Nuclear Solutions, Inc. is engaged in the research, development, and commercialization of innovative product technologies, which are generally early-stage, theoretical or commercially unproven. We operate a highly technical business and our primary mission is to develop advanced product technologies to address emerging market opportunities in the fields of homeland security, nanotechnology, and nuclear remediation.
The company operates its business by utilizing technical expertise to develop innovative and emerging technologies that we believe have significant market potential. We strive to develop technologies identified as viable to the point that they may be licensed, joint-ventured or sold to an industrial or governmental entity, or otherwise commercialized. We do not maintain technical facilities or a laboratory of our own. Our business model is to utilize the technical facilities and capabilities of appropriate outside laboratories under contract to us when appropriate. By taking advantage of existing technology infrastructures, this preferred method of technology development reduces capital investment costs and the length of time required to develop technologies. This is especially important in light of the extensive requirements for the government approval and safe handling of nuclear materials. Any development efforts contemplated or planned that involve nuclear materials are intended to be carried out by an existing and already licensed scientific or technical facility through the establishment of a contractual relationship. This approach also mitigates the potential liability involved with the handling and use of nuclear materials. We have identified several facilities in the United States and abroad that have the capabilities we may require in the future. As an example, we may contract with or establish a teaming relationship with a U.S. national laboratory such as Los Alamos National Labs, Lawrence Livermore National Labs, or others that have a history and willingness to perform work under well-established contracting channels such as Cooperative Research and Development Agreements (CRADA) and Work for Others (WFO) agreements. Although we believe this is adequate for our development purposes and preferable in the case of nuclear material handling, we may choose to operate our own laboratory facility in the future, subject to available capital.
When a technology is deemed market ready, the company will offer it to potential customers for commercial licensing. As an example, after the successful prototype construction and operation of our shielded nuclear material detector, we will offer the sensor system to companies that have the appropriate experience to integrate the sensor into a working environment to meet the performance criteria as required by the end user. We do not intend to establish manufacturing operations of our own. Nor do we intend to establish extensive marketing and distribution operations of our own. Our business model is centered on the sale and/or licensing of our technologies through strategic partnerships with companies that have established manufacturing, sales and marketing infrastructures. By way of example, companies that could be potential partners for our shielded nuclear material detection technology may be: Lockheed-Martin, General Atomics, Raytheon and other such companies. Currently we do not have any partnership agreements or material contracts with the aforementioned companies.
Our primary role is to add value by initially developing, and providing the enabling core intellectual property to our customers and partners. Typically, after licensing, we will remain involved as a consultant for the customer to ensure appropriate technology transfer to the customer and to assist with any improvements or modification that may be needed during the course of commercialization. This is a highly leveraged business model that is believed by management to offer the greatest advantages in terms of corporate flexibility, and reduced capital requirements compared to a traditional research and development operation. However, management is opportunistic and may consider adopting a production model if the right conditions are met. We will pursue all avenues that will lead to the commercialization of our technologies.
Since our business model is to establish partnerships during development and ultimately as production and marketing partners for our technologies, we are constantly looking for and evaluating potential strategic partners. We especially require partnerships to take advantage of the business opportunities available through government agencies such as the Homeland Security Advanced Projects Agency (HSARPA), The Defense Advanced Research Projects Agency (DARPA) and others. A partnering relationship with experienced companies that have a positive track record of providing products or services to the government agencies that are our potential customers in the related field will probably increase the likelihood that we could secure money from the government to develop one of our technologies for a specific government need.
The following is a general example of a technology development plan:
1.) A market opportunity is identified in an area of interest to us. 2.) A technical assessment of the opportunity and existing related technologies is performed with an appropriate combination of in-house and outside analysis. 3.) If the technical assessment indicates a viable market, research is performed to identify and define an appropriate technology. 4.) The technology identified in the previous step is reevaluated in light of the expected development costs and market opportunity. A decision is made to proceed with identified technology, suspend development, or research supplementary approaches. 5.) Intellectual property is secured through initiation of the patent process and/or identified technology is licensed. Selected technologies may be kept proprietary or trade secret. 6.) Selected technology is validated by an appropriate laboratory under contract. 7.) Once successfully validated, the technology is then marketed to appropriate entities for licensing or sale. Depending on the technology being developed, a strategic partnership arrangement may be consummated at many different points along the development track.
The company intends to commercialize our technologies through: strategic partners, joint-venture partners, licensees, and other customers who will carry out project implementation, manufacturing, end-user marketing activities, and deployment of our technologies. We intend to generate revenue from the licensure, sale, and other usage agreements associated with our technologies.
During 2004, the company filed two U.S. patent applications for our (Tritiated Water Remediation)TWR technology that are currently pending; and to date, we have filed three U.S. patent applications for our Nuclear Weapons Detection Technology. Furthermore, the company expects to file additional patent applications in 2006 for our TWR technology, Nuclear Weapons Detection Technology, and our Nuclear Micro Battery Technology.
On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc.(IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology.
Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a Bi-annual basis in the amount of $485,000 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight(8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. On January 10, 2006 we modified the March 15, 2005 licensing agreement with I.P. Technology Holding, Inc. Wherein license fees totaling $465,416 on December 31, 2005 were deferred until April 2006 and IPTH's payment schedule was changed to bi-annual.
We continued our strategic relationship with Multipartner, S.P.A, an Italian Corporation, for consulting and developmental services in Europe; and as a result of this relationship, we now have access to offices in Rome, Italy. Currently we are poised to establish our European headquarters in Rome, Italy. Our offices in Rome will serve as a base for our European operations from which we intend to market our technologies, explore technologies being developed in Europe, and utilize European technical resources for technology development where applicable.
Additionally in 2005, we have worked with our Russian office and scientific advisory board to explore additional technology and developmental opportunities with the Russian scientific establishment. Previously we were researching the expansion of our weapons detection technology portfolio by investigating the acquisition of rights to a Russian developed Improvised Explosive Detection Technology. We have elected to forgo pursuit of this technology in order to focus resources on other projects.
During 2005, we continued business development operations in Moscow. The Moscow office is staffed by Dr. Alexander Nigmatulin, our Director of Russian business development. The Russian office is responsible for identifying licensable technologies and to secure additional research capacity within the Russian academic and scientific establishment as the need arises. Additionally, the Moscow office will contract with qualified research facilities and personnel as well as assess any additional business opportunities that may exist within the Russian scientific and technical infrastructure. We initially hired Dr. Nigmatulin in February 2003 on a contingency basis. At present, we have a shared office arrangement with Dr. Nigmatulin at the Moscow Institute of Steel and Alloys and do not have a commitment or requirement for rent. We believe that this arrangement is adequate for our needs and activities in Russia. During the last twelve months our Director of Russian Business Development, assembled a scientific advisory board consisting of Twenty-four selected scientists from a wide spectrum of disciplines and areas of expertise. The prominent scientists come from organizations such as the Russian Academy of Sciences, the Russian Defense Industrial complex, and private and state owned R&D companies. The scientists have agreed to remain in standby mode until presented with a specific project. The terms and conditions of a contractual consulting arrangement with a selected scientist or group of scientists will be negotiated at that time. To date we have not activated the services of the Russian Scientific Advisory Board. Currently our Moscow office is investigating various anti-terrorist technologies and additional tritiated water remediation methods developed within the Russian scientific community.
In June of 2003, Patrick Herda, a director, and previously Vice President of Business Development was appointed to the position of President and Chief Executive Officer by the board of directors. We devoted a significant portion of our time to evaluating, planning, and reorganizing the business strategy of the company. These activities were undertaken with the goal of structuring the company for the highest probability of securing long-term operating capital to fund our operations. We evaluated our portfolio of projects and technologies in relation to the following criteria: market demand and trends, capital requirements, government regulations, time and effort to bring a technology to market, expected time to return revenue, financeability, our available resources, and overall synergism with other projects. Our goal was to come up with a corporate strategy and technology mix that would be the best fit with our corporate strengths. In addition to this, we wanted to reduce the number of projects we were pursuing, streamline operations, and reduce operating expenditures.
After careful evaluation, we determined that it would be in the company's best interest to indefinitely suspend work on the photonuclear reactor technology and any related or derivative projects. We evaluated potential market demand in light of current economic conditions and redirection of government resources to improving homeland security and those appropriated for military expenditures. We concluded that until the economic situation improves greatly, and the threat of homeland terrorism is sufficiently mitigated, and the country is no longer on a wartime stance, a new type of nuclear reactor technology would be extremely difficult to fund, develop, and build. As of April 5, 2004, we sent notice to Global Atomics Licensing, Ltd.(GALL), the licensor of the technology, and unilaterally terminated the license agreement which was originally executed on September 11, 2001. Currently no royalties or commissions are due to GALL.
Based upon our evaluation, we have refocused our business objectives in the previously mentioned areas of Homeland Security, specifically portable nuclear weapon and shielded nuclear material detection, Nanotechnology, specifically nuclear micro battery technology, and nuclear remediation, specifically tritiated water processing. Over the next 12 months, we plan on raising working capital to fund development of these technological areas through private placements of debt or equity, using our common stock in lieu of cash, and applying for government grants, where appropriate.
Our significant assets include our technology license agreement with IP Technology Holding, Inc. Our portfolio of intellectual property which includes trade secrets and know-how in the areas of nuclear weapon detection via gravitational anomaly, detritiation of nuclear wastewater; and our license option agreement for nuclear micro battery technology covered by U.S. Patents Nos. 5,087,533; 6,118,204; 6,238,812, as well as our contractual relationship with our technical consultant Boris Muchnik.
OUR TECHNOLOGIES:
GRAVIMETRIC SHIELDED NUCLEAR MATERIAL/PORTABLE NUCLEAR WEAPON DETECTOR (Patents Pending)
We are developing a new and unique technology to be integrated into a passive primary portal system that would screen trucks and shipping containers in real time for the presence of shielded nuclear weapons useable materials such as Uranium(U-235) and Plutonium (Pu-239).
Radiation emitted from weapons grade Uranium and Plutonium is relatively weak and easy to shield. Identification of these materials with conventional radiation detectors is unreliable. When the radiation emitted from these materials is effectively shielded, detection by conventional means is not possible.
The company is working on funding the prototype construction of a highly sensitive, portable, low cost, and ruggedized detection device that responds to minute gravitational gradient anomalies. These disturbances are produced by high-density nuclear materials such as Uranium and Plutonium. Unlike radiation, the force of gravity cannot be shielded and is a unique new concept for the detection of shielded nuclear weapons. The company is unaware of any other device with similar targeted performance and size.
This technology is protected by three pending patent applications. We filed our first patent application in October 2004. Subsequently we filed two additional patent applications in January 2005. On October 18, 2005 we filed for our first international patent on this technology via the Patent Cooperation Treaty (PCT). We expect further development work on the intellectual property relating to this technology and expect to file additional patents over the next twelve months.
On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc.(IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology.
Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a Bi-annual basis in the amount of $485,000 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight(8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. On January 10, 2006 we modified the March 15, 2005 licensing agreement with I.P. Technology Holding, Inc. Wherein license fees totaling $465,416 on December 31, 2005 were deferred until April 2006 and IPTH's payment schedule was changed to bi-annual.
Over the next 12 months our development plan for our gravimetric nuclear material detector is as follows:
- Continue development of the related intellectual property and file additional patent applications.
- Secure funding of approximately $500,000 to $1.5M through debt or equity instruments to fund this project.
- Secure a strategic commercial development partner.
- Build and demonstrate a proof-of principle prototype.
- Seek additional licensees.
NUCLEAR MICRO-BATTERIES
This program is aimed at developing embeddable nuclear micro-batteries that can supply long-lasting power for computer chips, micromotors, remote sensors, implantable medical devices, and other defense and aerospace applications. This technology is also known as nuclear micro power generation or RIMS (radioisotope micro power sources). The science of nanotechnology is the design of Electrical and mechanical systems smaller than the width of a human hair. The field of nanotechnology includes making functional microscopic mechanical devices like motors, gear systems, and pumps. This field also includes making electronic circuits on an atomic scale. An opportunity exists to address the problem of providing reliable power to these devices for a long period of time. As electronic circuits and nanomachines grow ever smaller, a problem is created by the fact that conventional batteries cannot shrink to the same size and still hold enough power for the device to function for a reasonable period of time. Our nuclear micro battery technology may solve this problem by drawing energy from an embedded radioactive isotope due to the fact that nuclear batteries are known to have power densities up to 1,000 times greater than achievable with conventional chemical battery technology.
In November 2003, the Company entered into a licensing option agreement for three issued U.S. patents for nuclear micro-battery technology (Pat. Nos. 5,087,533; 6,118,204; 6,238,812) with Jackie Brown. The company purchased a one-year option to exclusively license the technology, with an additional six month first right of refusal, in exchange for 100,000 shares of our common stock. In January 2006, the company extended the license option rights under the terms of the agreement until January 2007 in exchange for the payment of all outstanding maintenance fees. When the company does choose to exercise its rights under the licensing option agreement, we will execute a license royalty agreement for 7% of the after tax profits on the sale or licensure of the technology to be paid to Ms. Brown.
Two of the three nuclear micro-battery patents the we hold a license option for(Pat. Nos. 5,087,533; and 6,118,204) have expired as a result of non-payment of patent maintenance fees by the prior assignee; however, the company has engaged the law firm of Greenberg and Lieberman, P.C. to make application for the revival of those patents and has paid all outstanding maintenance fees. The patent revivals are currently in process and we anticipate receiving further information from the USPTO within the next twelve months. We are currently developing the next generation of nuclear micro-battery technology that could render the previous patents obsolete. However, the reinstatement of the expired patents could offer an additional opportunity to block our competition from this market.
Subsequent to entering the licensing option agreement in November of 2003, we began efforts to form development partnerships to assist in the development of and to secure government funding for this technology. We have initiated the process of forming a teaming arrangement with Lawrence Livermore National Laboratories to further develop this technology. Previously, we anticipated finalizing a teaming relationship with Lawrence Livermore National Laboratories in 2005. This was not accomplished, due to lack of working capital to fund this development program in 2004. Management anticipates funding and launching this teaming relationship in 2007.
Our nuclear micro battery technology relies on the application of tritiated amorphous silicon as a betavoltaic, thin-film, intrinsic energy conversion device. A betavoltaic battery is a nuclear battery that converts energy from beta particles released by a beta emitting radioactive source, such as tritium, into electrical power. Common semiconductor designs of betavoltaic batteries use a semiconductor p-n junction device that is either directly exposed to beta decay (Lucent Technologies, Betabatt) or is illuminated by photons created when betas strike a phosphor(Trace Photonics, Inc.). These common betavoltaic batteries suffer from technical problems in that the directly irradiated cells suffer material degradation of the p-n junction limiting the operating life to days while the photo conversion systems are indirect and limited by efficiency to less than 1%. Furthermore, another limitation of conventional betavoltaic batteries and P-N junction devices is the self-absorption of beta energy in the radioactive source itself. In order to reduce the self-absorption of beta energy we incorporate the radioactive isotope into the lattice of a semiconductor.
Tritiated amorphous silicon is a novel thin film material where a suitable radioisotope is bonded with silicon in the amorphous network or adjacent to it. Thin-film contact potential tritiated amorphous silicon cells have been built and operation verified by an independent laboratory.
We are aware of several types of nuclear batteries in development. By organizations such as Lucent, The University of Wisconsin, and Trace Photonics, Inc. and Betabatt, Inc. While we believe that our technology is superior due to higher resistance to radiation degradation, our competitors have greater access to capital and resources.
The operation of our nuclear micro battery was proven by an independent lab. However it is still considered a development stage technology. We cannot guarantee that this technology will receive any additional patents or that the technology can be successfully commercialized.
Over the next 12 months we plan on raising capital in the amount of $500,000 to $1,000,000 to fund the development of our nuclear micro-battery technology. We also plan on funding a development program with Lawrence Livermore National Laboratory to build new battery prototypes intended for Micro-Electro-Mechanical Systems(MEMS) applications. We anticipate raising the money to fund this project through a combination of debt and equity financing.
TRITIATED WATER REMEDIATION TECHNOLOGY (TWR) (Patents Pending)
We have identified a need in the nuclear industry for an inexpensive method for tritiated water remediation by way of isotope separation. This is a method to reduce the volume of stored water contaminated with tritium, the radioactive isotope of hydrogen.
We are currently developing a tritiated water remediation method using a combination of in-house and external expertise. Our TWR development program is aimed at developing a tritiated water separation technology that can be transportable and modular or integrated directly into a nuclear power plant. The specific target market for this technology is tritium contaminated water (tritiated water) produced as a by-product of nuclear complex activities. Data indicates the Unites States houses approximately Six billion gallons of tritiated water with an additional 11 million gallons created annually. Countries such as Japan, the United Kingdom, France, and Germany also have this problem.
As of the date of this report, we anticipate the overall development cost not to exceed $500,000. However, since this is a development stage technology the final development cost may differ substantially from what we currently anticipate. We will need to raise additional money to fund this project. We intend to use debt, equity or a combination thereof to fund this project. There is no guarantee that we will be able to successfully raise the required funds for operations, or that such funds will be available on terms satisfactory to us. Any inability to raise additional funds would require that we significantly scale back our planned operations and would lengthen the period of time required to bring the technology to the marketplace.
During 2004 we filed 2 patent applications with the United States Patent and Trademark Office to secure the rights to the tritium remediation technology and the technology is now patent pending. IN 2005 these patent applications published and are still pending. Additionally in 2005 we filed 2 international patent applications based on our previously filed U.S. Patent Applications. Over the next 12 months we plan on developing this technology further and filing for additional patent protection. However, it is possible that we may choose not to file a patent application on the technology if it is determined to be contrary to the security interests of the United States. TWR technology is a development stage technology. We cannot guarantee that we will either receive any patents on the technology or that the technology can be successfully commercialized.
Over the next 12 months we plan on raising capital in the amount of approximately $500,000 to fund the further development and proof-of-principal demonstration of our tritiated water remediation technology. We anticipate raising the money to fund this project through a combination of debt and equity financing.
Progress in the development of our technologies have been slower than expected due to the lack of personnel and lack of working capital. We anticipate increasing staffing levels over the next 12 months. We estimate that with working capital of $2,000,000 dollars at least one of our technologies will be fully demonstrable and ready for commercial licensing within 18 months.
Entering the Renewable Fuels Sector with Fuel Frontiers, Inc. (formerly Future Fuels, Inc.)
Introduction
In 2005 the company entered the renewable fuels business through a new subsidiary called Fuel Frontiers, Inc. (formerly known as Future Fuels, Inc.). The primary business of Fuel Frontiers, Inc. (FFI) is to plan, design, finance, construct, and operate multiple ethanol synthesis facilities worldwide to transform virtually cost-free waste materials such as used tires, waste coal, solid and liquid municipal wastes, biomass, and other similar low-value societal refuse into high-value fuel-grade ethanol.
Initially, we plan on focusing our efforts in the proximity of the east and west coasts of the United States. Over the next twelve months, we anticipate expanding our project development efforts internationally as opportunities arise and as our capital and human resources permit.
We intend to build our facilities with modular expansion capability to allow for increased future production and/or gasification of additional or diverse feedstock (waste materials). As of the date of this report, we are currently in negotiations to retain CH2MHILL/ Lockwood Greene for design engineering, procurement, construction, and production operations for our first facility in the planning stages at Toms River, NJ. As a matter of policy and our business model, we intend to outsource engineering, procurement, construction as well as daily facility management and operations of any future facilities to qualified providers such as CH2MHILL/Lockwood Greene or other similar companies.
Due to the business model differences between the parent company Nuclear Solutions, Inc. and its subsidiary Fuel Frontiers, Inc., management anticipates establishing an exploratory committee to periodically evaluate if and when business conditions warrant a formal spin-off of FFI as a separately registered public entity. It is anticipated that the key criteria which will be used to make this determination may include; facilitating access to capital in a manner consistent and suitable for the company's specific business environment, allowing for a clearer assessment of each company's respective financial performance, encouragement of separate corporate cultures, increased management independence with specialized focus towards core business operations and the potential for establishing equity-based employee incentive programs linked directly and independently to the employees respective employer.
System Overview
The FFI approach for the production of ethanol occurs in two stages. In the first stage the feedstock material is fed into the Startech Plasma Converter System (PCS) which transforms the feedstock material into Plasma Converted Gas (PCG) (TM), a synthesis gas. FFI entered into a global strategic alliance with Startech Environmental Corporation that includes the use of this technology. The heart of Startech's Plasma Converter System contains a plasma field that reaches temperatures up to 30,000 degrees Centigrade. The plasma breaks down feedstock materials--such as waste coal, used tires, wood wastes, raw sewage, municipal solid wastes, biomass, low-grade waste-coal, and other agricultural by-products--to their core elements in a clean and efficient manner which generates significant amounts of PCG (synthesis gas). Excess heat energy is removed from the resulting PCG and recovered to generate electricity on-site which can be used to provide power to the system. The cooled PCG is then refined for purity and passed to the second stage. In the second stage, the refined PCG, which is composed primarily of carbon, hydrogen and oxygen, is converted into ethanol though a modified Fischer-Tropsch gas-to-liquids synthesis process similar in nature to one Dow Chemical pioneered in the mid 1980s. The process applies a metallic catalyst to chemically transform the Plasma Converted Gas into ethanol which is then refined to fuel-grade ethanol standards. This approach is not entirely new; as early as 1936 in Germany Fischer-Tropsch technology was used with coal-produced synthesis gas to produce alcohols on a commercial scale.
The FFI approach to ethanol production differs from other approaches for ethanol production mainly because our system can utilize feedstock materials that are normally considered waste to society and typically have negligible or no value and we do not employ a biomass based fermentation process that is typical in the ethanol production industry. Since we can utilize feedstock virtually free of cost, our feedstock economic model is highly immune to the uncertainties of weather, seasonality and competing market forces. The ability to use waste materials is a benefit of the Startech Plasma Converter System (PCS). The PCS system has the proven capability to transform a wide variety of waste materials into the Plasma Converted Gas (PCG) (synthesis gas) in an efficient and environmentally friendly manner.
Accomplishments to Date
Nuclear Solutions, Inc. concluded the legal formation of an independent subsidiary under the name Future Fuels, Inc. (FFI) on September 2, 2005. Subsequently on March 31, 2006, the subsidiary's name was changed to Fuel Frontiers, Inc. (FFI) and the website at www.fuelfrontiers.com was launched.
On September 23, 2005, the company appointed John C. (Jack) Young, an officer of Nuclear Solutions, Inc., as president of FFI.
On November 3, 2005, FFI signed a land lease agreement with Venture III Associates, a New Jersey General Partnership, and a permit and feedstock agreement with Ocean County Recycling Center, Inc., a New Jersey corporation.
FFI committed to a fifteen-year lease with Venture III Associates, renewable for up to 90 years, for an approximate six-acre site in Toms River, New Jersey to build a proposed 52 million gallon waste-to-ethanol production facility in exchange for 1,000,000 shares of FFI common stock, deferred until June 30, 2006. When the facility commences ethanol production, the company agrees to pay rent of $240,000 dollars annually in equal monthly installments, plus three (3%) percent of the net operating profit.
FFI entered into an exclusive feedstock agreement with Ocean County Recycling Center (OCRC) in which OCRC agreed to supply FFI with 117,000 to 165,000 tons per year of suitable feedstock materials for a proposed 52 million gallon waste-to-ethanol production facility in Toms River, New Jersey in exchange for FFI converting the materials into synthesis gas. Additionally, FFI also agreed to pay approximately $14.00 per ton of oversized feedstock materials which shall not exceed 2% of the total yearly feedstock stream. The feedstock agreement also secures FFI access to pre-approved state and local environmental permits to operate the facility, pending standard building permits and procedural, final consent from necessary regulatory agencies, as well as the on-site, immediately available source of feedstock suitable for conversion into ethanol.
On November 9, 2005, FFI received preliminary approval for $84 million in tax-exempt bond financing by the New Jersey Economic Development Authority. After the statutory ten-day review period by the Governor's office, the preliminary bond approval was fully executed and officially adopted by the state of New Jersey on December 5, 2005. The official resolution approval enables FFI to proceed with a number of due diligence steps--including the bond rating, underwriting, and placement process--necessary to secure the funds. The tax-exempt bonds will be used for the design, construction, and initial start-up operations of the first-of-its-kind 52 million gallon waste-to-ethanol production facility located in Toms River, New Jersey.
On January 11, 2006, former Managing Director of the New Jersey Economic Development Authority Frank Mancini joined FFI's team as a consultant to complete the bond underwriting process for the Toms River facility and to assist in raising capital through municipal bonds to launch additional waste-to-ethanol production facilities at other potential sites in the northeast, midwest and on the west coast. It is anticipated, but not guaranteed, that financing through the issuance of the bonds will be secured and is among the major priorities moving forward.
In addition to developments pertaining to financing, FFI entered into a contract with Tennessee-based Eco-Energy, Inc. on December 15, 2005 for the sale of 50 million gallons of ethanol per year. The ethanol purchase contract between FFI and Eco-Energy, Inc. was revised on February 27, 2006 to lock-in a 10-year commitment. Eco-Energy would be purchasing approximately all of the annual production or output of FFI's waste-to-ethanol facility once operational in Toms River, New Jersey.
In terms of technology, FFI and Connecticut-based Startech Environmental Corporation concluded a mutually-exclusive global strategic alliance on March 13, 2006 through which FFI gains access to Startech's innovative, proven and proprietary Plasma Converter System. Both FFI and Startech agreed to cooperate in identifying and pursuing business opportunities in which Startech's products and equipment are integrated with FFI's equipment and production process to operate waste-to-ethanol conversion facilities not only within the U.S. ethanol market but also internationally.
On March 28, 2006, Fred Frisco joined the FFI team to assist with worldwide investor relations.
On April 4, 2006, FFI retained the consulting services of ethanol expert Douglas A. Durante to provide information and data about the ethanol industry and advise us on the challenges and opportunities we face as we develop and pursue options for entering and supplying the ethanol market.
Within the framework of our business model to launch additional waste-to-ethanol production facilities at other potential sites in the northeast, midwest and on the west coast, FFI announced on April 10, 2006 that it had entered into an agreement with Ambient Energy Corporation (Ambient) to begin securing a potential site with abundant waste coal feedstock in eastern Pennsylvania for a 250 million gallon per year waste-to-ethanol production facility. This facility would be in addition to the one under development in Toms River, New Jersey.
Over the next twelve months, we anticipate that FFI's development efforts will continue to focus on finalizing plant designs as well as securing financing and additional locations. These two key elements will play critical roles in the establishment of FFI's first waste-to-ethanol conversion facility, which, in turn, will serve as a prototype for launching additional facilities at other potential sites domestically and internationally. While we believe that the appropriate technologies for waste-to-ethanol conversion are commercially available, there is, however, no guarantee that commercially available technologies will be appropriate in every instance for producing ethanol in FFI's proposed facility. Moreover, there could be unexpected problems or delays in the funding, construction and operation of the facility. There is no guarantee that FFI will be successful in raising the capital required for this project through the underwriting of the bond authorization for which it has been approved. Over the next twelve months we anticipate that FFI will require a minimum of approximately $1,000,000 to sustain operations. We anticipate raising this money through debt and/or equity financing.
Our Employees
For the year ended December 31, 2005, we have relied on the services of outside consultants for services and currently have one full time employee. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. We do anticipate our employment base will increase to approximately 5 full time employees as some contractors convert to employee status during the next 12 months. As we continue to expand, we will incur additional cost for personnel. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.
We believe that the success of our business will depend, in part, on our ability to attract, retain, and motivate highly qualified sales, technical and management personnel, and upon the continued service of our senior management and key sales and technical personnel.
We have two executive officers. Patrick Herda is the President and Chief Executive Officer. Jack Young is our Vice President for Corporate Development. In addition to the named officers, we retain the following independent contractors and consultants: 24- technical and scientific, 5-business consultants, 1-lobbyist, 4-legal, and 2-administrative. Our employees are currently not represented by a collective bargaining agreement, and we believe that our relations with our employees are good.
We cannot assure you that we will be able to successfully attract, retain, and motivate a sufficient number of qualified personnel to conduct our business in the future.
Cautionary Factors that may Affect Future Results
We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business and our products. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us.
Trends, Risks and Uncertainties
The Company has sought to identify what it believes to be the most significant risks to its business as discussed in "Risk Factors" below, but cannot predict whether or not or to what extent any of such risks may be realized nor can there be any assurances that the Company has identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to the Company's common stock.
Limited operating history; anticipated losses; uncertainly of future results
The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The Company's prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the business model that the Company intends to market and the potential acceptance of the Company's business model. The Company will be incurring costs to develop, introduce and enhance its products, to establish marketing relationships, to acquire and develop products that will complement each other, and to build an administrative organization. To the extent that such expenses are not subsequently followed by commensurate revenues, the Company's business, results of operations and financial condition will be materially adversely affected. There can be no assurance that the Company will be able to generate sufficient revenues from the sale of its products and services. The Company expects that negative cash flow from operations may exist for the next 12 months as it continues to develop and market its products and services. If cash generated by operations is insufficient to satisfy the Company's liquidity requirements, the Company may be required to sell additional equity or debt securities. The sale of additional equity or convertible debt securities would result in additional dilution to the Company's shareholders.
Risk Factors:
INTELLECTUAL PROPERTY RIGHTS
The company regards its patents, trademarks, trade secrets, and other intellectual property (collectively, the "Intellectual Property Assets") as critical to its success. The company relies on a combination of patents, trademarks, and trade secret and copyright laws, as well as confidentiality procedures, contractual provisions, and other similar measures, to establish and protect its Intellectual Property Assets.
We generally enter into confidentiality and invention agreements with our employees and consultants. However, patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:
Our pending patent applications may not be granted for various reasons, including the existence of similar patents or defects in the applications; parties to the confidentiality and invention agreements may have such agreements declared unenforceable or, even if the agreements are enforceable, may breach such agreements;
The costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement cost prohibitive;
Even if we enforce our rights aggressively, injunctions, fines and other penalties may be insufficient to deter violations of our intellectual property rights; and
Other persons may independently develop proprietary information and techniques that, although functionally equivalent or superior to our intellectual proprietary information and techniques, do not breach our patented or unpatented proprietary rights.
Because the value of our company and common stock is rooted primarily in our proprietary intellectual property, our inability to protect our proprietary intellectual property or gain a competitive advantage from such rights could have a material adverse effect on our business.
In addition, we may inadvertently be infringing on the proprietary rights of other persons and may be required to obtain licenses to certain intellectual property or other proprietary rights from third parties. Such licenses or proprietary rights may not be made available under acceptable terms, if at all. If we do not obtain required licenses or proprietary rights, we could encounter delays in product development or find that the development or sale of products requiring such licenses is foreclosed.
We anticipate that any business model we develop will be subject to change. At this time it is impossible for us to predict the degree to which demand for our products will evolve or whether any potential market will be large enough to provide any meaningful revenue or profit for us.
Our products and technologies are still in development and there can be no assurances as to when and whether we will be able to commercialize our products and technologies. Our technologies have never been utilized on a large-scale commercial basis.
Over the next 12 months we expect that we will continue to generate losses until at least such time as we can generate additional revenue. No assurance can be given that we can complete the development of any technology or that, if any technology is fully developed, it can be manufactured and marketed on a commercially viable basis. Furthermore, no assurance can be given that any technology will receive market acceptance. Being a company with limited resources, we are subject to all risks inherent with the establishment of a developing or new business. The technologies we are developing may be regulated now or in the future by the United States Government and may subject to regulatory requirements or export restrictions.
Management of Growth
The Company expects to experience growth in the number of employees relative to its current levels of employment and the scope of its operations. In particular, the Company may need to hire scientists, as well as sales, marketing and administrative personnel. Additionally, acquisitions could result in an increase in employee headcount and business activity. Such activities could result in increased responsibilities for management. The Company believes that its ability to attract, train, and retain qualified technical, sales, marketing, and management personnel will be a critical factor to its future success. During strong business cycles, the Company may experience difficulty in filling its needs for qualified personnel.
The Company's future success will be highly dependent upon its ability to successfully manage the expansion of its operations. The Company's ability to manage and support its growth effectively will be substantially dependent on its ability to implement adequate financial and management controls, reporting systems, and other procedures and hire sufficient numbers of financial, accounting, administrative, and management personnel. The Company is in the process of establishing and upgrading its financial accounting and procedures. There can be no assurance that the Company will be able to identify, attract, and retain experienced accounting and financial personnel. The Company's future operating results will depend on the ability of its management and other key employees to implement and improve its systems for operations, financial control, and information management, and to recruit, train, and manage its employee base. There can be no assurance that the Company will be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management controls and procedures, and any inability to do so would have a material adverse effect on the Company's business, results of operations, and financial condition.
The Company's future success depends upon its ability to address potential market opportunities while managing its expenses to match its ability to finance its operations. This need to manage its expenses will place a significant strain on the Company's management and operational resources. If the Company is unable to manage its expenses effectively, the Company's business, results of operations, and financial condition may be materially adversely affected.
Risks associated with acquisitions
As a major component of its business strategy, the Company expects to acquire assets and businesses relating to or complementary to its operations. Any acquisitions by the Company would involve risks commonly encountered in acquisitions of companies. These risks would include, among other things, the following: the Company could be exposed to unknown liabilities of the acquired companies; the Company could incur acquisition costs and expenses higher than it anticipated; fluctuations in the Company's quarterly and annual operating results could occur due to the costs and expenses of acquiring and integrating new businesses or technologies; the Company could experience difficulties and expenses in assimilating the operations and personnel of the acquired businesses; the Company's ongoing business could be disrupted and its management's time and attention diverted; the Company could be unable to integrate successfully.
Liquidity and Working Capital Risks; Need for Additional Capital to Finance Growth and Capital Requirements
We have had limited working capital and we are relying upon notes (borrowed funds) to operate. We may seek to raise capital from public or private equity or debt sources to provide working capital to meet our general and administrative costs until net revenues make the business self-sustaining. We cannot guarantee that we will be able to raise any such capital on terms acceptable to us or at all. Such financing may be upon terms that are dilutive or potentially dilutive to our stockholders. If alternative sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans in accordance with the extent of available funding.
New Business
We are a new business and you should consider factors which could adversely affect our ability to generate revenues, which include, but are not limited to, maintenance of positive cash flow, which depends on our ability both to raise capital and to obtain additional financing as required, as well as the level of sales revenues.
Potential fluctuations in quarterly operating results -
Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside our control, including: the demand for our products; seasonal trends in purchasing, the amount and timing of capital expenditures and other costs relating to the development of our products; price competition or pricing changes in the industry; technical difficulties or system downtime; general economic conditions, and economic conditions specific to the healthcare industry. Our quarterly results may also be significantly impacted by the impact of the accounting treatment of acquisitions, financing transactions or other matters. Particularly at our early stage of development, such accounting treatment can have a material impact on the results for any quarter. Due to the foregoing factors, among others, it is likely that our operating results will fall below our expectations or those of investors in some future quarter.
Dependence Upon Management
Our future performance and success are dependant upon the efforts and abilities of our Management team, Directors and key contractors. If we lost the services key members of management or other key employees before we could get a qualified replacement, that loss could materially adversely affect our business. We do not maintain key man life insurance on any of our Management.
Lack of Independent Directors
We cannot guarantee that our Board of Directors will have a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers, who are also principal stockholders and directors, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between the Company and its stockholders generally and the controlling officers, stockholders, or directors.
Limitation of Liability and Indemnification of Officers and Directors
Our officers and directors are required to exercise good faith and high integrity in our Management affairs. Our Articles of Incorporation provide, however, that our officers and directors shall have no liability to our shareholders for losses sustained or liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase, or derived an improper benefit from the transaction. Our Articles and By-Laws also provide for the indemnification by us of the officers and directors against any losses or liabilities they may incur as a result of the manner in which they operate our business or conduct the internal affairs, provided that in connection with these activities they act in good faith and in a manner that they reasonably believe to be in, or not opposed to, the best interests of the Company, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations. To further implement the permitted indemnification, we have entered into Indemnity Agreements with our officers and directors.
Audit's Opinion Expresses Doubt About The Company's Ability To Continue As a "Going Concern".
The independent auditor's report issued in connection with the audited financial statements of the company for the period ended December 31, 2005, expresses "substantial doubt about its ability to continue as a going concern," due to the Company's status as a development stage company and its lack of significant operations. If the Company is unable to develop its operations, the Company may have to cease to exist, which would be detrimental to the value of the Company's common stock. The Company can make no assurances that its business operations will develop and provide the Company with significant cash to continue operations.
Delays in the Introduction of Our Products
The Company may be subject to regulation by numerous governmental authorities. Failure to obtain regulatory approvals or delays in obtaining regulatory approvals by the Company, its collaborators or licensees would adversely affect the marketing of products developed by the Company, as well as hinder the Company's ability to generate product revenues. Further, there can be no assurance that the Company, its collaborators or licensees will be able to obtain the necessary regulatory approvals. Although the Company does not anticipate problems satisfying any of the regulations involved, the Company cannot foresee the possibility of new regulations that could adversely affect the business of the Company.
Dependence on Independent Parties to Produce our Products
The Company may be dependent upon current and future collaborations with and among independent parties to research, develop, test, manufacture, sell, or distribute our products. The Company intends to continue to rely on such collaborative arrangements. Some of the risks and uncertainties related to the reliance on such collaborations include, but are not limited to 1) the ability to negotiate acceptable collaborative arrangements, 2) the fact that future or existing collaborative arrangements may not be successful or may not result in products that are marketed or sold, 3) such collaborative relationships may actually act to limit or restrict the Company, 4) collaborative partners are free to pursue alternative technologies or products either on their own or with others, including the Company's competitors 5) the Company's partners may terminate a collaborative relationship and such termination may require the Company to seek other partners, or expend substantial additional resources to pursue these activities independently. These efforts may not be successful and may interfere with the Company's ability to manage, interact and coordinate its timelines and objectives with its strategic partners.
Government Regulation
Our products and technologies and our ongoing research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. Depending on the technology, regulatory approvals and certification may be necessary from the Department of Transportation, Department of Energy, Nuclear Regulatory Commission, Environmental Protection Agency, Department of Defense, and other federal, state, or local facilities. Failures or delays by the company or its affiliates or licensees in obtaining the required regulatory approvals would adversely affect the marketing of products that the company develops and our ability to receive product revenues or royalties.
Limited Market Due To Penny Stock
The Company's stock differs from many stocks, in that it is a "penny stock." The Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks." These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of 1934, as amended. Because our securities probably constitute "penny stock" within the meaning of the rules, the rules would apply to us and our securities. The rules may further affect the ability of owners of our stock to sell their securities in any market that may develop for them. There may be a limited market for penny stocks, due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all. Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34- 29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include: - Control of the market for the security by one or a few broker- dealers that are often related to the promoter or issuer; - Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; - "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; - Excessive and undisclosed bid-ask differentials and markups by selling broker- dealers; and - The wholesale dumping of the same securities by promoters and broker- dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. Furthermore, the "penny stock" designation may adversely affect the development of any public market for the Company's shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in "penny stock" is suitable for customers. Penny stocks are securities (i) with a price of less than five dollars per share; (ii) that are not traded on a "recognized" national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in the Company's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock." Rule 15g-9 of the Commission requires broker- dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company's stockholders to resell their shares to third parties or to otherwise dispose of them.
Potential Inability of Officers to Devote Sufficient Time to the Operations of the Business
Unless we are able to secure additional funding for operations and payment of officers salaries, we cannot guarantee that we will be able to retain current management or attract additional personnel and they will be able to continue to devote sufficient time to the operations of the business.
The company operates its business by utilizing technical expertise to develop innovative and emerging technologies that we believe have significant market potential. We strive to develop technologies identified as viable to the point that they may be licensed, joint-ventured or sold to an industrial or governmental entity, or otherwise commercialized. We do not maintain technical facilities or a laboratory of our own. Our business model is to utilize the technical facilities and capabilities of appropriate outside laboratories under contract to us when appropriate. By taking advantage of existing technology infrastructures, this preferred method of technology development reduces capital investment costs and the length of time required to develop technologies. This is especially important in light of the extensive requirements for the government approval and safe handling of nuclear materials. Any development efforts contemplated or planned that involve nuclear materials are intended to be carried out by an existing and already licensed scientific or technical facility through the establishment of a contractual relationship. This approach also mitigates the potential liability involved with the handling and use of nuclear materials. We have identified several facilities in the United States and abroad that have the capabilities we may require in the future. As an example, we may contract with or establish a teaming relationship with a U.S. national laboratory such as Los Alamos National Labs, Lawrence Livermore National Labs, or others that have a history and willingness to perform work under well-established contracting channels such as Cooperative Research and Development Agreements (CRADA) and Work for Others (WFO) agreements. Although we believe this is adequate for our development purposes and preferable in the case of nuclear material handling, we may choose to operate our own laboratory facility in the future, subject to available capital.
When a technology is deemed market ready, the company will offer it to potential customers for commercial licensing. As an example, after the successful prototype construction and operation of our shielded nuclear material detector, we will offer the sensor system to companies that have the appropriate experience to integrate the sensor into a working environment to meet the performance criteria as required by the end user. We do not intend to establish manufacturing operations of our own. Nor do we intend to establish extensive marketing and distribution operations of our own. Our business model is centered on the sale and/or licensing of our technologies through strategic partnerships with companies that have established manufacturing, sales and marketing infrastructures. By way of example, companies that could be potential partners for our shielded nuclear material detection technology may be: Lockheed-Martin, General Atomics, Raytheon and other such companies. Currently we do not have any partnership agreements or material contracts with the aforementioned companies.
Our primary role is to add value by initially developing, and providing the enabling core intellectual property to our customers and partners. Typically, after licensing, we will remain involved as a consultant for the customer to ensure appropriate technology transfer to the customer and to assist with any improvements or modification that may be needed during the course of commercialization. This is a highly leveraged business model that is believed by management to offer the greatest advantages in terms of corporate flexibility, and reduced capital requirements compared to a traditional research and development operation. However, management is opportunistic and may consider adopting a production model if the right conditions are met. We will pursue all avenues that will lead to the commercialization of our technologies.
Since our business model is to establish partnerships during development and ultimately as production and marketing partners for our technologies, we are constantly looking for and evaluating potential strategic partners. We especially require partnerships to take advantage of the business opportunities available through government agencies such as the Homeland Security Advanced Projects Agency (HSARPA), The Defense Advanced Research Projects Agency (DARPA) and others. A partnering relationship with experienced companies that have a positive track record of providing products or services to the government agencies that are our potential customers in the related field will probably increase the likelihood that we could secure money from the government to develop one of our technologies for a specific government need.
The following is a general example of a technology development plan:
1.) A market opportunity is identified in an area of interest to us. 2.) A technical assessment of the opportunity and existing related technologies is performed with an appropriate combination of in-house and outside analysis. 3.) If the technical assessment indicates a viable market, research is performed to identify and define an appropriate technology. 4.) The technology identified in the previous step is reevaluated in light of the expected development costs and market opportunity. A decision is made to proceed with identified technology, suspend development, or research supplementary approaches. 5.) Intellectual property is secured through initiation of the patent process and/or identified technology is licensed. Selected technologies may be kept proprietary or trade secret. 6.) Selected technology is validated by an appropriate laboratory under contract. 7.) Once successfully validated, the technology is then marketed to appropriate entities for licensing or sale. Depending on the technology being developed, a strategic partnership arrangement may be consummated at many different points along the development track.
The company intends to commercialize our technologies through: strategic partners, joint-venture partners, licensees, and other customers who will carry out project implementation, manufacturing, end-user marketing activities, and deployment of our technologies. We intend to generate revenue from the licensure, sale, and other usage agreements associated with our technologies.
During 2004, the company filed two U.S. patent applications for our (Tritiated Water Remediation)TWR technology that are currently pending; and to date, we have filed three U.S. patent applications for our Nuclear Weapons Detection Technology. Furthermore, the company expects to file additional patent applications in 2006 for our TWR technology, Nuclear Weapons Detection Technology, and our Nuclear Micro Battery Technology.
On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc.(IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology.
Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a Bi-annual basis in the amount of $485,000 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight(8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. On January 10, 2006 we modified the March 15, 2005 licensing agreement with I.P. Technology Holding, Inc. Wherein license fees totaling $465,416 on December 31, 2005 were deferred until April 2006 and IPTH's payment schedule was changed to bi-annual.
We continued our strategic relationship with Multipartner, S.P.A, an Italian Corporation, for consulting and developmental services in Europe; and as a result of this relationship, we now have access to offices in Rome, Italy. Currently we are poised to establish our European headquarters in Rome, Italy. Our offices in Rome will serve as a base for our European operations from which we intend to market our technologies, explore technologies being developed in Europe, and utilize European technical resources for technology development where applicable.
Additionally in 2005, we have worked with our Russian office and scientific advisory board to explore additional technology and developmental opportunities with the Russian scientific establishment. Previously we were researching the expansion of our weapons detection technology portfolio by investigating the acquisition of rights to a Russian developed Improvised Explosive Detection Technology. We have elected to forgo pursuit of this technology in order to focus resources on other projects.
During 2005, we continued business development operations in Moscow. The Moscow office is staffed by Dr. Alexander Nigmatulin, our Director of Russian business development. The Russian office is responsible for identifying licensable technologies and to secure additional research capacity within the Russian academic and scientific establishment as the need arises. Additionally, the Moscow office will contract with qualified research facilities and personnel as well as assess any additional business opportunities that may exist within the Russian scientific and technical infrastructure. We initially hired Dr. Nigmatulin in February 2003 on a contingency basis. At present, we have a shared office arrangement with Dr. Nigmatulin at the Moscow Institute of Steel and Alloys and do not have a commitment or requirement for rent. We believe that this arrangement is adequate for our needs and activities in Russia. During the last twelve months our Director of Russian Business Development, assembled a scientific advisory board consisting of Twenty-four selected scientists from a wide spectrum of disciplines and areas of expertise. The prominent scientists come from organizations such as the Russian Academy of Sciences, the Russian Defense Industrial complex, and private and state owned R&D companies. The scientists have agreed to remain in standby mode until presented with a specific project. The terms and conditions of a contractual consulting arrangement with a selected scientist or group of scientists will be negotiated at that time. To date we have not activated the services of the Russian Scientific Advisory Board. Currently our Moscow office is investigating various anti-terrorist technologies and additional tritiated water remediation methods developed within the Russian scientific community.
In June of 2003, Patrick Herda, a director, and previously Vice President of Business Development was appointed to the position of President and Chief Executive Officer by the board of directors. We devoted a significant portion of our time to evaluating, planning, and reorganizing the business strategy of the company. These activities were undertaken with the goal of structuring the company for the highest probability of securing long-term operating capital to fund our operations. We evaluated our portfolio of projects and technologies in relation to the following criteria: market demand and trends, capital requirements, government regulations, time and effort to bring a technology to market, expected time to return revenue, financeability, our available resources, and overall synergism with other projects. Our goal was to come up with a corporate strategy and technology mix that would be the best fit with our corporate strengths. In addition to this, we wanted to reduce the number of projects we were pursuing, streamline operations, and reduce operating expenditures.
After careful evaluation, we determined that it would be in the company's best interest to indefinitely suspend work on the photonuclear reactor technology and any related or derivative projects. We evaluated potential market demand in light of current economic conditions and redirection of government resources to improving homeland security and those appropriated for military expenditures. We concluded that until the economic situation improves greatly, and the threat of homeland terrorism is sufficiently mitigated, and the country is no longer on a wartime stance, a new type of nuclear reactor technology would be extremely difficult to fund, develop, and build. As of April 5, 2004, we sent notice to Global Atomics Licensing, Ltd.(GALL), the licensor of the technology, and unilaterally terminated the license agreement which was originally executed on September 11, 2001. Currently no royalties or commissions are due to GALL.
Based upon our evaluation, we have refocused our business objectives in the previously mentioned areas of Homeland Security, specifically portable nuclear weapon and shielded nuclear material detection, Nanotechnology, specifically nuclear micro battery technology, and nuclear remediation, specifically tritiated water processing. Over the next 12 months, we plan on raising working capital to fund development of these technological areas through private placements of debt or equity, using our common stock in lieu of cash, and applying for government grants, where appropriate.
Our significant assets include our technology license agreement with IP Technology Holding, Inc. Our portfolio of intellectual property which includes trade secrets and know-how in the areas of nuclear weapon detection via gravitational anomaly, detritiation of nuclear wastewater; and our license option agreement for nuclear micro battery technology covered by U.S. Patents Nos. 5,087,533; 6,118,204; 6,238,812, as well as our contractual relationship with our technical consultant Boris Muchnik.
OUR TECHNOLOGIES:
GRAVIMETRIC SHIELDED NUCLEAR MATERIAL/PORTABLE NUCLEAR WEAPON DETECTOR (Patents Pending)
We are developing a new and unique technology to be integrated into a passive primary portal system that would screen trucks and shipping containers in real time for the presence of shielded nuclear weapons useable materials such as Uranium(U-235) and Plutonium (Pu-239).
Radiation emitted from weapons grade Uranium and Plutonium is relatively weak and easy to shield. Identification of these materials with conventional radiation detectors is unreliable. When the radiation emitted from these materials is effectively shielded, detection by conventional means is not possible.
The company is working on funding the prototype construction of a highly sensitive, portable, low cost, and ruggedized detection device that responds to minute gravitational gradient anomalies. These disturbances are produced by high-density nuclear materials such as Uranium and Plutonium. Unlike radiation, the force of gravity cannot be shielded and is a unique new concept for the detection of shielded nuclear weapons. The company is unaware of any other device with similar targeted performance and size.
This technology is protected by three pending patent applications. We filed our first patent application in October 2004. Subsequently we filed two additional patent applications in January 2005. On October 18, 2005 we filed for our first international patent on this technology via the Patent Cooperation Treaty (PCT). We expect further development work on the intellectual property relating to this technology and expect to file additional patents over the next twelve months.
On March 15, 2005, we entered into a License Agreement with I.P. Technology Holding, Inc.(IPTH), a New Jersey corporation. We granted I.P. Technology a limited license for the right to the purchase and resell products based on our patent pending technology for the detection of shielded fissile nuclear materials to all non-federal police and fire agencies in the United States for the patent life of the technology.
Additionally, IPTH has the right to sub-license their rights under the terms of the license with the approval of the company. IPTH has agreed to pay Nuclear Solutions the sum of Nine Million Seven Hundred Thousand ($9,700,000) Dollars over a ten (10) year period, payable on a Bi-annual basis in the amount of $485,000 Dollars, or more, until paid in full. To the extent this technology is commercialized, we will be entitled to an Eight(8%) percent royalty payment on all I.P. Technology Holding gross revenue related to this technology. On January 10, 2006 we modified the March 15, 2005 licensing agreement with I.P. Technology Holding, Inc. Wherein license fees totaling $465,416 on December 31, 2005 were deferred until April 2006 and IPTH's payment schedule was changed to bi-annual.
Over the next 12 months our development plan for our gravimetric nuclear material detector is as follows:
- Continue development of the related intellectual property and file additional patent applications.
- Secure funding of approximately $500,000 to $1.5M through debt or equity instruments to fund this project.
- Secure a strategic commercial development partner.
- Build and demonstrate a proof-of principle prototype.
- Seek additional licensees.
NUCLEAR MICRO-BATTERIES
This program is aimed at developing embeddable nuclear micro-batteries that can supply long-lasting power for computer chips, micromotors, remote sensors, implantable medical devices, and other defense and aerospace applications. This technology is also known as nuclear micro power generation or RIMS (radioisotope micro power sources). The science of nanotechnology is the design of Electrical and mechanical systems smaller than the width of a human hair. The field of nanotechnology includes making functional microscopic mechanical devices like motors, gear systems, and pumps. This field also includes making electronic circuits on an atomic scale. An opportunity exists to address the problem of providing reliable power to these devices for a long period of time. As electronic circuits and nanomachines grow ever smaller, a problem is created by the fact that conventional batteries cannot shrink to the same size and still hold enough power for the device to function for a reasonable period of time. Our nuclear micro battery technology may solve this problem by drawing energy from an embedded radioactive isotope due to the fact that nuclear batteries are known to have power densities up to 1,000 times greater than achievable with conventional chemical battery technology.
In November 2003, the Company entered into a licensing option agreement for three issued U.S. patents for nuclear micro-battery technology (Pat. Nos. 5,087,533; 6,118,204; 6,238,812) with Jackie Brown. The company purchased a one-year option to exclusively license the technology, with an additional six month first right of refusal, in exchange for 100,000 shares of our common stock. In January 2006, the company extended the license option rights under the terms of the agreement until January 2007 in exchange for the payment of all outstanding maintenance fees. When the company does choose to exercise its rights under the licensing option agreement, we will execute a license royalty agreement for 7% of the after tax profits on the sale or licensure of the technology to be paid to Ms. Brown.
Two of the three nuclear micro-battery patents the we hold a license option for(Pat. Nos. 5,087,533; and 6,118,204) have expired as a result of non-payment of patent maintenance fees by the prior assignee; however, the company has engaged the law firm of Greenberg and Lieberman, P.C. to make application for the revival of those patents and has paid all outstanding maintenance fees. The patent revivals are currently in process and we anticipate receiving further information from the USPTO within the next twelve months. We are currently developing the next generation of nuclear micro-battery technology that could render the previous patents obsolete. However, the reinstatement of the expired patents could offer an additional opportunity to block our competition from this market.
Subsequent to entering the licensing option agreement in November of 2003, we began efforts to form development partnerships to assist in the development of and to secure government funding for this technology. We have initiated the process of forming a teaming arrangement with Lawrence Livermore National Laboratories to further develop this technology. Previously, we anticipated finalizing a teaming relationship with Lawrence Livermore National Laboratories in 2005. This was not accomplished, due to lack of working capital to fund this development program in 2004. Management anticipates funding and launching this teaming relationship in 2007.
Our nuclear micro battery technology relies on the application of tritiated amorphous silicon as a betavoltaic, thin-film, intrinsic energy conversion device. A betavoltaic battery is a nuclear battery that converts energy from beta particles released by a beta emitting radioactive source, such as tritium, into electrical power. Common semiconductor designs of betavoltaic batteries use a semiconductor p-n junction device that is either directly exposed to beta decay (Lucent Technologies, Betabatt) or is illuminated by photons created when betas strike a phosphor(Trace Photonics, Inc.). These common betavoltaic batteries suffer from technical problems in that the directly irradiated cells suffer material degradation of the p-n junction limiting the operating life to days while the photo conversion systems are indirect and limited by efficiency to less than 1%. Furthermore, another limitation of conventional betavoltaic batteries and P-N junction devices is the self-absorption of beta energy in the radioactive source itself. In order to reduce the self-absorption of beta energy we incorporate the radioactive isotope into the lattice of a semiconductor.
Tritiated amorphous silicon is a novel thin film material where a suitable radioisotope is bonded with silicon in the amorphous network or adjacent to it. Thin-film contact potential tritiated amorphous silicon cells have been built and operation verified by an independent laboratory.
We are aware of several types of nuclear batteries in development. By organizations such as Lucent, The University of Wisconsin, and Trace Photonics, Inc. and Betabatt, Inc. While we believe that our technology is superior due to higher resistance to radiation degradation, our competitors have greater access to capital and resources.
The operation of our nuclear micro battery was proven by an independent lab. However it is still considered a development stage technology. We cannot guarantee that this technology will receive any additional patents or that the technology can be successfully commercialized.
Over the next 12 months we plan on raising capital in the amount of $500,000 to $1,000,000 to fund the development of our nuclear micro-battery technology. We also plan on funding a development program with Lawrence Livermore National Laboratory to build new battery prototypes intended for Micro-Electro-Mechanical Systems(MEMS) applications. We anticipate raising the money to fund this project through a combination of debt and equity financing.
TRITIATED WATER REMEDIATION TECHNOLOGY (TWR) (Patents Pending)
We have identified a need in the nuclear industry for an inexpensive method for tritiated water remediation by way of isotope separation. This is a method to reduce the volume of stored water contaminated with tritium, the radioactive isotope of hydrogen.
We are currently developing a tritiated water remediation method using a combination of in-house and external expertise. Our TWR development program is aimed at developing a tritiated water separation technology that can be transportable and modular or integrated directly into a nuclear power plant. The specific target market for this technology is tritium contaminated water (tritiated water) produced as a by-product of nuclear complex activities. Data indicates the Unites States houses approximately Six billion gallons of tritiated water with an additional 11 million gallons created annually. Countries such as Japan, the United Kingdom, France, and Germany also have this problem.
As of the date of this report, we anticipate the overall development cost not to exceed $500,000. However, since this is a development stage technology the final development cost may differ substantially from what we currently anticipate. We will need to raise additional money to fund this project. We intend to use debt, equity or a combination thereof to fund this project. There is no guarantee that we will be able to successfully raise the required funds for operations, or that such funds will be available on terms satisfactory to us. Any inability to raise additional funds would require that we significantly scale back our planned operations and would lengthen the period of time required to bring the technology to the marketplace.
During 2004 we filed 2 patent applications with the United States Patent and Trademark Office to secure the rights to the tritium remediation technology and the technology is now patent pending. IN 2005 these patent applications published and are still pending. Additionally in 2005 we filed 2 international patent applications based on our previously filed U.S. Patent Applications. Over the next 12 months we plan on developing this technology further and filing for additional patent protection. However, it is possible that we may choose not to file a patent application on the technology if it is determined to be contrary to the security interests of the United States. TWR technology is a development stage technology. We cannot guarantee that we will either receive any patents on the technology or that the technology can be successfully commercialized.
Over the next 12 months we plan on raising capital in the amount of approximately $500,000 to fund the further development and proof-of-principal demonstration of our tritiated water remediation technology. We anticipate raising the money to fund this project through a combination of debt and equity financing.
Progress in the development of our technologies have been slower than expected due to the lack of personnel and lack of working capital. We anticipate increasing staffing levels over the next 12 months. We estimate that with working capital of $2,000,000 dollars at least one of our technologies will be fully demonstrable and ready for commercial licensing within 18 months.
Entering the Renewable Fuels Sector with Fuel Frontiers, Inc. (formerly Future Fuels, Inc.)
Introduction
In 2005 the company entered the renewable fuels business through a new subsidiary called Fuel Frontiers, Inc. (formerly known as Future Fuels, Inc.). The primary business of Fuel Frontiers, Inc. (FFI) is to plan, design, finance, construct, and operate multiple ethanol synthesis facilities worldwide to transform virtually cost-free waste materials such as used tires, waste coal, solid and liquid municipal wastes, biomass, and other similar low-value societal refuse into high-value fuel-grade ethanol.
Initially, we plan on focusing our efforts in the proximity of the east and west coasts of the United States. Over the next twelve months, we anticipate expanding our project development efforts internationally as opportunities arise and as our capital and human resources permit.
We intend to build our facilities with modular expansion capability to allow for increased future production and/or gasification of additional or diverse feedstock (waste materials). As of the date of this report, we are currently in negotiations to retain CH2MHILL/ Lockwood Greene for design engineering, procurement, construction, and production operations for our first facility in the planning stages at Toms River, NJ. As a matter of policy and our business model, we intend to outsource engineering, procurement, construction as well as daily facility management and operations of any future facilities to qualified providers such as CH2MHILL/Lockwood Greene or other similar companies.
Due to the business model differences between the parent company Nuclear Solutions, Inc. and its subsidiary Fuel Frontiers, Inc., management anticipates establishing an exploratory committee to periodically evaluate if and when business conditions warrant a formal spin-off of FFI as a separately registered public entity. It is anticipated that the key criteria which will be used to make this determination may include; facilitating access to capital in a manner consistent and suitable for the company's specific business environment, allowing for a clearer assessment of each company's respective financial performance, encouragement of separate corporate cultures, increased management independence with specialized focus towards core business operations and the potential for establishing equity-based employee incentive programs linked directly and independently to the employees respective employer.
System Overview
The FFI approach for the production of ethanol occurs in two stages. In the first stage the feedstock material is fed into the Startech Plasma Converter System (PCS) which transforms the feedstock material into Plasma Converted Gas (PCG) (TM), a synthesis gas. FFI entered into a global strategic alliance with Startech Environmental Corporation that includes the use of this technology. The heart of Startech's Plasma Converter System contains a plasma field that reaches temperatures up to 30,000 degrees Centigrade. The plasma breaks down feedstock materials--such as waste coal, used tires, wood wastes, raw sewage, municipal solid wastes, biomass, low-grade waste-coal, and other agricultural by-products--to their core elements in a clean and efficient manner which generates significant amounts of PCG (synthesis gas). Excess heat energy is removed from the resulting PCG and recovered to generate electricity on-site which can be used to provide power to the system. The cooled PCG is then refined for purity and passed to the second stage. In the second stage, the refined PCG, which is composed primarily of carbon, hydrogen and oxygen, is converted into ethanol though a modified Fischer-Tropsch gas-to-liquids synthesis process similar in nature to one Dow Chemical pioneered in the mid 1980s. The process applies a metallic catalyst to chemically transform the Plasma Converted Gas into ethanol which is then refined to fuel-grade ethanol standards. This approach is not entirely new; as early as 1936 in Germany Fischer-Tropsch technology was used with coal-produced synthesis gas to produce alcohols on a commercial scale.
The FFI approach to ethanol production differs from other approaches for ethanol production mainly because our system can utilize feedstock materials that are normally considered waste to society and typically have negligible or no value and we do not employ a biomass based fermentation process that is typical in the ethanol production industry. Since we can utilize feedstock virtually free of cost, our feedstock economic model is highly immune to the uncertainties of weather, seasonality and competing market forces. The ability to use waste materials is a benefit of the Startech Plasma Converter System (PCS). The PCS system has the proven capability to transform a wide variety of waste materials into the Plasma Converted Gas (PCG) (synthesis gas) in an efficient and environmentally friendly manner.
Accomplishments to Date
Nuclear Solutions, Inc. concluded the legal formation of an independent subsidiary under the name Future Fuels, Inc. (FFI) on September 2, 2005. Subsequently on March 31, 2006, the subsidiary's name was changed to Fuel Frontiers, Inc. (FFI) and the website at www.fuelfrontiers.com was launched.
On September 23, 2005, the company appointed John C. (Jack) Young, an officer of Nuclear Solutions, Inc., as president of FFI.
On November 3, 2005, FFI signed a land lease agreement with Venture III Associates, a New Jersey General Partnership, and a permit and feedstock agreement with Ocean County Recycling Center, Inc., a New Jersey corporation.
FFI committed to a fifteen-year lease with Venture III Associates, renewable for up to 90 years, for an approximate six-acre site in Toms River, New Jersey to build a proposed 52 million gallon waste-to-ethanol production facility in exchange for 1,000,000 shares of FFI common stock, deferred until June 30, 2006. When the facility commences ethanol production, the company agrees to pay rent of $240,000 dollars annually in equal monthly installments, plus three (3%) percent of the net operating profit.
FFI entered into an exclusive feedstock agreement with Ocean County Recycling Center (OCRC) in which OCRC agreed to supply FFI with 117,000 to 165,000 tons per year of suitable feedstock materials for a proposed 52 million gallon waste-to-ethanol production facility in Toms River, New Jersey in exchange for FFI converting the materials into synthesis gas. Additionally, FFI also agreed to pay approximately $14.00 per ton of oversized feedstock materials which shall not exceed 2% of the total yearly feedstock stream. The feedstock agreement also secures FFI access to pre-approved state and local environmental permits to operate the facility, pending standard building permits and procedural, final consent from necessary regulatory agencies, as well as the on-site, immediately available source of feedstock suitable for conversion into ethanol.
On November 9, 2005, FFI received preliminary approval for $84 million in tax-exempt bond financing by the New Jersey Economic Development Authority. After the statutory ten-day review period by the Governor's office, the preliminary bond approval was fully executed and officially adopted by the state of New Jersey on December 5, 2005. The official resolution approval enables FFI to proceed with a number of due diligence steps--including the bond rating, underwriting, and placement process--necessary to secure the funds. The tax-exempt bonds will be used for the design, construction, and initial start-up operations of the first-of-its-kind 52 million gallon waste-to-ethanol production facility located in Toms River, New Jersey.
On January 11, 2006, former Managing Director of the New Jersey Economic Development Authority Frank Mancini joined FFI's team as a consultant to complete the bond underwriting process for the Toms River facility and to assist in raising capital through municipal bonds to launch additional waste-to-ethanol production facilities at other potential sites in the northeast, midwest and on the west coast. It is anticipated, but not guaranteed, that financing through the issuance of the bonds will be secured and is among the major priorities moving forward.
In addition to developments pertaining to financing, FFI entered into a contract with Tennessee-based Eco-Energy, Inc. on December 15, 2005 for the sale of 50 million gallons of ethanol per year. The ethanol purchase contract between FFI and Eco-Energy, Inc. was revised on February 27, 2006 to lock-in a 10-year commitment. Eco-Energy would be purchasing approximately all of the annual production or output of FFI's waste-to-ethanol facility once operational in Toms River, New Jersey.
In terms of technology, FFI and Connecticut-based Startech Environmental Corporation concluded a mutually-exclusive global strategic alliance on March 13, 2006 through which FFI gains access to Startech's innovative, proven and proprietary Plasma Converter System. Both FFI and Startech agreed to cooperate in identifying and pursuing business opportunities in which Startech's products and equipment are integrated with FFI's equipment and production process to operate waste-to-ethanol conversion facilities not only within the U.S. ethanol market but also internationally.
On March 28, 2006, Fred Frisco joined the FFI team to assist with worldwide investor relations.
On April 4, 2006, FFI retained the consulting services of ethanol expert Douglas A. Durante to provide information and data about the ethanol industry and advise us on the challenges and opportunities we face as we develop and pursue options for entering and supplying the ethanol market.
Within the framework of our business model to launch additional waste-to-ethanol production facilities at other potential sites in the northeast, midwest and on the west coast, FFI announced on April 10, 2006 that it had entered into an agreement with Ambient Energy Corporation (Ambient) to begin securing a potential site with abundant waste coal feedstock in eastern Pennsylvania for a 250 million gallon per year waste-to-ethanol production facility. This facility would be in addition to the one under development in Toms River, New Jersey.
Over the next twelve months, we anticipate that FFI's development efforts will continue to focus on finalizing plant designs as well as securing financing and additional locations. These two key elements will play critical roles in the establishment of FFI's first waste-to-ethanol conversion facility, which, in turn, will serve as a prototype for launching additional facilities at other potential sites domestically and internationally. While we believe that the appropriate technologies for waste-to-ethanol conversion are commercially available, there is, however, no guarantee that commercially available technologies will be appropriate in every instance for producing ethanol in FFI's proposed facility. Moreover, there could be unexpected problems or delays in the funding, construction and operation of the facility. There is no guarantee that FFI will be successful in raising the capital required for this project through the underwriting of the bond authorization for which it has been approved. Over the next twelve months we anticipate that FFI will require a minimum of approximately $1,000,000 to sustain operations. We anticipate raising this money through debt and/or equity financing.
Our Employees
For the year ended December 31, 2005, we have relied on the services of outside consultants for services and currently have one full time employee. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. We do anticipate our employment base will increase to approximately 5 full time employees as some contractors convert to employee status during the next 12 months. As we continue to expand, we will incur additional cost for personnel. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.
We believe that the success of our business will depend, in part, on our ability to attract, retain, and motivate highly qualified sales, technical and management personnel, and upon the continued service of our senior management and key sales and technical personnel.
We have two executive officers. Patrick Herda is the President and Chief Executive Officer. Jack Young is our Vice President for Corporate Development. In addition to the named officers, we retain the following independent contractors and consultants: 24- technical and scientific, 5-business consultants, 1-lobbyist, 4-legal, and 2-administrative. Our employees are currently not represented by a collective bargaining agreement, and we believe that our relations with our employees are good.
We cannot assure you that we will be able to successfully attract, retain, and motivate a sufficient number of qualified personnel to conduct our business in the future.
Cautionary Factors that may Affect Future Results
We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business and our products. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us.
Trends, Risks and Uncertainties
The Company has sought to identify what it believes to be the most significant risks to its business as discussed in "Risk Factors" below, but cannot predict whether or not or to what extent any of such risks may be realized nor can there be any assurances that the Company has identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to the Company's common stock.
Limited operating history; anticipated losses; uncertainly of future results
The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The Company's prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the business model that the Company intends to market and the potential acceptance of the Company's business model. The Company will be incurring costs to develop, introduce and enhance its products, to establish marketing relationships, to acquire and develop products that will complement each other, and to build an administrative organization. To the extent that such expenses are not subsequently followed by commensurate revenues, the Company's business, results of operations and financial condition will be materially adversely affected. There can be no assurance that the Company will be able to generate sufficient revenues from the sale of its products and services. The Company expects that negative cash flow from operations may exist for the next 12 months as it continues to develop and market its products and services. If cash generated by operations is insufficient to satisfy the Company's liquidity requirements, the Company may be required to sell additional equity or debt securities. The sale of additional equity or convertible debt securities would result in additional dilution to the Company's shareholders.
Risk Factors:
INTELLECTUAL PROPERTY RIGHTS
The company regards its patents, trademarks, trade secrets, and other intellectual property (collectively, the "Intellectual Property Assets") as critical to its success. The company relies on a combination of patents, trademarks, and trade secret and copyright laws, as well as confidentiality procedures, contractual provisions, and other similar measures, to establish and protect its Intellectual Property Assets.
We generally enter into confidentiality and invention agreements with our employees and consultants. However, patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:
Our pending patent applications may not be granted for various reasons, including the existence of similar patents or defects in the applications; parties to the confidentiality and invention agreements may have such agreements declared unenforceable or, even if the agreements are enforceable, may breach such agreements;
The costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement cost prohibitive;
Even if we enforce our rights aggressively, injunctions, fines and other penalties may be insufficient to deter violations of our intellectual property rights; and
Other persons may independently develop proprietary information and techniques that, although functionally equivalent or superior to our intellectual proprietary information and techniques, do not breach our patented or unpatented proprietary rights.
Because the value of our company and common stock is rooted primarily in our proprietary intellectual property, our inability to protect our proprietary intellectual property or gain a competitive advantage from such rights could have a material adverse effect on our business.
In addition, we may inadvertently be infringing on the proprietary rights of other persons and may be required to obtain licenses to certain intellectual property or other proprietary rights from third parties. Such licenses or proprietary rights may not be made available under acceptable terms, if at all. If we do not obtain required licenses or proprietary rights, we could encounter delays in product development or find that the development or sale of products requiring such licenses is foreclosed.
We anticipate that any business model we develop will be subject to change. At this time it is impossible for us to predict the degree to which demand for our products will evolve or whether any potential market will be large enough to provide any meaningful revenue or profit for us.
Our products and technologies are still in development and there can be no assurances as to when and whether we will be able to commercialize our products and technologies. Our technologies have never been utilized on a large-scale commercial basis.
Over the next 12 months we expect that we will continue to generate losses until at least such time as we can generate additional revenue. No assurance can be given that we can complete the development of any technology or that, if any technology is fully developed, it can be manufactured and marketed on a commercially viable basis. Furthermore, no assurance can be given that any technology will receive market acceptance. Being a company with limited resources, we are subject to all risks inherent with the establishment of a developing or new business. The technologies we are developing may be regulated now or in the future by the United States Government and may subject to regulatory requirements or export restrictions.
Management of Growth
The Company expects to experience growth in the number of employees relative to its current levels of employment and the scope of its operations. In particular, the Company may need to hire scientists, as well as sales, marketing and administrative personnel. Additionally, acquisitions could result in an increase in employee headcount and business activity. Such activities could result in increased responsibilities for management. The Company believes that its ability to attract, train, and retain qualified technical, sales, marketing, and management personnel will be a critical factor to its future success. During strong business cycles, the Company may experience difficulty in filling its needs for qualified personnel.
The Company's future success will be highly dependent upon its ability to successfully manage the expansion of its operations. The Company's ability to manage and support its growth effectively will be substantially dependent on its ability to implement adequate financial and management controls, reporting systems, and other procedures and hire sufficient numbers of financial, accounting, administrative, and management personnel. The Company is in the process of establishing and upgrading its financial accounting and procedures. There can be no assurance that the Company will be able to identify, attract, and retain experienced accounting and financial personnel. The Company's future operating results will depend on the ability of its management and other key employees to implement and improve its systems for operations, financial control, and information management, and to recruit, train, and manage its employee base. There can be no assurance that the Company will be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management controls and procedures, and any inability to do so would have a material adverse effect on the Company's business, results of operations, and financial condition.
The Company's future success depends upon its ability to address potential market opportunities while managing its expenses to match its ability to finance its operations. This need to manage its expenses will place a significant strain on the Company's management and operational resources. If the Company is unable to manage its expenses effectively, the Company's business, results of operations, and financial condition may be materially adversely affected.
Risks associated with acquisitions
As a major component of its business strategy, the Company expects to acquire assets and businesses relating to or complementary to its operations. Any acquisitions by the Company would involve risks commonly encountered in acquisitions of companies. These risks would include, among other things, the following: the Company could be exposed to unknown liabilities of the acquired companies; the Company could incur acquisition costs and expenses higher than it anticipated; fluctuations in the Company's quarterly and annual operating results could occur due to the costs and expenses of acquiring and integrating new businesses or technologies; the Company could experience difficulties and expenses in assimilating the operations and personnel of the acquired businesses; the Company's ongoing business could be disrupted and its management's time and attention diverted; the Company could be unable to integrate successfully.
Liquidity and Working Capital Risks; Need for Additional Capital to Finance Growth and Capital Requirements
We have had limited working capital and we are relying upon notes (borrowed funds) to operate. We may seek to raise capital from public or private equity or debt sources to provide working capital to meet our general and administrative costs until net revenues make the business self-sustaining. We cannot guarantee that we will be able to raise any such capital on terms acceptable to us or at all. Such financing may be upon terms that are dilutive or potentially dilutive to our stockholders. If alternative sources of financing are required, but are insufficient or unavailable, we will be required to modify our growth and operating plans in accordance with the extent of available funding.
New Business
We are a new business and you should consider factors which could adversely affect our ability to generate revenues, which include, but are not limited to, maintenance of positive cash flow, which depends on our ability both to raise capital and to obtain additional financing as required, as well as the level of sales revenues.
Potential fluctuations in quarterly operating results -
Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside our control, including: the demand for our products; seasonal trends in purchasing, the amount and timing of capital expenditures and other costs relating to the development of our products; price competition or pricing changes in the industry; technical difficulties or system downtime; general economic conditions, and economic conditions specific to the healthcare industry. Our quarterly results may also be significantly impacted by the impact of the accounting treatment of acquisitions, financing transactions or other matters. Particularly at our early stage of development, such accounting treatment can have a material impact on the results for any quarter. Due to the foregoing factors, among others, it is likely that our operating results will fall below our expectations or those of investors in some future quarter.
Dependence Upon Management
Our future performance and success are dependant upon the efforts and abilities of our Management team, Directors and key contractors. If we lost the services key members of management or other key employees before we could get a qualified replacement, that loss could materially adversely affect our business. We do not maintain key man life insurance on any of our Management.
Lack of Independent Directors
We cannot guarantee that our Board of Directors will have a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers, who are also principal stockholders and directors, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between the Company and its stockholders generally and the controlling officers, stockholders, or directors.
Limitation of Liability and Indemnification of Officers and Directors
Our officers and directors are required to exercise good faith and high integrity in our Management affairs. Our Articles of Incorporation provide, however, that our officers and directors shall have no liability to our shareholders for losses sustained or liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase, or derived an improper benefit from the transaction. Our Articles and By-Laws also provide for the indemnification by us of the officers and directors against any losses or liabilities they may incur as a result of the manner in which they operate our business or conduct the internal affairs, provided that in connection with these activities they act in good faith and in a manner that they reasonably believe to be in, or not opposed to, the best interests of the Company, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations. To further implement the permitted indemnification, we have entered into Indemnity Agreements with our officers and directors.
Audit's Opinion Expresses Doubt About The Company's Ability To Continue As a "Going Concern".
The independent auditor's report issued in connection with the audited financial statements of the company for the period ended December 31, 2005, expresses "substantial doubt about its ability to continue as a going concern," due to the Company's status as a development stage company and its lack of significant operations. If the Company is unable to develop its operations, the Company may have to cease to exist, which would be detrimental to the value of the Company's common stock. The Company can make no assurances that its business operations will develop and provide the Company with significant cash to continue operations.
Delays in the Introduction of Our Products
The Company may be subject to regulation by numerous governmental authorities. Failure to obtain regulatory approvals or delays in obtaining regulatory approvals by the Company, its collaborators or licensees would adversely affect the marketing of products developed by the Company, as well as hinder the Company's ability to generate product revenues. Further, there can be no assurance that the Company, its collaborators or licensees will be able to obtain the necessary regulatory approvals. Although the Company does not anticipate problems satisfying any of the regulations involved, the Company cannot foresee the possibility of new regulations that could adversely affect the business of the Company.
Dependence on Independent Parties to Produce our Products
The Company may be dependent upon current and future collaborations with and among independent parties to research, develop, test, manufacture, sell, or distribute our products. The Company intends to continue to rely on such collaborative arrangements. Some of the risks and uncertainties related to the reliance on such collaborations include, but are not limited to 1) the ability to negotiate acceptable collaborative arrangements, 2) the fact that future or existing collaborative arrangements may not be successful or may not result in products that are marketed or sold, 3) such collaborative relationships may actually act to limit or restrict the Company, 4) collaborative partners are free to pursue alternative technologies or products either on their own or with others, including the Company's competitors 5) the Company's partners may terminate a collaborative relationship and such termination may require the Company to seek other partners, or expend substantial additional resources to pursue these activities independently. These efforts may not be successful and may interfere with the Company's ability to manage, interact and coordinate its timelines and objectives with its strategic partners.
Government Regulation
Our products and technologies and our ongoing research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. Depending on the technology, regulatory approvals and certification may be necessary from the Department of Transportation, Department of Energy, Nuclear Regulatory Commission, Environmental Protection Agency, Department of Defense, and other federal, state, or local facilities. Failures or delays by the company or its affiliates or licensees in obtaining the required regulatory approvals would adversely affect the marketing of products that the company develops and our ability to receive product revenues or royalties.
Limited Market Due To Penny Stock
The Company's stock differs from many stocks, in that it is a "penny stock." The Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks." These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of 1934, as amended. Because our securities probably constitute "penny stock" within the meaning of the rules, the rules would apply to us and our securities. The rules may further affect the ability of owners of our stock to sell their securities in any market that may develop for them. There may be a limited market for penny stocks, due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all. Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34- 29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include: - Control of the market for the security by one or a few broker- dealers that are often related to the promoter or issuer; - Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; - "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; - Excessive and undisclosed bid-ask differentials and markups by selling broker- dealers; and - The wholesale dumping of the same securities by promoters and broker- dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. Furthermore, the "penny stock" designation may adversely affect the development of any public market for the Company's shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in "penny stock" is suitable for customers. Penny stocks are securities (i) with a price of less than five dollars per share; (ii) that are not traded on a "recognized" national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in the Company's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock." Rule 15g-9 of the Commission requires broker- dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company's stockholders to resell their shares to third parties or to otherwise dispose of them.
Potential Inability of Officers to Devote Sufficient Time to the Operations of the Business
Unless we are able to secure additional funding for operations and payment of officers salaries, we cannot guarantee that we will be able to retain current management or attract additional personnel and they will be able to continue to devote sufficient time to the operations of the business.
