efforts of our senior management, particularly Jerome I. Feldman, our Chairman, Chief Executive Officer and Chief Financial Officer, and Steven M. Payne, our President. We do not have employment agreements with them or have key-man life insurance policies on the lives of such individuals to compensate us for the loss of any of such individuals. The loss of the services of any one or more of such persons may have a material adverse effect on our company.
Our future success will depend in large part upon our ability to attract and retain skilled scientific, management, operational and marketing personnel. Other than Messrs. Feldman and Payne, we do not currently have any employees or personnel whose responsibilities are focused primarily in these fields. We face competition for hiring such personnel from other companies. There can be no assurance that we will be successful in attracting and retaining such personnel.
We will need to comply with government regulations, which can be costly and time-consuming.
We and our customers may be required to comply with a number of federal, state and local laws and regulations in the areas of safety, health and environmental controls, including without limitation, the Resource Conservation and Recovery Act (RCRA), as amended, and the Occupational Safety and Health Act of 1970 (OSHA), which may require us, our prospective working partners or our customers to obtain permits or approvals to manufacture and utilize metallic lithium. There is no assurance that such required permits and approvals will be obtained or maintained. Furthermore, particularly in the battery market, we may be required to conduct performance and operating studies to assure government agencies that our technology does not pose environmental risks. There is no assurance that such studies, if successful, will not be more costly or time-consuming than anticipated. Further, if new environmental legislation or regulations are enacted or existing legislation or regulations are amended, or are interpreted or enforced differently, we, our prospective working partners and/or our customers may be required to meet stricter standards of operation and/or obtain additional operating permits or approvals. There can be no assurance that we will meet all of the applicable regulatory requirements. Failure to obtain such permits, or otherwise to comply with such regulatory requirements, could have a material adverse effect on our business, financial condition and results of operations.
We are controlled by a small number of “insider” stockholders.
Our directors and executive officers currently beneficially own approximately 49.7% of our outstanding common stock. Accordingly, through their collective ownership of our outstanding common stock, if they act together, they will be able to control the voting of our shares at all meetings of stockholders and, because the common stock does not have cumulative voting rights, will be able to determine the outcome of the election of all of our directors and determine corporate and stockholder action on other matters.
We have no plans to pay dividends.
We have never paid any dividends on our common stock, and have no plans to pay dividends on our common stock in the foreseeable future.
It is likely that our common stock price will be volatile.
The stock market has from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performances of specific companies. Announcements of new technologies and changing policies and regulations of the federal government and state governments and other external factors, as well as potential fluctuations in our financial results, may have a significant impact on the price of our stock.
Our charter contains some anti-takeover provisions that may inhibit a takeover.
The provisions in our certificate of incorporation relating to a classified board of directors and delegation to the board of directors of rights to determine the terms of preferred stock may have the effect not only of discouraging attempts by others to buy us, but also of making it more difficult or impossible for existing stockholders to make management changes. A classified board, which is made up of directors elected for staggered terms, while promoting stability in board membership and management, also moderates the pace of any change in control of our board of directors by extending the time required to elect a majority, effectively requiring action in at least two annual meetings. The ability of our board of directors to determine the terms of preferred stock, while providing flexibility in connection with possible business purchases and other corporate purposes, could make it more difficult for a third party to secure a majority of our outstanding common stock. Additionally, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Section 203 could have the effect of delaying or preventing a change of control.
ITEM 1B.
ITEM 1B. Unresolved Staff Comments
None
ITEM 2.
ITEM 2. Properties
We maintain an executive office in Tarrytown, New York, at the offices of Jerome I. Feldman, our Chairman, Chief Executive Officer and Chief Financial Officer. We are not currently required to make any payments to Mr. Feldman for use of this office.
ITEM 3.
ITEM 3. Legal Proceedings
There are no pending legal proceedings to which we are a party or of which any of our property is the subject.
ITEM 4.
ITEM 4. Reserved
PART II
ITEM 5.
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock was quoted on the OTC Bulletin Board from April 2001 to April 2007, and then on the Pink Sheets, under the symbol “PIXG.” Following our name change in June 2008, our trading symbol was changed to “ALPE” effective July 22, 2008. The following table sets forth the high and low closing prices for our common stock on the Pink Sheets for the years ended December 31, 2010 and 2009.
For the period from January 1, 2011 to March 31, 2011, the high and low closing prices for our common stock were $.42 and $.11 per share, respectively.
Holders
The number of record holders of our common stock as of March 31, 2011, was approximately 153. This number does not include an indeterminate number of stockholders whose shares are held by brokers in street name.
Dividends
We have not to date and do not expect to pay a dividend on our common stock in the foreseeable future. The payment of dividends on our common stock is within the discretion of our board of directors, subject to our certificate of incorporation. We intend to retain any earnings for use in our operations and any expansion of our business. Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities other than as reported in prior reports on Forms 10-K, 10-Q or 8-K.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
We did not repurchase any shares of our common stock during the fourth quarter of 2010.
ITEM 6.
ITEM 6. Selected Financial Data
Not applicable
ITEM 7.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included in this report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
For the last two years, we have been focused exclusively on efforts to develop a business centered around our metallic lithium battery technology.
On February 25, 2009, we entered into a Technology License Agreement with the Amendola Family Trust, a trust created by Steven Amendola. Pursuant to the License Agreement, we acquired an exclusive, worldwide, perpetual license to use certain proprietary technology for manufacturing metallic lithium for use in batteries and other applications. We believe this technology allows for the manufacture of metallic lithium more efficiently and more inexpensively than current methods.
Commencing in October 2010, working through a third party, we conducted a series of tests in a production environment to determine if the process covered by the Amendola patent works. The testing involved feeding lithium carbonate solution into an electrolysis tank containing a liquid metal cathode and an anode suspended in the lithium carbonate solution. Based on the results of this preliminary testing, we believe that the process is workable and can be scaled-up to a commercially feasible level.
On February 23, 2011, we entered into an Option Agreement with MXL Leasing, LP to prepare for the commercial manufacture of lithium metal and, subject to the terms of a definitive agreement, commence commercial manufacturing of lithium metal.
Results of Operations
Year ended December 31, 2010 Compared to Year Ended December 31, 2009
Operations for the years ended December 31, 2010 and 2009 consisted principally of maintaining our public company status.
Net loss for the year ended December, 2010 was $105,427, compared to a loss of $79,475 for the year ended December 31, 2009. We had no operations during either period and expenses consisted primarily of legal and accounting fees.
Liquidity and Capital Resources
As of December 31, 2010, we had negative working capital of $155,386, compared to negative working capital of $209,959 at December 31, 2009.
We do not have sufficient funds to continue our operating activities. Future operating activities are expected to be funded by loans from officers, directors and major shareholders, until we begin to raise capital from non-officers or non-directors or generate cash flows from operations.
Off-Balance Sheet Arrangements
As of the date of this report, we have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2010 and 2009. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.
Application of Critical Accounting Policies and Estimates
The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are as follows:
Consolidated Financial Statements. Our consolidated financial statements include the accounts our company and our wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
Fair Value of Financial Instruments. Our carrying values of cash, accounts payable and accrued expenses, loan payable, note payable and due to related party approximate their fair values because of the short-term maturity of these instruments.
Revenue Recognition. Participation rights related to both sales of assets are recognized as earned and reported by the purchasers of both assets.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. Significant estimates had included those had related to valuation of accounts receivable, film costs and accrued expenses.
Intangible Assets. Intangible assets, consisting of a license for an exclusive, worldwide, transferable, perpetual license to use certain proprietary technology for the processing of lithium for use in batteries and other fields, have been recorded at fair value and, as they have an indefinite life, will not be amortized. The carrying value of the intangible assets will be evaluated by us for impairment at least annually or upon the occurrence of an event which may indicated that the carrying amount may be greater than its fair value. If impaired, the we will write down such impairment. In addition, the useful life of the intangible assets will be evaluated by us at least annually or upon the occurrence of an event which may indicate that the useful life may be definitive and we will commence amortization over such useful life.
We have evaluated the fair value of our intangible assets and determined that it exceeds the carrying value based on our knowledge of the potential use of the lithium that we plan to produce in the existing market. Although are at an early stage of bringing the lithium process to produce revenues and cannot forecast revenues, we believe that the net cash flow to be derived from the lithium will exceed the carrying value.
Income (Loss) per Common Share. Basic net income (loss) per share was computed by dividing the net income (loss) for the period by the basic weighted average number of shares outstanding during the period. Diluted net income (loss) per share was computed by dividing the net income (loss) for the period by the weighted average number and any potentially dilutive securities outstanding during the period.
Share-Based Compensation. We recognize compensation expense for all share-based payment awards made to employees, directors and others based on the estimated fair values on the date of the grant. Options are valued using the Black-Scholes Option-Pricing Model using the market price of our common stock on the date of valuation, an expected dividend yield of zero, the remaining period or maturity date of the warrants and the expected volatility of our common stock.
Deferred Income Taxes. Deferred income taxes are provided for temporary differences between financial statement and income tax reporting under the liability method, using expected tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not, that the deferred tax asses will not be realized.
New Accounting Pronouncements. We do not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
ITEM 7A.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
Our audited financial statements for the years ended December 31, 2010 and 2009 are included as a separate section of this report beginning on page.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On March 21 , 2011, we were informed by our then independent registered public accounting firm, Most & Company, LLP, that it has combined its practice with Schulman, Wolfson & Abruzzo, LLP, effective as of January 10, 2011. As a result, Most & Company resigned as our independent registered public accounting firm and Schulman, Wolfson, as successor to Most & Company, became our current independent registered public accounting firm. The engagement of Schulman Wolfson was approved by our board of directors acting as our audit committee. For additional information with respect to our change in certifying accountant, please see our Current Report on Form 8-K dated March 22, 2011 and filed with the SEC on March 23, 2011.
ITEM 9A.
ITEM 9A. Controls and Procedures
Our management, including our President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Financial Officer have concluded that the disclosure controls and procedures as of December 31, 2010 were not effective, due to the material weaknesses discussed below, to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions regarding disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that:
·
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management assessed the effectiveness of our system of internal control over financial reporting as of December 31, 2010. In making this assessment, our management used the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO). Based on our assessment and the criteria set forth by COSO, our management believes that we did not maintain effective internal control over financial reporting as of December 31, 2010 due to the material weaknesses discussed below.
The aforementioned evaluation identified material weaknesses that relate to the fact that that our overall financial reporting structure, internal accounting information systems and current staffing levels are not sufficient to support our financial reporting requirements. To address the weaknesses, we performed additional analyses and other post-closing procedures to ensure that our consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, our management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
As noted above, the issues that resulted from these weaknesses were properly addressed before the completion of our consolidated financial statements. In addition, our management is working to identify and implement corrective actions where required to improve our internal controls, including the enhancement of our systems and procedures to assure that the weaknesses noted above are corrected. We are working to remedy our deficiency.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only our management’s report in this annual report.
ITEM 9B.
ITEM 9B. Other Information
Effective March 28, 2011, Jerome I. Feldman was appointed to serve as our Chief Executive Officer.
PART III
ITEM 10.
ITEM 10. Directors, Executive Officers and Corporate Governance
The following table shows the positions held by our board of directors and executive officers, and their ages, as of March 31, 2011:
Name
Age
Position
Jerome I. Feldman
Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Treasurer
Steven M. Payne
President and Director
George McKeegan
Executive Vice President, Secretary and Director
Ogden Reid
Director
The principal occupations for the past five years (and, in some instances, for prior years) of each of our directors and executive officers are as follows:
Jerome I. Feldman became our Chairman of the Board in December 2008 (he previously was the Vice Chairman) and our Chief Executive Officer in March 2010, and has been a member of our board of directors and our Chief Financial Officer and Treasurer since September 2006. Mr. Feldman founded GP Strategies Corp., which provides training, engineering and consulting services to the automotive, steel, energy and government industries, in 1959 and served as its Chief Executive Officer from 1959 until April 2005, Chairman of the Board from 1999 until April 2005, and President from 1959 until 2001. He has been Chairman of the Board of Five Star Products, Inc., a paint and hardware distributor, from 1994 until June 2007, a director of GSE Systems, Inc., a leading global provider of real-time simulation and training solution to the power, process, manufacturing and government sectors, since 1994, Chairman of the Board of GSE Systems since 1997, and Chairman of the Board and Chief Executive Officer of National Patent Development Corp., which was devoted to searching out new inventions and assisting major corporations in licensing their technologies, from 2004 until June 2007. He was a director of Valera Pharmaceuticals, a specialty pharmaceutical company, from January 2005 until April 2007. Mr. Feldman is also Chairman of the New England Colleges Fund and a Trustee of Northern Westchester Hospital Foundation. Mr. Feldman is a minority owner of MXL Industries, Inc. and MXL Leasing, LP. He has a B.A. degree from Indiana University and an LL.B degree from New York University. Mr. Feldman is a Class III Director.
As the Chairman, Chief Executive Officer and Chief Financial Officer, Mr. Feldman leads the board and guides our company. Mr. Feldman brings extensive industry knowledge to our company and a deep background in technology growth companies.
Steven M. Payne has been our President and a member of our board of directors since May 2006. Since 1976, Mr. Payne has served as President and Chief Executive Officer of Quatro Foods Inc., a food service enterprise. He is a director and past Board President of Carbondale Main Street, Inc., a local downtown redevelopment corporation, and a director of the Southern Illinois Entrepreneurship and Business Development Center at Southern Illinois University in Carbondale, Illinois. Mr. Payne is also President of 13 West LLC, a developer and operator of Mini Storage facilities. He attended Southern Illinois University. Mr. Payne is a Class I Director. Mr. Payne’s experience in running businesses and advising entrepreneurial ventures makes him well qualified to be a member of our board.
George McKeegan has been our Vice President or Executive Vice President, Secretary and a member of our board of directors since May 2006. Since 1986, Mr. McKeegan has led McKeegan & Shearer, P.C., a law firm engaged in the general practice of civil law, and specializing in litigation and corporate counseling. Prior to that, he served as Vice President at Citibank, N.A. and as an Assistant District Attorney with the New York County District Attorney’s Office. He received a B.A. degree from Fordham College and a J.D. degree from the University of Michigan, Ann Arbor. Mr. McKeegan is a Class III Director. Mr. McKeegan serves as a director due to his substantial knowledge and working experience in corporate controls and governance, and general legal matters.
Ogden Reid became a member of our board of directors in December 2008. He previously served as a director and Chairman of the Audit Committee of GP Strategies Corp., a New York Stock Exchange-listed company, from 2002 to 2006. His professional life included service as a six-term Congressman from Westchester, New York, as Ambassador to Israel and as Commissioner of the New York State Department of Conservation. Mr. Reid is a graduate of Yale University. Mr. Reid is a Class II Director. Mr. Reid’s prior experience as a director of a major public company, as well as his knowledge of the technology business environment, make him well qualified as a member of the board.
Our directors are divided into three classes. At each annual meeting of stockholders, directors are elected to succeed those directors whose terms expire and are elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Under our bylaws, the number of directors constituting the entire board of directors shall be fixed, from time to time, by the directors then in office, who may decrease or increase the number of directors by majority action without soliciting stockholder approval. We do not currently pay compensation to directors for service in that capacity.
Committees of the Board
We have not established an audit committee, compensation committee or nominations and governance committee, and we are not required to do so since our shares are not listed on a national securities exchange.
Indebtedness of Directors and Executive Officers
None of our directors or executive officers or their respective associates or affiliates is indebted to us.
Family Relationships
There are no family relationships among our current directors and executive officers.
Legal Proceedings
No officer, director, persons nominated for such positions, promoter or significant employee has been involved in the last ten years in any of the following:
·
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
·
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated;
·
Being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (i) any Federal or state securities or commodities law or regulation, (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; and
·
Being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Code of Ethics
In December 2007, we adopted a Code of Ethics and Business Conduct that applies to all of our executive officers, directors and employees. The Code of Ethics and Business Conduct codifies the business and ethical principles that govern all aspects of our business. Our Code of Ethics and Business Conduct is available without charge to any stockholder who makes a written request for a copy.
Section 16(a) Beneficial Ownership Reporting Compliance
Rules adopted by the SEC under Section 16(a) of the Exchange Act, require our officers and directors, and persons who own more than 10% of the issued and outstanding shares of our equity securities, to file reports of their ownership, and changes in ownership, of such securities with the SEC on Forms 3, 4 or 5, as appropriate. Such persons are required by the regulations of the SEC to furnish us with copies of all forms they file pursuant to Section 16(a).
We believe that all of the officers, directors, and owners of more than ten percent of the outstanding shares of our common stock complied with Section 16(a) of the Exchange Act for the year ended December 31, 2010.
ITEM 11.
ITEM 11. Executive Compensation
Summary Compensation Table
The following table sets forth, for the most recent fiscal year and prior fiscal year, all cash compensation paid, distributed or accrued, including salary and bonus amounts, for services rendered to us by our Chief Executive Officer, Chief Financial Officer and two other executive officers in such year who received or are entitled to receive remuneration in excess of $100,000 during the stated period and any individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer as at December 31, 2010:
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes equity awards outstanding at December 31, 2010, for each of the executive officers named in the Summary Compensation Table above:
Employment Agreements
As of December 31, 2010, and through the date of this report, we have no employment agreements in place with any person.
Director Compensation
Directors currently receive no compensation for serving on our board of directors, other than reimbursement of all reasonable expenses for attendance at board meetings.
Director Compensation
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The table below sets forth the beneficial ownership of our common stock, as of March 31, 2011, by:
·
all of our directors and executive officers, individually,
·
all of our directors and executive officers, as a group, and
·
all persons who beneficially owned more than 5% of our outstanding common stock.
The beneficial ownership of each person was calculated based on 27,821,030 shares of our common stock outstanding as of March 31, 2011, according to the record ownership listings as of that date and the verifications we solicited and received from each director and executive officer. The SEC has defined “beneficial ownership” to mean more than ownership in the usual sense. For example, a person has beneficial ownership of a share not only if he owns it in the usual sense, but also if he has the power to vote, sell or otherwise dispose of the share. Beneficial ownership also includes the number of shares that a person has the right to acquire within 60 days of March 31, 2011, pursuant to the exercise of options or warrants or the conversion of notes, debentures or other indebtedness, but excludes stock appreciation rights. Two or more persons might count as beneficial owners of the same share. Unless otherwise noted, the address of the following persons listed below is c/o alpha-En Corporation, 120 White Plains Road, Tarrytown, New York 10591.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
* Less than 1% of outstanding shares.
Change in Control
There are no arrangements currently in effect which may result in our “change in control,” as that term is defined by the provisions of Item 403(c) of Regulation S-K.
Equity Compensation Plan Information
Under our Stock Option and Long Term Incentive Compensation Plan (the Plan), as amended, there are 2,750,000 shares reserved for issuance under the Plan to key employees, directors and consultants. Grants may be stock options, SAR’s, restricted stock or stock bonuses. Only employees may receive incentive awards. Exercise prices of incentive stock option grants shall not be less than the fair market value of our common stock on the date of the grant. Stock options may be exercised subject to continued employment and certain other conditions. We can determine all other terms of an award under the Plan, including vesting and term, provided, however, that the terms of a stock option grant under the Plan may not be for more than ten years from the date of grant. As of March 31, 2011, all 2,750,000 stock options are available for issuance under the Plan and, as of that date, there were no outstanding grants under the Plan.
The following table provides information as of December 31, 2010, with respect to the shares of common stock that may have been issued under our existing equity compensation plan.
Equity Compensation Plan Information
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
In September 2007, we issued to Jerome I. Feldman, our Chairman, Chief Financial Officer and Treasurer, and Steven Payne, our President and a director, 945,728 shares and 315,242 shares of our common stock, respectively, for an aggregate purchase price of $25,000.
On May 25, 2010, the Company issued 2,000,000 shares of its common stock in payment of $160,000 of the loan payable - stockholder/officer.
As of December 31, 2010, loan payable-officer was $56,506 was payable on demand, with interest at 5%, per annum. For the years ended December 31, 2010 and 2009, interest expense on the loan payable-officer was $3,704 and $3,637, respectively.
On March 28, 2011, we borrowed an additional $6,000 from one of our officers.
Director Independence
Ogden Reid is an “independent” director, as that term is defined in Rule 10A-3(b)(1) under the Exchange Act. Our other three directors are not “independent” as they are or recently were executive officers of our company.
PART IV
ITEM 14.
ITEM 14. Principal Accountant Fees and Services
Effective as of January 10, 2011, our independent registered public accounting firm, Most & Company, LLP, combined its practice with Schulman, Wolfson & Abruzzo, LLP. As a result, Most & Company resigned as our independent registered public accounting firm and Schulman Wolfson, as successor to Most & Company, became our independent registered public accounting firm. The engagement of Schulman Wolfson was approved by our board of directors acting as our audit committee.
Schulman Wolfson, as successor to Most & Company, served as our independent auditors for the year ended December 31, 2010. Most & Company served as our independent auditors for the period from July 28, 2009 to December 31, 2009 and Raich Ende Malter & Co. LLP served as our independent auditors for the period from January 1, 2009 to July 28, 2009.
Audit Fees
Audit fees are those fees billed for professional services rendered for the audit of the annual financial statements and reviews of the financial statements included in Forms 10-Q. For the year ended December 31, 2010, $49,388 in audit fees were billed by Most & Company related to the audit and reviews of our financial statements. For the period from July 28, 2009 to December 31, 2009, $42,450, in audit fees were billed by Most & Company related to the audit and reviews of our financial statements. For the period from January 1, 2009 to July 28, 2009, $23,875 in audit fees were billed by Raich Ende related to the audit and reviews of our financial statements.
Audit-related Fees
Audit-related fees are fees billed for professional services other than the audit of our financial statements. For the year ended December 31, 2010, $438 in audit-related fees were billed by Most & Company. For the period from July 28, 2009 to December 31, 2009, there were no audit-related fees billed by Most & Company. For the period from January 1, 2009 to July 28, 2009 there were no audit-related fees billed by Raich Ende.
Tax Fees
Tax fees are those fees billed for professional services rendered for tax compliance, including preparation of corporate federal and state income tax returns, tax advice and tax planning. For the year ended December 31, 2010, $4,214 in tax fees were billed by Most & Company. For the period from July 28, 2009 to December 31, 2009, $300 in tax fees were billed by Most & Company. For the period from January 1, 2009 to July 28, 2009, $535 in tax fees were billed by Raich Ende.
All Other Fees
No other fees were billed by our independent auditors in 2010 and 2009.
Audit Committee
We have not established an audit committee. Our board of directors approved the services rendered and fees charged by our independent auditors. Our board of directors has reviewed and discussed our audited financial statements for the year ended December 31, 2010, with our management. In addition, our board of directors has discussed with Schulman Wolfson, our independent registered public accountants, the matters required to be discussed by Statement of Auditing Standards No. 61 (Communications with Audit Committee). Our board of directors also has received the written disclosures and the letter from as required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and our board of directors has discussed the independence of Raiche Ende with that firm.
Based on our board of directors’ review of the matters noted above and its discussions with our independent auditors and our management, our board of directors approved that the audited financial statements be included in our annual report on Form 10-K for the year ended December 31, 2010.
Policy for Pre-Approval of Audit and Non-Audit Services
Our board of directors’ policy is to pre-approve all audit services and all non-audit services that our independent auditor is permitted to perform for us under applicable federal securities regulations. As permitted by the applicable regulations, our board of directors’ policy utilizes a combination of specific pre-approval on a case-by-case basis of individual engagements of the independent auditor and general pre-approval of certain categories of engagements up to predetermined dollar thresholds that are reviewed annually by our board of directors. Specific pre-approval is mandatory for the annual financial statement audit engagement, among others.
The pre-approval policy was implemented effective in fiscal 2001. All engagements of the independent auditor to perform any audit services and non-audit services since that date have been pre-approved by our board of directors in accordance with the pre-approval policy. The policy has not been waived in any instance. All engagements of the independent auditor to perform any audit services and non-audit services prior to the date the pre-approval policy was implemented were approved by our board of directors in accordance its normal functions.
ITEM 15.
ITEM 15. Exhibits and Financial Statement Schedules
(a) Exhibits
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 1, 2011
ALPHA-EN CORPORATION
By:
/s/ Jerome I. Feldman
Jerome I. Feldman
Chairman, Chief Executive Officer, Chief
Financial Officer and Treasurer
(principal executive, financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Jerome I. Feldman
Chairman, Chief Executive Officer, Chief
Financial Officer and Treasurer
April 1, 2011
Jerome I. Feldman
(principal executive, financial and accounting
officer)
/s/ Steven M. Payne
President and Director
April 1, 2011
Steven M. Payne
/s/ George McKeegan
Executive Vice President, Secretary and
Director
April 1, 2011
George McKeegan
/s/ Ogden Reid
Director
April 1, 2011
Ogden Reid
alpha-En Corporation and Subsidiaries
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
alpha-En Corporation
We have audited the accompanying consolidated balance sheet of alpha-En Corporation (Company) as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders' equity and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of alpha-En Corporation as of December 31, 2010 and 2009 and the consolidated results of its operations and its consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has operating losses, negative working capital, no operating cash flow and future losses are anticipated. The Company’s plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Schulman, Wolfson & Abruzzo, LLP
Schulman, Wolfson & Abruzzo, LLP
New York, New York
March 30, 2011
ALPHA-EN CORPORATION
CONSOLIDATED BALANCE SHEET
See notes to consolidated financial statements
ALPHA-EN CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
* Less than $.01 per share
See notes to consolidated financial statements
ALPHA-EN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
See notes to consolidated financial statements
ALPHA-EN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
See notes to consolidated financial statements.
Alpha-En Corporation
Notes To Consolidated Financial Statements
1. Organization and Operations
alpha-En Corporation (formerly Avenue Entertainment Group, Inc.) (Company) was incorporated in Delaware on March 7, 1997 and had operated through its wholly-owned subsidiaries, Avenue Pictures, Inc. and its subsidiaries and Wombat Productions, Inc. through May 2, 2006.
From May 2, 2006 through February 24, 2009, the Company had been inactive.
On February 25, 2009, the Company was granted a license for an exclusive, worldwide, transferable, perpetual license to use certain proprietary technology for the processing of lithium for use in batteries and other fields.
Commencing in October 2010, using a through a third party (Note 11), we conducted a series of tests to determine if the process works and, based on the results, we believe that the process is workable and commercially feasible. We intend to hire a management team to implement this process in the upcoming months.
2. Summary of Significant Accounting Policies
Consolidated Financial Statements
The Company's consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
Fair Value of Financial Instruments
The Company's carrying values of cash, accounts payable and accrued expenses, loan payable-stockholder/officer, note payable and due to related party approximate their fair values because of the short-term maturity of these instruments.
Revenue Recognition
Participation rights related to assets previously sold are recognized as earned and reported.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.
Intangible Assets
Intangible assets are recorded at fair value and, as they have an indefinite life, will not be amortized. The carrying value of the intangible assets will be evaluated by management for impairment at least annually or upon the occurrence of an event which may indicate that the carrying amount may be greater than its fair value. If impaired, the Company will write down such impairment. In addition, the useful life of the intangible assets will be evaluated by management at least annually or upon the occurrence of an event which may indicate that the useful life may be definitive and the Company will commence amortization over such useful life.
Loss per Common Share
Basic loss per share is calculated using the weighted-average number of shares outstanding during each period. Diluted loss per share includes potentially diluted securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each period.
For the year ended December 31, 2010 and 2009, there were no significant potentially dilutive securities.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees, directors and others based on the estimated fair values on the date of the grant. Common stock equivalents are valued using the Black-Scholes Option-Pricing Model using the market price of our common stock on the date of valuation, an expected dividend yield of zero, the remaining period or maturity date of the common stock equivalent and the expected volatility of our common stock.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between financial reporting basis and tax basis of the assets and liabilities and are measured using enacted tax rates that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not, that such tax benefits will not be realized.
The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and tax related penalties as general and administrative expenses.
New Accounting Pronouncements
In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” or ASU 2010-13. This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect the adoption of ASU 2010-17 to have a significant impact on its financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
3. Going Concern and Management’s Plans
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had incurred operating losses, negative working capital, and no operating cash flow and future losses are anticipated.
The Company's plan of operations is to raise equity financing, which even if successful, may not result in cash flow sufficient to develop its business plan and generate sales from the License (Note 4). These factors raise substantial doubt about the Company's ability to continue as a going concern. Realization of assets is dependent upon future operations of the Company, which in turn is dependent upon management's plans to meet its financing requirements and the success of its future operations. These consolidated financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
4. Intangible Assets
On February 25, 2009, the Company was granted a license for an exclusive, worldwide, transferable, perpetual license to use certain proprietary technology for the processing of lithium for use in batteries and other fields. A patent application relating to the licensed technology is pending.
The License fee shall consist of the following:
(1)
issued 1,000,000 shares of common stock of the Company to the licensor;
(2)
issued an additional 2,000,000 shares of common stock of the Company to the licensor which are restricted and subject to forfeiture if there has not been at least $1,000,000 in total commercial sales of licensed products within three years (Threshold);
(3)
Will pay a royalty of $1.00, per kilogram, of lithium products manufactured and sold to the licensor, payable quarterly;
(4)
Will pay a royalty of $.01, per kilogram, of excess products manufactured and sold to the licensor, payable quarterly;
(5) will grant options to purchase up to a total of 19% (inclusive of previously issue shares) of the issued and outstanding shares of the Company upon the issuance of any additional shares after the date of the License. These options are exercisable at the same prices as the shares sold or values received for five years from each grant date. These grants are only issuable if the Threshold is met.
Upon a transfer of the entire License, the Company shall pay the licensor a fee equal to 19% of all compensation received on the transfer.
The License has been recorded at its fair value of $250,000 based on management’s projected net cash flows to be realized from sales of products under the License.
5. Related Party Transactions
As of December 31, 2010, loan payable-stockholder/officer was $56,506 payable on demand, with interest at 5%, per annum. For the year ended December 31, 2010 and 2009, interest expense on the loan payable - stockholder/officer was $3,704, and $3,637, respectively.
On March 28, 2011, the Company borrowed an additional $6,000 from a stockholder/officer.
An officer of the Company provides administrative space without rent.
6. Common Stock
On May 25, 2010 the Company issued 2,000,000 shares of its common stock in payment of $160,000 of the loan payable - stockholder/officer.
As of December 31, 2010, the Company has reserved the following shares of common stock for future issue:
7. Stock Option Plan
The Alpha-en Corporation Stock Option and Long Term Incentive Compensation Plan (“Plan”), as amended, provides for the grants up to 2,750,000 shares of shares of common stock to key employees, directors and consultants. Grants may be options, SAR’s, restricted stock or stock bonuses. Only employees may receive incentive awards. Exercise prices of incentive grants shall not be less than the fair market value of the stock on the date of the grant. Options may be exercised subject to continued employment and certain other conditions. The Company may determine all other terms of an award, including vesting, term, etc. but not more than ten years from the date of grant. Awards that expired or were cancelled are available for future awards.
As of December 31, 2010, there were no options outstanding to purchase common stock under the Plan.
As of December 31, 2010, options not under the Plan to purchase 56,500 shares of the Company’s common stock were outstanding at a weighted average exercise price of $.50, per share, and a weighted average remaining life of 1.12 years.
8. Participation Rights
The Company was granted the right to receive future participation rights on certain revenues from certain film properties sold in prior years.
9. Income Taxes
The Company filed consolidated tax returns through December 31, 2004 and anticipates filing consolidated returns for 2005 to 2010. The Company anticipates no significant income tax expense as a result of these filings.
Management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2010.
As of December 31, 2010, the Company has net operating loss carryforward of approximately $3,650,000 to reduce future Federal and state taxable income through 2030.
As of December 31, 2010, realization of the Company’s deferred tax assets of $1,500,000 was not considered more likely than not and, accordingly, a valuation allowance of $1,500,000 has been provided.
As of December 31, 2010 and 2009, components of deferred tax assets were as follows:
For the years ended December 31, 2010 and 2009, deferred income tax expense consisted of the following:
10. Adoption of Accounting Policies
In January 2010, the FASB issue ASU No. 2010-06, which is included in the Codification under ASC 820, “Fair Value Measurements and Disclosures” (ASC 820). This update requires the disclosure of transfers between the observable input categories and activity in the unobservable input category for fair value measurements. The guidance also requires disclosures about the inputs and valuation techniques used to measure fair value.
During the year ended December 31, 2010, the Company adopted the following accounting policies, without a material impact on the consolidated financial statements:
In February 2010, the FASB issued ASU No. 2010-09, which is included in the Codification under ASC 855,”Subsequent Events” (ASC 85). This update removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated.
11. Subsequent Events
Option Agreement
On February 23, 2011 the Company entered into an Option Agreement ("Option") with a company, owned 25% by a stockholder/officer, which had been conducting research and development in connection with the commercial manufacture of lithium metal for use in batteries and other applications under the Company's proprietary license.
In exchange for the rights to the research and development of and to further develop the lithium process, the Company granted an option to purchase 1,000,000 shares of its common stock exercisable at $.11, per share, for five years from the date of grant. The option is immediately exercisable and is subject to adjustment by the Company in the event there are any changes in the stock of the Company by reason of stock dividends, stock splits, reorganizations, mergers, consolidations, combinations, exchanges of shares or if the number and price of shares available under the Option should be equitably adjusted by the Company.
Note Payable
In March 2011, in connection with the renewal of directors and officers liability insurance, the Company borrowed $14,532, payable in nine equal monthly installments of $1,690, including interest of 11%, per annum, through December 2011.