They "may" have enough money to get them through June 2008 at the latest. Not looking good.
31-Mar-2008
Annual Report
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Management's Plan of Operation and Discussion and Analysis of Financial Condition and Results of Operations
We are a development stage company that has been engaged in product development and pre-operational activities since its formation and have no operating history as a producer of ethanol. Prior to the first quarter of 2008, we had no revenues. We had planned to engage in the business of constructing, owning and operating fuel grade ethanol plants in the Midwest corn-belt. To date, we have been unsuccessful in securing the necessary capital to implement our business plan. In order to continue in business it will be necessary to generate cash flow; otherwise the Company will have insufficient funds to continue its business. To generate cash flow, commencing in the first quarter of 2008, we have sought to provide management advisory and consulting services. While we have generated a limited amount of revenue from our consulting activity in early 2008, monthly revenue has not been sufficient to cover the Company's monthly operating expenses. Our only revenue has been derived from a consulting agreement that is scheduled to terminate effective March 31, 2008. As of the date of this report, we have no other immediate prospects of generating additional revenue, other than the proceeds from the settled lawsuit against McGuireWoods LLP discussed in Item 3 above.
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Our financial statements as of and for the period ended December 31, 2007 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. There can be no guarantee that we will be successful in generating sufficient cash flow from consulting and advisory services to continue as a going concern. If we are unsuccessful, we will cease operations.
The Company had no ethanol operations during 2007, and therefore no material operating or capital expenditures for the period. General and administrative expenditures for the year ended December 31, 2007 totaled $6,852,367. The Company is attempting to reduce its recurring operating cash uses to approximately $150,000 per month in the second quarter of 2008. The Company also anticipates no project development expenditures in 2008 unless significant funding is received.
If we are successful in bringing down our costs to $150,000 per month, and are paid the $320,000 we expect to receive from the McGuireWoods LLP settlement, we estimate we have sufficient cash on hand to continue our business until June, 2008.
To address our ability to continue as a going concern, we have been seeking additional capital through the sale and issuance of equity and debt financing. At this point, we have not been able to obtain this capital.
Our plan was to construct ethanol plants in Boone County, Iowa and Kankakee, Illinois and all permits for those plants were obtained in June, 2007. However, as noted above, we have been unable to obtain the capital to construct the plants. As a result, we were unable to extend the option to purchase land for the Kankakee, Illinois plant. We extended the option to purchase land for the Boone County, Iowa plant until the end of 2008 but must obtain capital to construct the plant which in the current environment may not be possible.
To complete construction and commence operation of the two plants we will need to raise approximately $730 million in new capital. This amount is intended to cover the cost of construction, capitalized interest during construction, pre-operating costs, financing and legal fees and the necessary working capital lines to operate the Plants and provide for risk management hedging activities. If we are unable to obtain this new capital we may not be able to continue as a going concern.
The Company's Board of Directors formed a Special Committee to explore and evaluate strategic alternatives aimed at enhancing shareholder value for the Company's non-management stockholders. Strategic alternatives considered include a possible sale of the Company. The Special Committee has retained the investment banking firm of Christenberry Collet & Company, Inc. to provide independent financial advisory services and has engaged Stinson Morrison Hecker LLP as independent legal counsel. No strategic alternative will be pursued unless it is recommended by the Special Committee.
The Company and a privately-held company (the "Potential Acquiror") entered into a letter agreement to provide financial assurances to the Potential Acquiror for the time and expense incurred in evaluating a possible purchase of the Company. Under the terms of the letter agreement, the Company is free to pursue any strategic transaction including the sale of the Company to another acquiror but is required to pay the Potential Acquiror a fee of $500,000 (and reimburse its reasonable expenses up to $500,000) if, within one year, the Company enters into an agreement with respect to a change-of-control transaction with another acquiror. However, that fee would be payable only upon consummation of such a transaction. There can also be no assurance regarding whether the Board will elect to pursue any other strategic alternatives it may consider, or that any such alternatives will be consummated.
Alternative Energy Sources, Inc. was incorporated on April 8, 2002 as a development stage company that planned to profit by providing consulting services and selling wind energy power systems to the residential, agricultural and small business sectors throughout Washington, Idaho, Montana, and Oregon.
In the 3rd quarter of 2004, the Company stated on Form 10-QSB that it was changing its business plan from focusing on business opportunities within the alternative energy marketplace to identifying and pursuing the development of a new business plan and direction for the Company. The reason for the change of direction was based upon the Company's inability to raise proceeds or generate revenue from its proposed business plan. Since August 19, 2004, until the first quarter of 2008, we had no revenues.
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As of December 31, 2007, we had seven full time employees who are responsible for company-wide management, marketing, project management, logistics and administration. If we are successful in obtaining financing, thus allowing us to execute the business plan, we anticipate an increase in employees of up to 25 full time equivalents by the end of 2008. There can be no assurance that the Company will be successful in obtaining the necessary funding to execute our business plan.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
