As filed with the Securities and Exchange Commission on July 20, 2007

 

Registration Number 333-144105

SECURITIES AND EXCHANGE COMMISSION

 

 WASHINGTON, D.C. 20549

 

 

 FORM SB-2/A

 

 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

U.S. ENERGY INITIATIVES CORPORATION

 

(Name of Small Business Issuer in its Charter)

 

GEORGIA	3714	58-2267238
(State or other jurisdiction  Of incorporation or Industrial Classification Employer organization)	(Primary Standard  Code Number)	(I.R.S.Identification No.)

 

 

12812 Dupont Circle, Tampa, Florida 33626

(813) 749-8745

(Address and telephone number of principal executive offices)

 

12812 Dupont Circle, Tampa, Florida 33626

(Address of principal place of business or intended principal place of business)

 

Philip M. Rappa

Chief Executive Officer

U.S. Energy Initiatives Corporation

12812 Dupont Circle

Tampa, Florida 33626

(813) 979-9222

 

(Name, address and telephone number of agent for service)

 

Copies to:

 

Darrin M. Ocasio, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32^nd Floor

New York, New York 10006

(212) 930-9700

Fax: (212) 930-9725

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X|

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list registration statement for the same offering. |_|

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. |_|

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|

 

 

1

---

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Share(1)	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, par value $.001(2)	30,000,000	$0.09	$2,700,000.00	$64.47

 

(1)	Estimated solely for purposes of calculating the registration fee to Rule 457(c) under the Securities Act of 1933, as amended. The average of the high and low price per share of the Registrant's Common Stock on the Over the Counter Bulletin Board as of July 17, 2007 was $0.09 per share.

(2)	Represents shares issuable upon sales under the Investment Agreement.

The registrant hereby amends this registration statement on such date or date(s) as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the commission acting pursuant to said Section 8(a) may determine.

 

 

 

2

---

 

Subject to Completion, Dated July 20,  2007

 

U.S. ENERGY INITIATIVES CORPORATION

 

30,000,000 Shares of Common Stock

 

This prospectus relates to the resale by the selling stockholders of up to 30,000,000 shares of our common stock. We will not receive any proceeds from the resale of shares of our common stock, however, the Company will be reducing its debt to the selling security holders.

 

The total number of shares sold herewith includes the following shares owned by or to be issued to Dutchess Private Equities Fund , Ltd ("Dutchess"): (i) up to 30,000,000shares of common stock issuable pursuant to a "put right" under the Investment Agreement, also referred to as an Equity Line of Credit with Dutchess. We are not selling any shares of common stock in this offering and therefore will not receive any proceeds from this offering. We will, however, receive proceeds from the sale of the 30,000,000 shares of common stock under the Investment Agreement with Dutchess. All costs associated with this registration will be borne by us.

 

A "put right" permits us to require Dutchess to buy shares of our common stock pursuant to the terms of the Investment Agreement. That Investment Agreement permits us to "put" up to an aggregate of $5,000,000 in shares of our common stock to Dutchess. Dutchess will pay us 93% of the lowest closing Best Bid price (highest posted bid price) of our common stock during the five trading day period immediately following the date of our notice to them of our election to put shares pursuant to the Equity Line of Credit.

 

With the exception of Dutchess, which is an "underwriter" within the meaning of the Securities Act of 1933, no other underwriter or person has been engaged to facilitate the sale of shares of common stock in this offering.

 

Our common stock currently trades on the Over the Counter Bulletin Board ("OTC Bulletin Board") under the symbol "USEI". On July 17, 2007, the last reported sale price for our common stock on the NASDAQ Stock Market was $0.09 per share.

 

The securities offered in this prospectus involve a high degree of risk. See "Risk Factors" beginning on page 7 of this prospectus to read about factors you should consider before buying shares of our common stock.

 

The selling stockholders are offering these shares of common stock. The selling stockholders may sell all or a portion of these shares from time to time in market transactions through any market on which our common stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The selling stockholders will receive all proceeds from the sale of the common stock. For additional information on the methods of sale, you should refer to the section entitled "Plan of Distribution."

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

The date of this Prospectus is July 20, 2007

 

3

---

 

TABLE OF CONTENTS

	Page
Prospectus Summary	5
Risk Factors	7
Forward Looking Statements	9
Use of Proceeds	9
The Investment Agreement	9
Management's Discussion and Analysis of Financial Condition or Plan of Operation	10
Description of Business	13
Description of Property	16
Legal Proceedings	16
Directors and Executive Officers	17
Executive Compensation	18
Security Ownership of Certain Beneficial Owners and Management	19
Selling Shareholders	20
Certain Relationships and Related Transactions	21
Description of Securities	22
Plan of Distribution	23
Legal Matters	25
Experts	25
Where You Can Find More Information	25
Disclosure of Commission Position on Indemnification for Securities Act Liabilities	26
Consolidated Financial Statements	26

 

 

4

---

 

 

 

You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

 

 

 

 

THIS OFFERING

 

Shares offered by Selling
Stockholders	Up to 30,000,000 shares
Common Stock to be outstanding after the offering	243,169,308
Use of Proceeds	We will not receive any proceeds from the sale of the common stock hereunder. We will, however, receive proceeds from the sale of our common stock pursuant to the Investment Agreement
Risk Factors	The purchase of our common stock involves a high degree of risk. You should carefully review and consider "Risk Factors" beginning on page 7.
OTC Bulletin Board Trading Symbol	USEI

 

* The above information regarding common stock to be outstanding after the offering is based on 213,206,922 shares of common stock outstanding as of July 17, 2007 and assuming issuance of all shares registered herewith, the number of shares offered herewith represents approximately 14.1% of the total issued and outstanding shares of common stock.

 

6

---

 

 

An investment in our shares involves a high degree of risk. Before making an investment decision, you should carefully consider all of the risks described in this prospectus. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the price of our shares could decline significantly and you may lose all or a part of your investment. The risk factors described below are not the only ones that may affect us. Additional risks and uncertainties that we do not currently know about or that we currently deem immaterial may also adversely affect our business, financial condition and results of operations. Our forward-looking statements in this prospectus are subject to the following risks and uncertainties. Our actual results could differ materially from those anticipated by our forward-looking statements as a result of the risk factors below. See "Forward-Looking Statements."

 

RISKS ASSOCIATED WITH OUR COMPANY

 

WE HAVE A HISTORY OF LOSSES AND MAY NEVER ACHIEVE PROFITABILITY.

 

We have incurred net losses since our inception. At December 31, 2006, our accumulated deficit was $(28,206,818). We anticipate that we will continue to incur additional operating losses in the near term. Our losses to date have resulted principally from expenses incurred in our research and development programs, including beta testing, and from general and administrative and sales and marketing expenses. We cannot assure you that we will attain profitability or, if we do, that we will remain profitable on a quarterly or annual basis in the future.

 

OUR LIMITED SUCCESS MAKES IT DIFFICULT TO ANALYZE OUR PROSPECTS FOR FUTURE SUCCESS.

 

We were organized on April 1, 1996 and have conducted only limited operations to date, consisting of negotiating the license to use the patents, further research and development, including beta testing, and limited sales efforts. No assurances can be given that we will develop a marketing and sales program which will generate significant revenues from the sales of our dual fuel conversion systems. The likelihood of our success must be viewed in light of the delays, expenses, problems and difficulties frequently encountered by an enterprise in its development stage, many of which are beyond our control. We are subject to all the risks inherent in the development and marketing of new products.

 

TECHNOLOGICAL CHANGE MAY MAKE OUR PRODUCTS OBSOLETE OR DIFFICULT TO SELL AT A PROFIT.

 

To date, the market for alternative fuel technology systems and equipment has not, to our knowledge, been characterized by rapid changes in technology. However, there can be no assurance that new products or technologies, presently unknown to management, will not, at any time in the future and without warning, render our dual fuel technology less competitive or even obsolete. Major automobile and truck companies, academic and research institutions, or others, for example, could develop new fuels or new devices which could be installed at the original equipment manufacturer level and which could potentially render our systems obsolete. Moreover, the technology upon which our dual fuel systems are based could be susceptible to being analyzed and reconstructed by an existing or potential competitor. Although the Company is the license holder of certain United States patents respecting its proprietary dual fuel system, we may not have the financial resources to successfully defend such patent, were it to become necessary, by bringing patent infringement suits against parties that have substantially greater resources than those available to us.

In addition, competitors may develop technology and systems that can be sold and installed at a lower per unit cost. There can be no assurance that we will have the capital resources available to undertake the research which may be necessary to upgrade our equipment or develop new devices to meet the efficiencies of changing technologies. Our inability to adapt to technological change could have a materially adverse effect on our results of operations.

 

WE LICENSE OUR PROPRIETARY TECHNOLOGY FROM A RELATED THIRD PARTY AND SUCH TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM UNAUTHORIZED USE BY OTHERS, WHICH COULD INCREASE OUR LITIGATION COSTS.

 

Our success depends to a great extent on our ability to protect our intellectual property. We license our core intellectual property pursuant to a license agreement between the Company and Electronic Controls Technology LLC ("ECT"). Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. Pursuant to the License Agreement, we have licensed certain patents from ECT. We cannot assure you that any of our licensed technology rights will offer protection against competitors with similar technology. We cannot assure you that the patents covered by the License Agreement will not be challenged, invalidated or circumvented in the future or that the rights created by those patents will provide a competitive advantage. We also rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. We cannot assure you that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

 

 

7

---

 

We cannot assure you that we will not become subject to patent infringement claims and litigation in the United States or other countries or interference proceedings conducted in the United States Patent and Trademark Office to determine the priority of inventions. The defense and prosecution of intellectual property suits, interference proceedings, and related legal and administrative proceedings are costly, time-consuming and distracting. We may also need to pursue litigation to enforce any patents issued to us or our collaborative partners, to protect trade secrets or know-how owned by us or our collaborative partners, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceeding will result in substantial expense to us and significant diversion of the efforts of our technical and management personnel. Any adverse determination in litigation or interference proceedings could subject us to significant liabilities to third parties. Further, as a result of litigation or other proceedings, we may be required to seek licenses from third parties which may not be available on commercially reasonable terms, if at all.

 

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND WILL RELY UPON THIRD PARTY CONTRACT MANUFACTURERS WHO HAVE NOT YET BEEN CONTRACTUALLY SECURED

 

To be successful, we must manufacture, or contract with a third party for the manufacture of, our current and future products in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs. Should we not timely secure a contract manufacturer, or for some reason we are no longer able to obtain key elements from a supplier, we will not be able to produce or will be delayed in producing conversion systems for sale or distribution, which could cause delays in our operation or sales or make continued operation or sales unprofitable.

 

THE SALE OF OUR FUEL 2(TM) SYSTEM MUST BE CONJUNCTION WITH COMPONENTS WE DO NOT OFFER

 

The conversion of a medium or heavy-duty mobile diesel engine requires three primary components: (i) our conversion system; (ii) fuel storage tanks, and; (iii) a specialized catalytic converter (for sales as an Emission Control Device). While we can control the pricing and delivery of our systems, we have no control over pricing, availability or delivery of fuel storage tanks or specialized catalytic converters. The costs of these items can potentially prevent us from selling our system either because the costs of these additional components make the conversion of a vehicle uneconomical or the due to lack of availability of either additional component. We believe fuel storage tanks are readily available on the open market at prices that will allow us to commercialize our system and we believe the specialized catalytic converters can be likewise acquired on the open market at prices that will allow us to commercialize our system. However, there can be no assurance given that our customers will be able to acquire these components at prices that permit us to sell our system as a fuel savings device because the upfront costs to acquire and install these components.

THE LIMITED AVAILABILITY OF ALTERNATIVE FUELS CAN HINDER OUR ABILITY TO MARKET OUR PRODUCTS.

 

Alternative fuel engines have been commercially available in the past; however, the most significant impediment to the growth in the market for alternative fuel vehicles traditionally has been the limited availability of alternative fuel sources, such as natural gas and propane. The success of engines based on alternative fuels will probably be directly affected by the development of the infrastructure of the natural gas industry and the widespread availability of such fuel sources. To some degree, this problem will remain at the forefront of, and be an impediment to, the success of alternative fuel power sources. However, we believe that with the development of the dual fuel conversion system, vehicles will not be tied exclusively to alternative fuels, but will have the option and ability to operate on standard diesel fuel alone. In all events, our business and the market for alternative fuel vehicles would benefit substantially from the growth of the infrastructure of the natural gas industry and the more widespread availability of alternative fuels. Conversely, our business and the market for alternative fuel vehicles would be substantially hurt by a diminished or lack of growth of the infrastructure of the natural gas industry and the less widespread availability of alternative fuels.

 

THE NATURE OF OUR PRODUCTS SUBJECTS US TO PRODUCT LIABILITY RISKS.

 

Our product and services relate to fuel system components which handle or come into contact with natural gas which is highly combustible. A malfunction of or design defect in certain of our products or improper design, construction, installation or servicing of facility and equipment infrastructure could result in liability, tort or warranty claims. Although we attempt to reduce the risk of exposure from such claims through warranty disclaimers and liability limitation clauses in our sales agreements and by maintaining product liability insurance, we cannot assure you that these measures will be effective in limiting our liability for any damages. Any liability for damages resulting from product malfunctions or services provided could be substantial and could have a material adverse effect on our business and operating results. In addition, a well-publicized actual or perceived malfunction or impropriety involving our products or service could adversely affect the market's perception of our products in general, regardless of whether any malfunction or impropriety is attributable to our products or services. This could result in a decline in demand for our products and services, which would have a material adverse effect on our business and operating results.

 

COMPETITION FROM COMPANIES WITH ALREADY ESTABLISHED MARKETING LINKS TO OUR POTENTIAL CUSTOMERS MAY ADVERSELY EFFECT OUR ABILITY TO MARKET OUR PRODUCTS.

 

Current and potential competitors have longer operating histories, larger customer bases, greater brand name recognition and significantly greater financial, marketing and other resources than we have. Certain of our competitors may be able to secure product from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, and adopt more aggressive pricing or inventory availability policies, than we will. There can be no assurance that we will be able to compete successfully against current and future competitors, and competitive pressures faced by us are likely to have a materially adverse affect on our business, results of operations, financial condition and prospects.

 

8

---

 

RISKS ASSOCIATED WITH OUR SECURITIES

 

UNLESS AN ACTIVE PUBLIC TRADING MARKET DEVELOPS FOR OUR SECURITIES, YOU MAY NOT BE ABLE TO SELL YOUR SHARES

 

To date, there has been a very limited public market for our Common Stock. There can be no assurance that an active trading market will ever develop or, if developed, that it will be maintained. Failure to develop or maintain an active trading market could negatively affect the price of our securities.

 

OUR COMMON STOCK MAY BE SUBJECT TO PENNY STOCK REGULATION.

 

The Securities Enforcement and Penny Stock Reform Act of 1990 requires special disclosure relating to the market for penny stocks in connection with trades in any stock defined as a "penny stock". Securities Exchange Commission ("Commission") regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share. These regulations subject all broker-dealer transactions involving such securities to the special "Penny Stock Rules" set forth in Rule 15g-9 of the Securities Exchange Act of 1934 (the "34 Act"). These Rules affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers of the Company's common stock to sell their shares in the secondary market, if such a market should ever develop.

 

WE MAY ISSUE PREFERRED STOCK WITH CERTAIN PREFERENCES WHICH MAY DEPRESS MARKET PRICE OF THE COMMON STOCK.

The Board of Directors may designate additional series or classes of preferred shares without shareholder consent and those designations may give the holders of the preferred stock, if previously issued, voting control and other preferred rights such as to liquidation and dividends. The authority of the board of Directors to issue such stock without shareholder consent may have a depressive effect on the market price of our common stock even prior to any such designation or issuance of preferred stock.

FORWARD-LOOKING STATEMENTS

 

 

USE OF PROCEEDS

 

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Stockholders. We will receive proceeds from the sale of shares of our common stock to Dutchess under the Investment Agreement. The purchase price of the shares purchased under that agreement will be equal to 93% of the lowest closing Best Bid (highest posted bid price of our common stock) for the five trading days following the day that we submit a Put Notice to Dutchess that we intend to sell shares to it. We may also receive proceeds from the exercise of the warrants issued to Dutchess, if exercised.

 

For illustrative purposes, we have set forth below our intended use of proceeds for the range of net proceeds indicated below to be received under the Investment Agreement assuming a sale of 10%, 25%, 50% and 100% of the shares issuable under that agreement. We have the ability to draw down the full $5,000,000 pursuant to the agreement, however we may draw down less than that amount. The table assumes estimated offering expenses and fees of $55,688.38 (includes (a) estimated legal fees and expenses of $45,000, (b) estimated accounting fees and expense of $10,000 and (c) SEC filing fees of $688.38). At the current stock price of $ 0.09 per share the example below would not be obtainable. If the stock price increases the Company has the ability to obtain the $5,000,000 pursuant to the agreement.

 

 

		10%			25%			50%			100%
Gross Proceeds		$	500,000		$	1,250,000		$	2,500,000		$	5,000,000
Net Proceeds after offering expenses and fees		$	444,311.62		$	1,194,311.62		$	2,444,311.62		$	4,944,311.62
Use of proceeds:
General Working Capital		$	444,311.62		$	1,194,311.62		$	2,444,311.62		$	4,944,311.62

 

 

Investment Agreement

 

On November 4, 2005, we entered into an Investment Agreement with Dutchess Private Equities Fund, Ltd, ("Dutchess") a Cayman Islands exempted company, for the future issuance and purchase of shares of our common stock. This Investment Agreement establishes what is sometimes termed an equity line of credit or an equity drawdown facility.

 

In general, the drawdown facility operates as follows: Dutchess, has committed to provide us up to $5,000,000 as we request it over a 36 month period, in return for common stock we issue to Dutchess. We, in our sole discretion, may during the Open Period deliver a "put notice" (the "Put Notice") to Duchess which states the dollar amount which we intend to sell to Dutchess on the Closing Date. The Open Period is the period beginning on the trading after this Registration Statement is declared effective (the "Effective Date") and which ends on the earlier to occur of 36 months from the Effective Date or termination of the Investment Agreement in accordance with its terms. The Closing Date shall mean no more than 7 trading days following the Put Notice Date. The Put Notice Date shall mean the Trading Day immediately following the day on which Dutchess receives a Put Notice, however a Put Notice shall be deemed delivered on (a) the Trading Day it is received by facsimile or otherwise by Dutchess if such notice is received prior to 9:00 am EST, or (b) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 9:00 am EST on a Trading Day.

 

 

9

---

 

The amount that we shall be entitled to Put to Dutchess shall be equal to, at our election, either: (A) Two Hundred percent (200%) of the average daily volume (U.S. market only) of the Common Stock for the three (3) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing bid prices immediately preceding the Put Date, or (B) One Hundred Thousand dollars ($100,000). During the Open Period, we shall not be entitled to submit a Put Notice until after the previous Closing has been completed. The Purchase Price for the Common Stock identified in the Put Notice shall be equal to ninety-three percent (93)% of the lowest closing Best Bid price of the Common Stock during the Pricing Period. The Pricing Period is the period beginning on the Put Notice Date and ending on and including the date that is 5 trading days after such Put Notice Date.

 

Dutchess' Obligation to Purchase Shares

 

Upon the receipt by Dutchess of a validly delivered Put Notice, Dutchess shall be required to purchase from us, during the period beginning on the Put Notice Date and ending on and including the date that is 5 Trading days after such Put Notice, that number of shares having an aggregate purchase price equal to the lesser of (a) the Put Amount set forth in the Put Notice and (b) 20% of the aggregate trading volume of our common stock during the applicable Pricing Period times (x) the lowest closing bid price of our common stock during the specified Pricing period, but only if such said shares bear no restrictive legend and are not subject to stop transfer instructions, prior to the applicable Closing Date.

 

We shall pay any late payments in immediately available funds upon demand by Dutchess.

 

Overall Limit on Common Stock Issuable.

 

If during the Open Period we become listed on an exchange that limits the number of shares of our common stock that may be issued without shareholder approval, then the number of Shares issuable by us and purchasable by Dutchess, including the shares of Common Stock issuable to Dutchess, shall not exceed that number of the shares of Common Stock that may be issuable without shareholder approval, subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalization affecting the Common Stock (the "Maximum Common Stock Issuance"), in excess of the Maximum Common Stock Issuance shall first be approved by our shareholders in accordance with applicable law and our By-laws and Amended and Restated Certificate of Incorporation, if such issuance of shares of Common Stock could cause a delisting on the Principal Market. Our failure to seek or obtain such shareholder approval shall in no way adversely affect the validity and due authorization of the issuance and sale of Securities or Dutchess' obligation in accordance with the terms and conditions of the Investment Agreement to purchase a number of Shares in the aggregate up to the Maximum Common Stock Issuance limitation, and that such approval pertains only to the applicability of the Maximum Common Stock Issuance limitation.

 

 

Term

 

The Investment Agreement shall expire (a) when Dutchess has purchased an aggregate of $5,000,000 of our Common Stock or (b) 36 months after the Effective Date of the registration statement of which this prospectus forms a part, whichever occurs earlier.

 

Suspension

 

The Investment Agreement shall be suspended upon any of the following events and shall remain suspended until such event has been rectified:

 

A. the trading of our Common Stock is suspended by the SEC, the Principal Market or the NASD for a period of two (2) consecutive Trading Days during the Open Period; or,

 

B. Our Common Stock ceases to be registered under the 1934 Act or listed or traded on the Principal Market.

 

Upon the occurrence of one of the above-described events, the Company shall send written notice of such event to the Investor.

 

Sample Calculation of Stock Purchases

 

The following is an example of the calculation of the drawdown amount and the number of shares we would issue to Dutchess in connection with that drawdown based on the assumptions noted in the discussion below.

 

Sample Put Amount Calculation

 

The Put amount may at our election be either (i) $100,000 or; (ii) 200% of the averaged daily volume (U.S market only) of our common stock for the three (3) trading days prior to the applicable put notice date, multiplied by the average of the 3 daily closing bid prices immediately preceding the put date.

 

The calculation below is based upon average daily volume of our common stock prior to a Put Notice Date of April 09, 2007

 

Date	Open	High	Low	Close	Volume
04-Apr-07	0.068	0.069	0.065	0.069	468,500
05-Apr-07	0.069	0.069	0.064	0.069	755,600
08-Apr-07	0.068	0.069	0.065	0.069	468,500
09-Apr-07	0.069	0.069	0.065	0.069	92,900
10-Apr-07	0.069	0.074	0.065	0.074	365,000
11-Apr-07	0.0735	0.0735	0.07	0.071	189,200
12-Apr-07	0.072	0.072	0.067	0.067	112,200
13-Apr-07	0.07	0.0721	0.067	0.072	146,700
16-Apr-07	0.0721	0.0721	0.07	0.072	208,300
17-Apr-07	0.07	0.072	0.07	0.07	74,400

 

 

The average daily volume for the 3 trading days prior to April 09 , 2007 based upon the foregoing table is564,200. 200% of the average daily volume is1,128,400.

 

The average of the 3 daily closing bid prices immediately preceding the Put Date of April 09, 2007 ($.069 + $.069 + $.069 divided by 3) is $.069. The total Put Amount based upon the assumptions set forth above is $77,859.60 (200% of the average daily volume of the Common Stock for the three (3) trading days prior to the applicable put notice date (1,128,400), multiplied by the average of the three

 

(3) daily closing bid prices immediately preceding the Put Date ($.069).

 

Sample Calculation of Purchase Price

 

The Purchase Price shall be equal to ninety-five percent (93%) of the lowest closing highest posted bid price of our common stock during the Pricing Period. The Pricing Period is the period beginning on the Put Notice Date and ending on and including the date that is five (5) Trading Days after such Put Notice Date.

 

Using the same hypothetical set forth above, the pricing period is April 9, 2007 through April 13, 2007. The lowest closing highest posted bid price of the Common Stock during this period is $0.67. The Purchase Price per share is $.0623 (93% of the lowest highest posted bid price of $.067).

 

 

10

---

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties.

OVERVIEW

US Energy Initiatives operates in two business segments.

·

The alternative fuels market segment through the design and sale of our patent dual-fuel, diesel-natural gas conversion systems for light and heavy-duty diesel engines. We conduct our activities involving our dual-fuel technology at a 10,000 square foot facility in PeachTree City, Geogia in which we operate one fully equipped engine room, control room and house various Horiba emission testing equipment. We completed the build-out of our engine rooms during September 2005.

·

The electronic manufacturing segment through the operations of our subsidiary Automated Engineering Corporation (AEC). AEC is an ISO 9001 certified, nineteen year-old company providing electronic design, prototype and production of electronic systems and components. We conduct our electronics design and manufacturing at our facility in Tampa, Florida. We also house our executive offices in our Tampa, Florida facility.

We have sought to insert our dual-fuel technology into the marketplace through original equipment manufacturers (OEMs) parallel with expanding our direct-to-consumer activities.

We offer our electronic design and manufacturing services primarily to clients that require smaller production runs that would not be economicly feasible for larger production facilities.

For the fiscal year ended December 31, 2006, we derived $544,640 or 39.5% of our annual revenues from the sale of our patent technology and for the same period, we derived $830,778 or 60.5% of our annual revenues from the operation of our electronic manufacturing. However, we earned $242,581 or 58.5% in gross profit from the sale of patent dual fuel technology and $171,876 or 41.5% of our gross profit from the operations of our electronic manufacturing.

To increase an understanding of our business plan, a summary of recent industry changes is helpful. The domestic alternative fuels segment of the automotive aftermarket was primarily born out of the need to comply with EPA and worldwide mandates relating to emissions discharge. Previously, there was little or no price differential between gas or diesel and natural gas or propane. The sale of systems similar to our dual fuel approach were sold without regard to the economic consequences of the buyer. Typically, these systems were only sold through government grants as a means to reduce harmful emissions and not as selecting a more affordable fuel.

In the course of implementing the EPA plan,federal and state authorities made available financing through grants in that each grant was designed to seek out technologies which could bring vehicles into EPA compliance. Since there was no economic factor involved in the sale, i.e., the product didn't have to promise a return on investment, these systems were priced at rates inconsistent with an economic based sale. As the granting authority was concerned with emissions and not profits, there was no incentive to offer systems at conventional rates. As a result, conversion systems were not appealing to either the OEM or the general consumer.

The pricing of fuels worldwide has changed that dynamic and in so doing, has resulted in a shift in the economic appeal of our product line. Typically, domestic gas or diesel costs on average $1 to $2 a gallon more than either natural gas or propane. Worldwide in places like China and South America, natural gas is even more attractive with price differentials in the $2 to $4 per gallon range for natural gas over either diesel or gasoline. For the first time in the life of our product line, there is a strong economic incentive to convert a vehicle. The fact that natural gas is inherently cleaner to burn than either diesel or gasoline is now perceived as an added bonus but not the justification for the purchase. We consider this a major industry change that holds the potential to e xpand our market share. The following are our more significant client activities during this peirod:

·	On June 26, 2007 we made a joint-public announcement with General Motors Thailand (GMTh) stating that our technology had successfully completed a 100,000 kilometer field durability trial and that GMTh intends to market our system in 49 countries commencing the third quarter 2007.

·	During 2006 and early 2007, we completed two field trials with WeiChai Peterson Motors, a China-based truck and bus OEM. Our sub-licensee for China is Wisconsin-based WITCO Systems.

·

During the fourth quarter, 2006, we entered a five-year contract with PS Gas Company, a Thailand-based bus company to convert their fleet of buses. During the first quarter, 2007, we completed our field trials in Thailand and we are now determining a roll-out schedule that will not interrupt our clients business operations.

·

During the second quarter 2007, we entered an agreement with our US-based sub-licensee BAF Technologies to partner our patent dual-fuel system with their SmartMuffler technology in order to make application to the California Air Resource Board to gain a Level III Emission Certification. If successful, this certification would make our system, together with the SmartMuffler, eligible for sale in the State of California.

Challenges that we have met in pursuing our OEM pathway principally relate to price and to a lessor degree, the bureaucratic nature of the large OEM and the distance between our company and these prospective clients. Our most promising near term OEM opportunities are in commercializing our systems in foreign markets, particularly Thailand and China.

·

In those markets, costs to produce items such as our system are substantially lower than the costs we currently pay for domestically manufactured parts and components. If we are unable to reduce the costs of our system through in-country manufacturing, it is unlikely we can successfully sell our system in those markets. We are currently in discussion with several manufacturers in Thailand and Malaysia and we are confident our system can be manufactured at competitive rates at those locations.

·

The process typically engaged by OEM's begins with a technology evaluation on an individual and competitive basis. As this is a documented procedure, itypically must follow a series of steps which can take an extended period of time. We have no control over this process or the length of time each OEM may dedicate to their respective evaluation.

·

The physical separation between Thailand, China and our facilities in Georgia as well as interacting with technicians fluent in a foreign language has worked to slow down the pace of development. While we have not encountered any serious complications based on this geographic separation, what normally would take a day or so can extend into a week or longer. We anticipate that as we develop our foreign relationships and move from a development to a vendor status, the distance between our companies will not cause a meaningful problem.

We are unable at this time to predict what sales will result from this developmental activity. However, we believe that any sales through an OEM pipeline will provide a strong position from which to expand within that segment of our marketing strategy.

·

As it relates to our electronic manufacturing capability, we employ one full-time outside sales persons and our Chief Executive Officer also engages in direct sales. The services we offer through our ISO-9001 certified facility appeals to clients who desire a relatively smaller production run that would not be economically feasible for larger manufacturers. We believe this is a niche market that we can expand and develop.

 

11

---

 

Calculating the comparisons between our reporting periods

Providing meaningful insight into our product and manufacturing costs as well as expenses incurred in delivering our technology have been difficult because we have previously sold our systems at the rate of one or two a month under federal and/or state grants. We have not had the ability for our product to take advantage of quantity discounts in our raw materials and component parts. Further, our labor costs in our present environment would appear unusually high given our revenues. However, in order for us to position our company to maximize opportunities, we have found it necessary to engage professionals and mechanics in sufficient number to complete the build-out of our facility in Atlanta as well as developing new systems.

In the case of our electronic manufacturing, we acquired AEC during June 2006 and have sought to make improvements in manufacturing efficiencies, procurement and to expand our design and prototyping services. As a result, the following annual and quarter comparisons may not be indicative of future operating results.

Discussion of Operations for 2006:

We executed our Memorandum of Understanding with General Motors Thailand (GMTh) in support of their C190 Colorado Pick-Up Program for model years 2007 through 2009. During the third and fourth quarter 2006 into the first quarter 2007, we continued durability testing and engineering analysis with GMTh. We completed a number of new installations for GMTh during the fourth quarter 2006 and early 2007. GMTh notified the Company during March 2007 they had completed their durability testing to their satisfaction and they are now prepared to proceed by offering our dual-fuel system as an option through their dealerships beginning in Thailand.   We completed the acquisition of Automated Engineering Corporation (“AEC”). We acquired AEC to manufacture in-house the electronic control unit component. The core of our system is incorporated into our electronic control unit. Our ability to manufacture the device in-house has resulted in a lower cost of goods and allowed us to ensure our system is manufactured under the highest quality standards. With the current equipment, machinery and facilities we now have, the Company can manufacture approximately 2,000 systems per month. We believe this provides us ample capacity to react to the potential sales we are pursuing .

We executed an agreement with PS Gas Company in Thailand for the conversion of diesel powered buses over a five year period. During the first quarter 2007, we successfully field-tested a system in a bus provided by PSGas in Thailand. The converted bus was taken on a 100 kilometer road test. We are now working with PSGas to schedule the intial roll-out of our dual-fuel systems through their fleet.   We expanded our exclusive fulfillment license with WITCO Intl for a host of countries including China, India, Malaysia, Korea and several other Asian countries. WITCO has now opened a field office in China and during the first quarter 2007, we shipped the ten production units to WeiChai Peterson Motors in China . We realized an increase in revenues from $652,400 at the year ended December 31, 2005 to $1,375,418 at the year-end 2006. Our loss to operations during the same periods were $(8,261,371) for the year ended 2005 and $(11,029,040) for the year ended 2006

Our business model is patterned around our core dual fuel diesel to natural gas conversion technology and contract electronic manufacturing. Our model was primarily developed as a result of our operating experiences, available assets and our opinion of the market place in general. We highlight certain challenges we faced during 2005 and the fundamental adjustments we've made in developing our resultant business.

Determined that pursuing the sale of our dual fuel system exclusively to government municipalities and direct to consumers was sufficiently inconsistent as to retard our ability to achieve profitable operations. The appeal of our product is tied directly to the price differential between diesel and natural gas. When municipalities allocate funds to convert a vehicle or fleet of vehicles, the objective is to clean up emissions and not necessarily to justify a return on investment. When market factors beyond our control cause the price of diesel or gasoline to temporarily rise in price elevating the differential over natural gas, we would experience a temporary increase in demand for our conversion systems. However, we are unable to predict with certainty when government funds would become available or when the price of fuels would take an extraordinary shift in price. As a result, while we continue to pursue both government and consumer sales, we are predominantly focused on delivering our technology through an original equipment manufacturer. In our opinion, the OEM tends to purchase an annual minimum quantity of products similar to our conversion system and then resells the system in tandem with their vehicle sales.

Determined that engineering and code writing for systems in a mobile setting would not allow us to achieve a level of precision and repeatability essential to maximizing our technology. Historically, we would conduct systems engineering in a mobile setting. While this technique is effective, it is time consuming, expensive and susceptible to error. As a result, we entered a ten year lease at our new 12,000 square foot facility in December 2004 and throughout 2005 into 2006, we incurred costs of approximately $750,000 in construction costs and equipment purchases. Since November, 2005, we been developing systems in a tightly controlled lab setting.

Shortly after our acquisition of AEC during June 2006, we noted a number of operating discrepancies that could have prevented us from operating at full capacity. We adjusted the methods we use in production and in ordering component parts. We also anticipated an upsurge in electronics manufacturing during the fourth quarter which is consistent with that business segment. However, given that we were the new owners of AEC and had not yet matured our own internal selling procedures, we were not able to capitalize on this annual upsurge. We have now improved our selling techniques and we’ve established a number of new client relationships which we believe will allow us to take advantage of annual sale cycles.

Discussion of Operations for 2007

 

12

---

 

Our business model is centered around our core dual fuel diesel to natural gas conversion technology and electronic manufacturing. The following items highlight some of the uncertainties relating to our model. However, there could be additional considerations such as those included in the section marked Risk Factors as well our financial statements which should be evaluated.

Organizing varied fulfillment relationships worldwide;

 

 Dealing with customers in Asia;

Rapid rise in natural gas and/or a decrease in diesel fuel costs;

Maintaining our domestic network relationships;

Manufacturing electronic components and parts and performing electronic design work for various clients in a competitive manner;

 

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity, capital expenditures or capital resources.

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

Our current assets decreased approximately 28% from $2,155,692 at the year ended December 31, 2006 to $1,553,287 for the period ended March 31, 2007 and during this same period our total assets decreased by approximately 17% from $3,394,291 to $2,814,303. The change is assets is primarily attributed to the decrease of deferred debt costs due to the amortization of the loan fees directly related to the Dutchess financing. Total liabilities during this period increased by approximately 11% from $4,180,444 at the year ended December 31, 2006 to $4,635,202 at March 31, 2007. Our Shareholders' Deficit increased during this three month period from $(786,153) at the year ended December 31, 2006 to $(1,820,899) at March 31, 2007. The increase in liabilities and Shareholders' Deficit were primarily attrributed to the additional financing provided by White Knight a related party.

In comparing profit and loss during the three month period ended March 31, 2007 and 2006, our revenue and gross profits increased by 130% and 525%, respectively from $168,100 and 9,009 to $385,874 and $56,317. The increase in revenues during this period were principally due to our acquisition of Automated Engineering Corp. Comparing these two periods, our operating expenses increased 12% from $ 1,011,175 for the three months period ended March 31, 2006 to $1,130,932 for the period ended March 31, 2007. Our net loss for the three months period decreased approximately 7% from $(2,406,118) for the three months ended March 31, 2006 to $(2,248,357) for the three month period ended March 31, 2007.

Comparison of Fiscal Year Ended December 31, 2006 and December 31, 2005

We derive our revenues from two business segment: the sale of our dual-fuel technology and; the operation of our electronic manufacturing. Overall we posted revenues at the year ended 2006 of $1,375,418 which was a 111% increase compared to our revenues at year end 2005 of $652,400. $544,640 or approximately 40% of our revenues were derived from the sale of our technology and $830,778 or approximately 60% were revenues derived from our electronic manufacturing segment. We posted an increase in gross profit of 3,857% from $10,474 at year ended 2005 to $414,457 at December 31, 2006. 58% or $242,580 of our gross profits was attributed to the sale of our dual fuel technology and 42% or $171,877 was attributed to our electronic manufacturing.

Operating expenses for the year ended December 31, 2006 were $7,915,920 which was a 29% increase over our 2005 total operating expenses of $6,119,524. The increase in operating expenses were primarily the result of Compensation, Consulting and Professional fees. The Company entered into a Consulting agreements with three firms for the exchange of stock at a value of $721,000 for the fiscal year ended December 31, 2006. Non-cash losses for the year ended December 31, 2006 were $3,527,577 compared to $2,152,321 for the year ended December 31, 2005. The non-cash portion of our losses for 2006 represent 36% of our total losses of $(11,029,040) which was a 32% increase over our total losses for the year ended December 31, 2005 of $(8,261,371).

Overall basic and diluted loss per share decreased from $(0.09) at the year ended December 31, 2005 to $(0.09) at year ended December 31, 2006.

13

---

Liquidity & Capital Resources

Liquidity

Historcially we have funded our developmental operations through the $5,000,000 equity line with Dutchess as well as loans and sales of our equity to our two largest shareholders. We believe that our continued use of the equity line, together with loans or equity sales to our principals together with our revenues are suffucient to meet our cash needs for the forseable future.

For the year ended December 31, 2005, the Company had current liabilities $4,130,393 and total liabilities of $4,130,393. For the year ended December 31, 2006, current liabilities had increased by 1% to $4,180,444 and total liabilities had been increased by 1% to $4,180,444. The increase in liabilities was primarily the result of additional financing received from Dutchess Equity Fund, and the note payable to Platinum bank acquired by the purchase of Automated Engineering in 2006. The Companies accounts payable liability of $526,001 as of year ended December 31, 2005 had increased approximately 85% to $972,016 primarily due to the Company increasing its Inventory value as of December 31, 2006. For the year ended December 31, 2005 the Companies Derivative Liability was $841,010. For the year ended December 31, 2006 the derivative liability decreased approximately 91% to $77,046. The Company converted $2,411,252 of its convertible debt to stock as of December 31, 2006.

For the period ended December 31, 2005, the Company had $16,997,922 in paid-in capital and the Company had $105,905 of common stock and a total shareholder deficit totaling $(271,577). For the period ended December 31, 2006, paid-in capital increased by approximately 60% to $27,221,863 common stock increased by 87% to $198,146 and had $(786,153) in total shareholder deficit.

 

Name (a)		Fees Earned or Paid in Cash ($) (b)		Stock Awards ($) (c)		Option Awards ($) (d)		Non-Equity Incentive Plan Compensation ($) (e)		Change in Pension Value and Nonqualified Deferred Compensation Earnings (f)		All Other Compensation ($) (g) (4)		Total ($) (h)
John Stanton		—		—		—		—		—		—		—
Michele Hamilton		79,000		—		—		—		—		—		—
Mark Clancy		240,000		—		—		—		—		—		—
		—		—		—		—		—		—		—
		—		—		—		—		—		—		—

 

 

 

Our board of directors has determined that Messrs Stanton and Clancy are each “independent” as that term is defined by the National Association of Securities Dealers Automated Quotations (“NASDAQ”).  Under the NASDAQ definition, an independent director is a person who (1) is not currently (or whose immediate family members are not currently), and has not been over the past three years (or whose immediate family members have not been over the past three years), employed by the company; (2) has not (or whose immediate family members have not) been paid more than $60,000 during the current or past three fiscal years;  (3) has not (or whose immediately family has not) been a partner in or controlling shareholder or executive officer of an organization which the company made, or from which the company received, payments in excess of the greater of $200,000 or 5% of that organizations consolidated gross revenues, in any of the most recent three fiscal years; (4) has not (or whose immediate family members have not), over the past three years been employed as an executive officer of a company in which an executive officer of Vubotics has served on that company’s compensation committee; or (5) is not currently (or whose immediate family members are not currently), and has not been over the past three years (or whose immediate family members have not been over the past three years) a partner of Vubotics’ outside auditor. A director who is, or at any time during the past three years, was employed by the Company or by any parent or subsidiary of the Company, shall not be considered independent.

 

We have no formal policy regarding director attendance at the annual meeting of stockholders, although all directors are expected to attend the annual meeting of stockholders if they are able to do so. The board of directors held no meetings in 2006. 

 

 

EXECUTIVE COMPENSATION

 

 

Summary Compensation Table

Name & Principal Position		Year		Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($) *		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Mark Clancy		2006		240,000		—		_		—		—		—		—		240,000

 

 

 

(1) Ownership as of June 5, 2007, for the selling stockholders based on information provided by the selling stockholders or known to us.

 

(2) Because the selling stockholders may offer all or only some portion of the shares of common stock to be registered, no estimate can be given as to the amount or percentage of these shares of common stock that will be held by the selling shareholder upon termination of the offering. Accordingly, it is assumed that all of the shares of common stock offered pursuant to this prospectus will be sold, although the selling stockholders are under no obligation known to us to sell any shares of common stock at this time.

 

(3) A total of 212,070,558 shares of common stock were issued and outstanding as of June 4, 2007.

 

(4) Michael Novielli and Douglas Leighton, the directors of the fund, share dispositive and voting power with respect to shares held by Dutchess Private Equities Fund II, LLP.

 

(5) Represents (i) all of the common stock that potentially may be issued upon the draw down of $5,000,000 on our equity line at $0.279 per share in an aggregate amount of 17,921,147 shares. The Debenture Agreement contains contractual restrictions on beneficial share ownership limiting Dutchess' beneficial ownership to 4.99%.

 

 

 

21

---

 

The following is a description of the selling shareholders relationship to us and how each the selling shareholder acquired the shares to be sold in this offering:

 

(A) On November 4, 2005, we entered into an Investment Agreement with Dutchess Private Equities Fund , Ltd ("Dutchess") providing for the sale of up to $5,000,000 of our common stock over a period of up to 36 months after the effective of the registration statement of which this prospectus forms a part. Under the agreement, Dutchess is required to purchase "Puts" which shall be equal to either (i) $100,000 or; (ii) 200% of the averaged daily volume (U.S market only) of our common stock for the three (3) trading days prior to the applicable put notice date, multiplied by the average of the 3 daily closing bid prices immediately preceding the put date.

 

In connection with the Investment Agreement we entered into a Debenture Agreement providing for the sale of $340,000 in principal amount of our five year convertible debentures to Dutchess. These debentures bear interest at 12% per annum (payable in cash or stock at Dutchess' option). The first $190,000 (less expenses) has been funded with an additional $150,000 to be funded immediately upon filing of the registration statement of which this prospectus forms a part. Our obligation to repay Dutchess is secured by a security agreement, which we have entered into with Dutchess. We have pledged all of our assets to insure repayment of this obligation. Dutchess' security interest in our assets will be subject to any claims by our bank, which provides us with a line of credit. Subject to adjustment as more fully set forth in the Debenture Agreement, the fixed conversion price of the debenture is $.27 per share.

 

We also issued to Dutchess a warrant to purchase 314,815 shares of common stock with a strike price of $.27 per share. The warrant may be exercised for a period of five years and the strike price is subject to adjustment if certain conditions are not met.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following summarizes pertinent agreements relating to our operations including our Technology License Agreement.

 

OUR TECHNOLOGY LICENSE

All of the technology, know-how, devices and apparatus embodied in the patents and incorporated into the various products sold by us were developed and patented by Frank Davis or Frank Davis and Robby E. Davis. Previously we licensed the worldwide rights to commercialize the Dual-Fuel Technology from a Trust established for the Davis family. In the course of reorganizing our enterprise, we have negotiated a new License Agreement to embody all of our technology and know how into one comprehensive, world-wide exclusive agreement We executed our license agreement August 31, 2004 between Hybrid Fuel Systems, Inc. and Electronic Control Units, LLP ("ECT") ("License Agreement."). ECT is owned by Frank Davis the technology inventor and holder of the patents. The following details the License Agreement.

Under the terms of the License Agreement, Hybrid has the worldwide exclusive right to use, manufacture, lease and/or sell products and/or systems embodying the following patents and related technical know-how:

	1.	U.S. Patent Serial No. 5,083,547, dated January 28, 1992 for a natural gas and air mixing device, as assigned to Licensor; any divisions or continuations in whole or in part thereof; any U.S. patents or applications that are later added to this license; any patents issuing on any of such applications; any reissues or extensions or reexaminations of any such patents; and
	2.	U.S. Patent Serial No. 5,408,978, dated April 25, 1995, for a natural gas and air mixing device, as assigned to Licensor; any divisions or continuations in whole or in part thereof; any U.S. patent or applications that are later added to this license; any patents issuing on any of such applications; any reissues or extensions or reexaminations 'of any such patents; and
	3.	U.S. Patent Serial No. 5,370,097, dated December 6, 1994, for a dual fuel control system which controls the flow of liquid fuel alone or in combination with a gaseous fuel, as assigned to Licensor; any divisions or continuations in whole or in part thereof; any U.S. patent or applications that are later added to this license; any patents issuing on any of such applications; any reissues or extensions or reexaminations of any such patents; and
	4.	U.S. Patent Serial No. 5,103,795, dated April 14, 1992 for a natural gas and air mixing device, as assigned to Licensor; any divisions or continuations in whole or in part thereof; any U.S. patent or applications that are later added to this license; any patents issuing on any of such applications; any reissues or extensions or reexaminations of any such patents; and
	5.	U.S. Patent Serial No. 4,479,466, dated October 30, 1984 for a natural gas and air mixing device, as signed to Licensor; any divisions or continuations in whole or in part thereof.; any U.S. patent or applications that are later added to this license; any patents issuing on any of such applications; any reissues or extensions or reexaminations. of any such patents;
	6.	U.S. Non-Provisional Application No. 10/668,589, METHODS AND APPARATUS FOR OPERATION OF MULTIPLE FUEL ENGINES, Filed September 23, 2003, Priority based on U.S. Provisional Application No. 60/413,269, ELECTRONIC FUEL CONTROL SYSTEMS, Filed September 24, 2002 PCT Application No. PCT/US03/29914, METHODS AND APPARATUS FOR OPERATION OF MULTIPLE FUEL ENGINES, Filed September 23, 2003, Priority based on U.S. Provisional Application No. 60/413,269, ELECTRONIC FUEL CONTROL SYSTEMS, Filed September 24, 2002.

The term of the license shall expire upon the later of (i) the expiration of the last-expiring patent covered, including any extensions, or (ii) ten (10) years from the date of execution of the License Agreement. In exchange for the worldwide exclusive rights described above, we are required to make a one-time license acquisition payment of $250,000 (two hundred and fifty thousand dollars which amount would be due and payable (i) the first anniversary of the execution of the License Agreement, (ii) the Company's closing on an equity or debt financing, or a combination thereof, following the date of the License Agreement in which we receive gross aggregate proceeds in an amount no less than USD$1 million, or (iii) the sale of the 100th Unit. During 2005, we paid $100,000 of our required licensee fee and during the first quarter 2006, we completed the payment of $250,000 for the license fee.

22

---

 

Following the one-time fee, we are required to pay $250.00 per Unit sold (we estimate at this time our Units will range in price from $3,500 to $4,500 each) with a minimum royalty of $250.00 and maximum royalty of $1,000 for Unit. We are further obligated to pay a royalty rate of 3.5% for any items which are not included in the per system royalty calculation such as spare parts and consulting services. Under the terms of the License Agreement, we are obligated to sell a minimum of 750 Units during 2005 and 2,500 Units during 2006 and for each subsequent year during the term of the License.

ECT shall have the right to immediately terminate the License Agreement by giving written notice to the Company in the event Hybrid:

1. is adjudicated bankrupt or insolvent, enters into a composition with creditors, makes an assignment of all or substantially all of its assets for the benefit of its creditors, or if a receiver is appointed for its

assets;

2. fails to produce, manufacture, sell, market, or distribute or cause to be produced, manufactured, sold, marketed, or distributed the Units;

3. or its Affiliates, agents, distributors or sublicenses is in material breach or default of any provision of the Proposed License Agreement which default or breach is not cured within the applicable time period;

 

4. fails to pay the royalty when and as it becomes due and payable;

5. or its Affiliates, agents, distributors or sublicensees pledge, lien, mortgage, secure or otherwise encumber the Licensed Patents in any manner, whether arising by contract, as a matter of law, by judicial process or otherwise;

6. experiences a material adverse effect in the financial condition, operations, assets, business, properties or prospects of the Company. " Material adverse effect." means any event, change, violation, inaccuracy, circumstance or effect that is or is reasonably likely to be, individually or in the aggregate, materially adverse to the condition (financial or otherwise), capitalization, operations or business of the Company;

7. fails to maintain its status as a public company.

Our Chief Technology Consulting Agreement

In order to ensure ourselves of the employment continuation of the technology inventor Mr. Frank Davis, we have entered a Consulting Agreement between the Company and Electronic Controls Technology LLC (the " Consulting Agreement."). Under the terms of the Consulting Agreement, we are to compensate Electronic Fuel Technology LLC $7,000 per month until we complete our current verification after which we are to remit $12,000 per month. In exchange for such compensation, Electronic Controls Technology LLC . We opted to increase the monthly payment from $7,000 to $12,000 effective January 1, 2005. The Consulting Agreement further requires we provide health insurance to Mr. Frank Davis and his wife which was effective January 1, 2005. Under the terms of the Consulting Agreement, ECT shall:

 

1.	provide general advice, guidance and counsel to, and consult with, senior management of Hybrid with respect to all aspects of Hybrid's business; and
2.	shall explain to senior management of Hybrid, in such detail as may be reasonably requested by Hybrid, the current condition, history and prospects of Hybrid and its predecessors, including with respect to operating, financial and organizational matters; manufacturing, marketing, planning and other activities; inventions, patents, patent applications, and other intellectual property rights and interests; relationships with stockholders, subsidiaries, affiliates, employees, suppliers, customers, advisers, consultants and others; transactions; and other matters as may be reasonably requested by Hybrid; and
3.	deliver to Hybrid, in good condition, all Confidential Information and all files, documents and other books and records, in whatever form or media, relating to Hybrid's business or its history, prospects, financial condition or results of operations; and
4.	shall maintain a regular, ongoing and routine physical presence at the Atlanta area research, development, and distribution center of Hybrid.

 

 

TRANSFER AGENT AND REGISTRAR

 

The transfer agent and registrar for our common stock is Continental Stock Registrar and Transfer, 17 Battery Place, New York, NY 10004.

 

PLAN OF DISTRIBUTION

 

The selling stockholder, or its pledgees, donees, transferees, or any of its successors in interest selling shares received from the named selling stockholder as a gift, partnership distribution or other non-sale-related transfer after the date of this prospectus (all of whom may be a selling stockholder) may sell the common stock offered by this prospectus from time to time on any stock exchange or automated interdealer quotation system on which the common stock is listed or quoted at the time of sale, in the over-the-counter market, in privately negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at prices otherwise negotiated. The selling stockholder may sell the common stock by one or more of the following methods, without limitation:

 

o Block trades in which the broker or dealer so engaged will attempt to sell the common stock as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

o An exchange distribution in accordance with the rules of any stock exchange on which the common stock is listed;

 

o Ordinary brokerage transactions and transactions in which the broker solicits purchases;

 

o Privately negotiated transactions;

 

o In connection with short sales of company shares;

 

o Through the distribution of common stock by any selling stockholder to its partners, members or stockholders;

 

o By pledge to secure debts of other obligations;

 

o In connection with the writing of non-traded and exchange-traded call options, in hedge transactions and in settlement of other transactions in standardized or over-the-counter options;

 

o Purchases by a broker-dealer as principal and resale by the broker-dealer for its account; or

 

o In a combination of any of the above.

 

 

24

---

 

These transactions may include crosses, which are transactions in which the same broker acts as an agent on both sides of the trade. The selling stockholders may also transfer the common stock by gift. We do not know of any arrangements by the selling stockholders for the sale of any of the common stock.

 

The selling stockholders may engage brokers and dealers, and any brokers or dealers may arrange for other brokers or dealers to participate in effecting sales of the common stock. These brokers or dealers may act as principals, or as an agent of a selling stockholder. Broker-dealers may agree with a selling stockholder to sell a specified number of the stocks at a stipulated price per share. If the broker-dealer is unable to sell common stock acting as agent for a selling stockholder, it may purchase as principal any unsold shares at the stipulated price. Broker-dealers who acquire common stock as principals may thereafter resell the shares from time to time in transactions in any stock exchange or automated interdealer quotation system on which the common stock is then listed, at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above. The selling stockholders may also sell the common stock in accordance with Rule 144 or Rule 144A under the Securities Act, rather than pursuant to this prospectus. In order to comply with the securities laws of some states, if applicable, the shares of common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers.

 

From time to time, one or more of the selling stockholders may pledge, hypothecate or grant a security interest in some or all of the shares owned by them. The pledgees, secured parties or person to whom the shares have been hypothecated will, upon foreclosure in the event of default, be deemed to be selling stockholders. The number of a selling stockholder's shares offered under this prospectus will decrease as and when it takes such actions. The plan of distribution for that selling stockholder's shares will otherwise remain unchanged. In addition, a selling stockholder may, from time to time, sell the shares short, and, in those instances, this prospectus may be delivered in connection with the short sales and the shares offered under this prospectus may be used to cover short sales.

 

To the extent required under the Securities Act, the aggregate amount of selling stockholders' shares being offered and the terms of the offering, the names of any agents, brokers, dealers or underwriters, any applicable commission and other material facts with respect to a particular offer will be set forth in an accompanying prospectus supplement or a post-effective amendment to the registration statement of which this prospectus is a part, as appropriate. Any underwriters, dealers, brokers or agents participating in the distribution of the common stock may receive compensation in the form of underwriting discounts, concessions, commissions or fees from a selling stockholder and/or purchasers of selling stockholders' shares, for whom they may act (which compensation as to a particular broker-dealer might be less than or in excess of customary commissions). Neither we nor any selling stockholder can presently estimate the amount of any such compensation.

 

The selling stockholders and any underwriters, brokers, dealers or agents that participate in the distribution of the common stock are "underwriters" within the meaning of the Securities Act, and any discounts, concessions, commissions or fees received by them and any profit on the resale of the securities sold by them may be deemed to be underwriting discounts and commissions. If a selling stockholder is deemed to be an underwriter, the selling stockholder may be subject to certain statutory liabilities including, but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. Selling stockholders who are deemed underwriters within the meaning of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. The SEC staff is of a view that selling stockholders who are registered broker-dealers or affiliates of registered broker-dealers may be underwriters under the Securities Act. We will not pay any compensation or give any discounts or commissions to any underwriter in connection with the securities being offered by this prospectus.

 

A selling stockholder may enter into hedging transactions with broker-dealers and the broker-dealers may engage in short sales of the common stock in the course of hedging the positions they assume with that selling stockholder, including, without limitation, in connection with distributions of the common stock by those broker-dealers. A selling stockholder may enter into option or other transactions with broker-dealers, who may then resell or otherwise transfer those common stock. A selling stockholder may also loan or pledge the common stock offered hereby to a broker-dealer and the broker-dealer may sell the common stock offered by this prospectus so loaned or upon a default may sell or otherwise transfer the pledged common stock offered by this prospectus.

 

25

---

The selling stockholders and other persons participating in the sale or distribution of the common stock will be subject to applicable provisions of the Exchange Act, and the rules and regulations under the Exchange Act, including Regulation M. This regulation may limit the timing of purchases and sales of any of the common stock by the selling stockholders and any other person. The anti-manipulation rules under the Exchange Act may apply to sales of common stock in the market and to the activities of the selling stockholders and their affiliates. Regulation M may restrict the ability of any person engaged in the distribution of the common stock to engage in market-making activities with respect to the particular common stock being distributed for a period of up to five business days before the distribution. These restrictions may affect the marketability of the common stock and the ability of any person or entity to engage in market-making activities with respect to the common stock.

 

We have agreed to indemnify the selling stockholder and any brokers, dealers and agents who may be deemed to be underwriters, if any, of the common stock offered by this prospectus, against specified liabilities, including liabilities under the Securities Act. The selling stockholder has agreed to indemnify us against specified liabilities.

 

The issued and outstanding common stock, as well as the common stock to be issued offered by this prospectus was originally, or will be, issued to the selling stockholders pursuant to an exemption from the registration requirements of the Securities Act, as amended. We agreed to register the common stock issued or to be issued to the selling stockholders under the Securities Act, and to keep the registration statement of which this prospectus is a part effective until all of the securities registered under this registration statement have been sold. We have agreed to pay all expenses incident to the registration of the common stock held by the selling stockholders in connection with this offering, but all selling expenses related to the securities registered shall be borne by the individual holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf.

 

We cannot assure you that the selling stockholders will sell all or any portion of the common stock offered by this prospectus. In addition, we cannot assure you that a selling stockholder will not transfer the shares of our common stock by other means not described in this prospectus.

 

 

LEGAL MATTERS

 

 

EXPERTS

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

We filed with the SEC a registration statement on Form SB-2 under the Securities Act for the common stock to be sold in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedules that were filed with the registration statement. For further information with respect to the common stock and us, we refer you to the registration statement and the exhibits and schedules that were filed with the registration statement. Statements made in this prospectus regarding the contents of any contract, agreement or other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, Woolworth Building, 233 Broadway New York, New York. Copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. Information regarding the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.

 

 

26

---

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Our Articles of Incorporation provide that, to the fullest extent permitted by law, none of our directors or officers shall be personally liable to us or our shareholders for damages for breach of any duty owed to our shareholders or us.

 

In addition, we have the power, by our by-laws or in any resolution of our stockholders or directors, to undertake to indemnify the officers and directors of ours against any contingency or peril as may be determined to be in our best interest and in conjunction therewith, to procure, at our expense, policies of insurance. At this time, no statute or provision of the by-laws, any contract or other arrangement provides for insurance or indemnification of any of our controlling persons, directors or officers that would affect his or her liability in that capacity.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by our directors, officers or controlling persons in the successful defense of any action, suit or proceedings, is asserted by such director, officer, or controlling person in connection with any securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issues.

 

 

27

---

FINANCIAL STATEMENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

U.S. Energy Initiatives Corporation

We have audited the accompanying consolidated balance sheets of U. S. Energy Initiatives Corporation and Subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U. S. Energy Initiatives Corporation and Subsidiaries as of December 31, 2006 and 2005 and the consolidated results of operations and cash flows for the years ended December 31, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ BRIMMER, BUREK & KEELAN LLP

---

Brimmer, Burek & Keelan LLP

Tampa, Florida

April 26, 2007

 

 

 

28

---

US ENERGY INITIATIVES CORPORATION

CONSOLIDATED BALANCE SHEETS

March 31, 2007 (unaudited) and December 31, 2006 (audited)

 

 

ASSETS		March 31, 2007 (unaudited)			December 31, 2006 (audited)
Current Assets
Cash		$	3,940		$	3,937
Accounts Receivable, net of $72,800 allowance in 2007 and 2006 respectively.			256,230			300,163
Other assets						2,510
Prepaid expenses and deposits			61,339			46,060
Inventories			616,382			634,315
Deferred consulting			94.538			147,000
Deferred debt costs			520,858			1,021,707
Total current assets		$	1,553,287		$	2,155,692
Property, plant & equipment, net			577,139			554,722
Goodwill Purchase price subject to allocation			683,877			683,877
Total Assets		$	2,814,303		$	3,394,291
LIABILITIES AND SHAREHOLDERS' DEFICIT

 

Current Liabilities
Accounts payable		$	978,290			972,016
Accounts payable in settlement			259,440			259,440
Due to related parties			224,929			214,849
Due to related parties,convertible debt			423,656			11,424
Notes payable			1,966,124			2,079,869
Discount on debt			(5,133	)		(82,231	)
Derivative liability			96,579			77,046
Other current liabilities			691,317			648,031
Total Liabilities		$	4,635,202			4,180,444
Shareholders' Deficit
Preferred Stock (.01 par value, 5,000,000 authorized)
Preferred A stock (.01 par value, 42,215 shares issued and outstanding			422			422
Preferred B stock (.01 par value, 23,431 shares issued and outstanding)			234			234
Common stock (.001 par value, 295,000,000 shares authorized; 210,698,734 and 198,146,858 shares issued and outstanding, respectively			210,698			198,146
Additional paid-in capital			28,422,922			27,221,863
Accumulated deficit			(30,455,175			(28,206,818	)
Total shareholders' deficit			(1,820,899	)		(786,153	)
Total Liabilities and Shareholders' Deficit		$	2,814,303		$	3,394,291

 

 

 

29

---

 

 

 

     The company also has an agreement in place with White Knight a Related Party who continues to provide financing to date.

 

     The available funding from these agreements is expected to be sufficient for the Company to continue operations for the next year.

 

Note 3 - Related Party Transactions

White Knight (WK) is a major stockholder, per our agreement with WK, any funding provided by WK is to be repaid in common stock at a conversion price of $0.04 per share. The conversion price was agreed upon in December, 2003, when the Company's common stock was at $0.03 per share.

 

As of March 31, 2007, $319,924 is outstanding debt due to WK. Through the three month period ended March 31, 2007 WK advanced a total of $308,500.

Vital Trust Business Development Corporation , of which Mark Clancy is the Chief Operating Officer has provided financing of $103,732 for the quarter ended March 31, 2007. Vital Trust Business Development Corporation will be repaid in common stock at 100% of the price per share.

The Company expects to enter into a formal finance agreement with Vital Trust Business Development for any ongoing financing in the 2 ^nd quarter of 2007. Mark Clancy Chief Operating Officer and Director of Vital Trust is also a Director of U.S. Energy Initiatives Corporation.

License Agreement

The Company entered into a licensing agreement with Frank Davis, our Chief Technology Officer, a Director and significant shareholder and Engine Control Technology LLC (ECT). The license gives the Company the exclusive world-wide rights, to utilize and exploit five issued and one pending patents including marketing and selling products. The underlying patents were developed by Frank Davis and other family members who are employees of the Company and the patents have since been assigned to ECT, the owner of which is Patricia Davis. Patricia Davis is the wife of Frank Davis.

 

 

34

---

 

In addition, the Company has a consulting agreement with Frank Davis to provide various technical consulting services. The agreement expires in 2009 but is automatically renewable annually thereafter, if not terminated by written notice. During the term of the agreement, the consultant shall receive health and dental insurance for himself and his immediate family which includes his wife, the use of a vehicle and reimbursement of certain related expenses.

Note 4- Shareholders' Equity

Preferred Stock

 

        Effective December 6, 2006, the Company increased its designated shares of previously undesignated preferred stock to 5,000,000. At March 31, 2007 the company had 42,215 Series A Preferred Shares and 23,431 Series B Preferred Shares outstanding.

Series A Preferred Stock is convertible, at the option of the holder, at any time, into shares of the Company's common stock as determined by dividing $.19 by a conversion price determined on the date the related certificate is surrendered. The conversion price is subject to periodic adjustment and is initially established at $.01632. Series A Preferred Stock is automatically convertible into shares of the Company's common stock upon (i) the date specified by vote or written consent or agreement of holders of at least three quarters of the shares of Series A Preferred outstanding, or (ii) upon the closing of the sale of the company's common stock in a firm commitment, underwritten public offering registered under the Securities Act in which the Company receives gross proceeds of no less than $20 million. Series A Preferred Stock has a liquidation preference of the greater of $.19 per share or the amount that such share would be entitled to upon liquidation or distribution. The Series A Preferred Stock has voting rights, except as to the election of debtors, equal to the number of shares of common stock into which the Series A Preferred Stock is convertible. The Series A preferred Stockholders have the right to elect one director of the Company.

 

Series B Preferred Stock is convertible, at the option of the holder at anytime, into shares of the Company's common stock as determined by dividing the lower of $.09 or the price per share paid by the holder of the Series B Preferred Stock by a conversion price determined on the date the related certificate is surrendered. The conversion price is subject to periodic adjustment and is initially established at $.00773. Series B Preferred Stock is automatically convertible into shares of the Company's common stock upon (i) the date specified by vote or written consent or agreement of holders of at least three quarters of the shares of Series B Preferred Stock outstanding, or (ii) upon the closing of the sale of Company's common stock in a firm commitment, Underwritten public offering registered under the Securities Act in which the Company receives gross proceeds of no less than $20 Million. Series B Preferred Stock has a liquidation preference of the greater of $.09 per share or the amount that such share would be entitled to upon liquidation or distribution. The Series B Preferred Stock has voting rights, except as to the election of directors, equal to the number of shares of common stock into which the Series B Preferred Stock is convertible. The Series B Preferred Stockholders have the right to elect one director of the Company.

 

Note 5 - Goodwill

At March 31, 2007 and 2006, goodwill consists of the following:

 

		March 31, 2007			March 31, 2006
Goodwill					$	61,820
Less accumulated amortization
Less Impairment		$				$
Total			0.00		$	61,820

   

Goodwill was analyzed on December 31, 2006 for impairment as it has an indeterminant life. Based on the Company's analysis performed, an impairment loss of $61,820 was required to be recorded during the years ended December 31, 2006.

The impairment was determined in part by the company closing its Oklahoma Facility acquired with the DRV Energy Acquisition. The facility performed installation and service of gasoline conversion systems and sold

Note 6 - Intangible Assets

 

		March 31, 2007			March 31, 2006
Intellectual Property					$	1,146,925
Less accumulated amortization						(296,565	)
Less Impairment		$			$
Total			0.00		$	850,360

 

 

On April 18, 2007 Discount Enterprises Inc. filed an action against U.S. Energy Initiatives (along with one other defendant) alleging that the defendants did not comply with the terms of the Contract in regards to the timeliness of installation and the vehicles that were converted had mechanical problems. As of the period ended March 31, 2007 the company has not accrued any liability. Management does not feel that the suit will exceed the amount of product liability insurance if Discount Enterprises is to be awarded for damages.

From time to time the Company is subject to litigation relating to claims arising out of its operations in the ordinary course of business. Such claims, if successful, could exceed applicable insurance coverage. The company is not currently a party to any material legal proceedings other than what is currently disclosed herein.

Please also amend the earlier section marked "Litigation" to include the items described above. The earlier description includes just AMBAC.

Note 9 - Stock Options and Warrants

The Company's Stock Option Plan ("SOP") was adopted in 2001 to provide for the grant to employees up to 2,000,000 incentive stock options within the meaning of Section 422 of the Internal Revenue Code. The SOP, which is administered by the Company's Board of Directors, is intended to provide incentives to directors, officers, and other key employees and enhance the Company's ability to attract and retain qualified employees. Stock options are granted for the purchase of common stock at a price not less than the 100% of fair market value of the Company's common stock on the date of the grant (110% for holders of more than 10% of the total combined voting power of all classes of capital stock then outstanding). As of September 30, 2006 and 2005, no options had been granted under the plan.

 

 

36

---

 

Note 10 - Derivative Financial Instruments

The captions derivative financial instruments consist of (a) the embedded conversion feature bifurcated from the Convertible Debentures, (b) the Warrants issued in connection with the Convertible Debts, (c) interest rate index, and (d) put options. These derivative financial instruments are indexed to an aggregate of 11,334,663 shares at September 30, 2006 and are carried at fair value.

At March 31, 2007 the following derivative liabilities related to common stock options and warrants and embedded derivative instruments were outstanding: (At March 30, 2007, the closing price for the Company's securities was $0.086).

                       Free Standing Derivatives

 

Issue Date	Expiration Date	Instrument	Exercise Price Per Share	Value at Issue Date	Value at 3/31/07
3/05/05	3/05/10	1,600,000 warrants issued to Alpha Capital	$0.19	$928,000	$68,640
11/4/05	11/4/10	314,815 warrants issued to Dutchess Private Equity	$0.27	$85,000	$13,411
Fair value of freestanding derivative instrument liabilities for options and warrants					82,051

 

 

ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS

 

We are organized under the laws of the State of Georgia and are governed by the Georgia Business Corporation Code, as in effect or hereafter amended ("Corporation Code"). Section 14-2-852 of the Corporation Code requires that we indemnify a director "who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she was a director of the corporation against reasonable expenses incurred by a director in connection with the proceeding." Section 14-2-857 of the Corporation Code requires that a corporation indemnify officers under the same standard.

 

Section 14-2-851 of the Corporation Code provides that we may indemnify a director or officer who is a party to a proceeding against liability incurred in the proceeding if (i) the director or officer conducted himself or herself in good faith; and (ii) the director or officer reasonably believed: (A) in the case of conduct in his or her official capacity, that such conduct was in the best interests of the corporation; (B) in all other cases, that such conduct was at least not opposed to the best interests of the corporation; and (C) in the case of any criminal proceeding, that the individual had no reasonable cause to believe such conduct was unlawful.

 

In addition, we have the power, in our by-laws or in any resolution of our stockholders or directors, to undertake to indemnify our officers and directors of ours against any contingency or peril as may be determined to be in our best interest and in conjunction therewith, to procure, at our expense, policies of insurance. At this time, no statute or provision of the by-laws, any contract or other arrangement provides for insurance or indemnification of any of our controlling persons, directors or officers that would affect his or her liability in that capacity.

 

 

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

The following table sets forth an estimate of the costs and expenses payable by U.S. Energy Initiatives Corporation in connection with the offering described in this registration statement. All of the amounts shown are estimates except the Securities and Exchange Commission registration fee:

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

 

None.

 

 

62

---

 

 

 

ITEM 27. EXHIBITS

 

Exhibit		Description
2.1		Asset Purchase Agreement between the Company and New York State Electric & Gas Corporation, dated as of October 29, 2001, incorporated by reference to Exhibit 2.1 of the 8-K filed on December 26, 2001.
2.2		Secured Promissory Note in favor of New York State Electric & Gas Corporation, dated as of December 11, 2001, incorporated by reference to Exhibit 2.2 of the 8-K filed on December 26, 2001.
2.3		Security Agreement between the Company and New York State Electric & Gas Corporation, dated as of December 11, 2001, incorporated by reference to Exhibit 2.3 of the 8-K filed on December 26, 2001.
2.4		Guaranty from the Company in favor of New York State Electric & Gas Corporation, dated as of December 11, 2001, incorporated by reference to Exhibit 2.4 of the 8-K filed on December 26, 2001.
3.1		Articles of Incorporation of Save On Energy , Inc., incorporated by reference to Exhibit 3.1 to the SB-2 filed on March 23, 2000.
3.2		Amendment to Articles of Incorporation of Save On Energy, Inc., incorporated by reference to Exhibit 3.2 to the SB-2 filed on March23, 2000.
3.3		By-laws of Save On Energy, Inc., incorporated by reference to Exhibit 3.3 to the SB-2 filed on March 23, 2000.
3.4		Certificate of Amendment to the Certificate of Incorporation of Hybrid Fuel Systems, Inc. dated as of March 1, 2006
4.1		Certificate of Designation of Series A Preferred Stock filed with
4.2		Certificate of Designation of Series B Preferred Stock filed with the Secretary of State on May 7th, 2002 [incorporated by reference to Exhibit 4.2 to the 10-KSB filed on May 30, 2002.
4.3		Subscription Agreement, dated March 31, 2005, by and among Hybrid Fuel Systems, Inc. and the investors named on the signature pages thereto, incorporated by reference to Exhibit 4.1 to the 8-K filed on April 5, 2005.
4.4		Form of Convertible Note of Hybrid Fuel Systems, Inc. issued to the investors named on the signature pages thereto incorporated by reference to Exhibit 4.2 to the 8-K filed on April 5, 2005.
4.5		Form of Class A Common Stock Purchase Warrant of Hybrid Fuel Systems, Inc. issued to the investors named on the signature pages thereto incorporated by reference to Exhibit 4.3 to the 8-K filed on April 5, 2005.
4.6		Form of Security Agreement by and between Hybrid Fuel Systems, Inc. and Barbara Mittman as collateral agent incorporated by reference to Exhibit 4.4 to the 8-K filed on April 5, 2005.
4.7		Form of Collateral Agent Agreement among Barbara R. Mittman, as collateral agent, and the Lenders as defined therein incorporated by reference to Exhibit 4.5 to the 8-K filed on April 5, 2005.
5.1		Opinion of Sichenzia Ross Friedman Ference LLP*
10.1		License Agreement by and between the Davis Family Trust and Electronic Fuel Control, Inc. dated May 13, 1996, incorporated by reference to Exhibit 10.1 to the SB-2 filed on March 23, 2000.
10.2		Amendment to License Agreement by and between the Davis Family Trust and Electronic Fuel Control, Inc, dated June 18, 1998, incorporated by reference to Exhibit 10.2 to the SB-2 filed on March 23, 2000.
10.3		Amendment to License Agreement by and between the Davis Family Trustand Electronic Fuel Control, Inc. dated January 3, 2000,incorporated by reference to Exhibit 10.3 to the SB-2 filed on March 23, 2000.
10.4		Consulting Agreement between Save on Energy, Inc. and MBO, Inc.dated November 23, 1999, Trust and Electronic Fuel Control, Inc, incorporated by reference to Exhibit 10.4 to the SB-2 filed on March 23, 2000.
10.5		Exclusive Supply Agreement between Ambac International Corporation and Electronic Fuel Control, Inc. dated April 29, 1996, incorporated by reference to Exhibit 10.5 to the SB-2 filed on March 23, 2000.
10.6		Agreement re: International Fuel Systems, Inc. and Davenport, dated January 7, 2000, incorporated by reference to Exhibit 10.6 to the SB-2 filed on March 23, 2000.
10.7		Employment Agreement with Robert Stiles, dated July 17, 2001, incorporated by reference to Exhibit 10.1 of the 10-QSB filed on November 19, 2001.
10.8		2001 Stock Option Plan - Incorporated by reference to the 2001 Annual Proxy Statement filed October 1, 2001.
10.9		Stock Purchase Agreement between the Company and SWI Holdings,,Limited, dated as of December 10, 2001 (Composite Version), incorporated by reference to Exhibit 10.1 of the 8-K filed on December 26, 2001.

 

 

 

63

---

 

 

10.10		Security Agreement between the Company and SWI Holdings, Limited, dated as of December 10, 2001, incorporated by reference to Exhibit
10.11		Convertible Secured Promissory Note issued to SWI Holdings, Limited, dated April 23, 2002 incorporated by reference to Exhibit 10.11 to the 10-KSB filed on May 30, 2002.
10.12		Security Agreement between the Company and SWI Holdings, Limited, dated as of April 23, 2002 incorporated by reference to Exhibit 10.10 to the 10-KSB filed on May 30, 2002.
10.13		Agreement re: White Knight SST, Inc. and Hybrid Fuel Systems, Inc. (formerly Save On Energy, Inc.) dated December 22, 2003 incorporated by reference to Exhibit 10.13 to the 10-KSB filed on August 16, 2004.
10.14		Debenture Agreement dated as of November 4, 2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd., incorporated by reference to Exhibit 10.1 to the Form 8-K filed on November 9, 2005.
10.15		Debenture Registration Rights Agreement dated as of November 4, 2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd., incorporated by reference to Exhibit 10.2 To the Form 8-K filed on November 9, 2005.
10.16		Warrant Agreement dated as of November 4, 2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd., incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 9, 2005.
10.17		Equity Line of Credit Registration Rights Agreement dated as of November 4, 2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd., incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 9, 2005.
10.18		Investment Agreement dated as of November 4, 2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd, incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 9, 2005.
10.19		Security Agreement dated as of November 4,2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd., incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 9, 2005.
10.20		Subscription Agreement dated as of November 4, 2005 by and between Hybrid Fuel Systems, Inc. and Dutchess Private Equities Fund, Ltd., incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 9, 2005.
10.21		Promissory Note of US Energy Initiatives Corporation dated as of March 23, 2006.
10.22		Promissory Note of US Energy Initiatives Corporation dated as of March 23, 2006.
10.23		Security Agreement dated as of March 23, 2006 by and between US Energy Initiatives Corporation and Dutchess Private Equities Fund, Ltd.*
10.24		Settlement Agreement and Release dated as of March 24, 2006 by and between US Energy Initiatives Corporation and the investors named on the signature pages thereto.*
10.25		Promissory Note of Hybrid Fuel Systems, Inc. dated as of December 20, 2005.
23.1		Consent of Sichenzia Ross Friedman Ference LLP (included as part of Exhibit 5.1)
23.2		Consent of Brimmer, Burek & Keelan, LLP.*

____________________

 

ITEM 28. UNDERTAKINGS

 

(a) The undersigned Registrant hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement;

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

64

---

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SB-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on this 27th day of July 2007.

 

	US Energy Initiatives Corporation
Date: July 20, 2007	By:	/s/ Phillip Rappa
		Phillip Rappa
		Chief Executive Officer

Date: July 20, 2007	By:	/s/ Michele Hamilton
		Michele Hamilton
		Chief Financial Officer

 

POWER OF ATTORNEY

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip Rappa his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any subsequent registration statements pursuant to Rule 462 of the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature Title Date

 

/s/ John Stanton John Stanton	Chairman of the Board of Directors	July 20, 2007
/s/ Phillip Rappa Phillip Rappa	Chief Executive Officer	July 20, 2007
/s/ Mark Clancy Mark Clancy	Director	July 20, 2007
/s/ Michele Hamilton Michele Hamilton	Chief Financial Officer	July 20, 2007

 

65