AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25,
2008
REGISTRATION
NO.
333-133651
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM S-1/A
(Amendment
No. 3 to Registration Statement on Form SB-2)
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ENERTECK
CORPORATION
(Exact
name of registrant as specified in its charter)
DELAWARE
|
|
2890
|
|
47-0929885
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(Primary Standard Industrial Classification Code
Number)
|
|
(I.R.S. employer identification number)
|
10701
Corporate Drive, Suite 150
Stafford,
Texas 77477
(281)
240-1787
(Address,
including zip code, and telephone number, including area
code,
of
registrant’s principal executive offices)
Dwaine
Reese
Chief
Executive Officer
10701
Corporate Drive, Suite 150
Stafford,
Texas 77477
(281)
240-1787
(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
COPIES
TO:
David
M. Kaye, Esq.
Kaye
Cooper Fiore Kay & Rosenberg, LLP
30A
Vreeland Road, Suite 230
Florham
Park, New Jersey 07932
(973)
443-0600
(973)
443-0609 (fax)
A
PPROXIMATE
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 the Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
x
If
the
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
o
If
the
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
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
statement number of the earlier effective registration statement for the same
offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
|
o
|
|
Accelerated
filer
|
|
Non-accelerated
filer
|
|
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities
to be Registered
|
|
Number of Shares
to be Registered
|
|
Proposed Maximum
Offering Price Per
Share(2)
|
|
Proposed Maximum
Aggregate
Offering Price(2)
|
|
Amount of
Registration Fee
|
|
Common
Stock, $0.001 par value per share, issued and
outstanding(1)
|
|
|
2,460,000
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|
$
|
1.93
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|
$
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4,747,800
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$
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508.02
(3
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)
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Common
Stock, $0.001 par value per share, issuable under warrants
(1)
|
|
|
4,426,650
|
|
$
|
1.93
|
|
$
|
8,543,435
|
|
$
|
914.15
(3
|
)
|
Common
Stock, $0.001 par value per share, issuable under warrants
(1)
|
|
|
510,000
|
|
$
|
0.84
|
|
$
|
428,400
|
|
$
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13.16
(3
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)
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Total
|
|
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7,396,650
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|
|
|
|
|
|
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$
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1,435.33
(3
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)
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(1)
Pursuant to Rule 416 under the Securities Act, the shares being registered
hereunder include such indeterminate number of shares of Common Stock as may
be
issuable with respect to the shares being registered hereunder as a result
of
stock splits, stock dividends or similar transactions affecting the shares
to be
offered by the selling stockholders.
(2)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act, using the average of the bid and
asked price as reported on the OTCBB on April 24, 2006 with respect to 2,460,000
shares and 4,426,650 shares issuable under warrants, and on October 8, 2007
with
respect to 510,000 shares issuable under warrants.
(3)
Previously paid.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A),
MAY
DETERMINE.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
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.
SUBJECT
TO COMPLETION, DATED ___________, 2008
PROSPECTUS
7,396,650
SHARES
ENERTECK
CORPORATION
COMMON
STOCK
This
prospectus relates to an aggregate of up to 7,396,650 shares of our common
stock
which may be offered by the selling stockholders identified in this prospectus
for their own account. The shares consist of 2,460,000
shares
of
our common stock held by certain of the selling stockholders and 4,936,650
shares underlying warrants held by certain of the selling
stockholders.
We will
not receive any proceeds from the sale of the shares by these selling
stockholders. We may, however, receive proceeds in the event that some or all
of
the warrants held by the selling stockholders are exercised.
Unless
the context otherwise requires, the terms “we,” “us” or “our” refer to EnerTeck
Corporation and its consolidated subsidiary.
Prices
of
our common stock are quoted on the OTC Bulletin Board under the symbol “ETCK”.
The last reported bid and asked prices per share of our common stock, as
reported by the OTCBB on March 24, 2008, was $0.90 and $1.03,
respectively.
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING
ON PAGE 2.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is _________, 2008.
TABLE
OF
CONTENTS
Prospectus
Summary
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1
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Notice
about Forward Looking Statements
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2
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Risk
Factors
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2
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Market
for Common Equity and Related Stockholder Matters
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6
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Business
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8
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Legal
Proceedings
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16
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Description
of Property
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17
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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17
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Management
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26
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Executive
Compensation
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28
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Certain
Relationships and Transactions and Corporate Governance
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29
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Security
Ownership of Certain Beneficial Owners and Management
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30
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Description
of Securities
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31
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Indemnification
for Securities Act Liabilities
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31
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Plan
of Distribution
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31
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Selling
Stockholders
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33
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Legal
Matters
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36
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Experts
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36
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Available
Information
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37
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Financial
Statements
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F-1
|
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO
SELL
OR BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE
COVER.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in our securities. Before making an investment decision, you should
read the entire prospectus carefully, including the “risk factors” section, the
financial statements and the notes to the financial
statements.
About
Us
Enerteck
Corporation (the “Company” or “EnerTeck Parent”) was originally incorporated,
under the name of Gold Bond Mining Company, under the laws of the State of
Washington on July 30, 1935. Gold Bond Mining Company, was initially formed
for
the purpose of acquiring, exploring, and developing precious metal mines
and, if
warranted, the mining of precious metals. Our name was subsequently changed
to
Gold Bond Resources, Inc. in July 2000. On January 9, 2003, we acquired EnerTeck
Chemical Corp. (“EnerTeck Sub”) as our wholly owned operating subsidiary. For a
number of years prior to our acquisition of EnerTeck Sub, we were an inactive,
public “shell” corporation seeking to merge with or acquire an active, private
company. As a result of the acquisition, we are now acting as a holding company,
with EnerTeck Sub as our only operating business. Subsequent to this
transaction, on November 24, 2003, we changed our domicile from the State
of
Washington to the State of Delaware, changed our name from Gold Bond Resources,
Inc. to EnerTeck Corporation and affected a one for 10 reverse common stock
split. Unless the context otherwise requires, the terms “we,” “us” or “our”
refer to EnerTeck Corporation and its consolidated subsidiary.
EnerTeck
Sub, our wholly owned operating subsidiary, was incorporated in the State of
Texas on November 29, 2000. It was formed for the purpose of commercializing
a
diesel fuel specific combustion catalyst known as EnerBurn®, as well as other
combustion enhancement and emission reduction technologies. Nalco/Exxon Energy
Chemicals, L.P. (“Nalco/Exxon L.P.”), a joint venture between Nalco Chemical
Corporation and Exxon Corporation commercially introduced EnerBurn in 1998.
When
Nalco/Exxon L.P. went through an ownership change in 2000, our founder, Dwaine
Reese, formed EnerTeck Sub. It acquired the EnerBurn trademark and related
assets and took over the Nalco/Exxon L.P. relationship with the EnerBurn
formulator and blender, and its then supplier, Ruby Cat Technology, LLC (“Ruby
Cat”).
We,
through our wholly owned subsidiary, specialize in the sales and marketing,
and
since August 2006, in the manufacturing of a fuel borne catalytic engine
treatment for diesel engines known as EnerBurn®. We utilize a sales process that
includes detailed proprietary customer fleet monitoring protocols in on-road
applications that quantify data and assists in managing certain internal
combustion diesel engine operating results while utilizing EnerBurn. Test
data
prepared by Southwest Research Institute and actual customer usage has indicated
that the use of EnerBurn in diesel engines improves fuel economy, lowers
smoke,
and decreases engine wear and the dangerous emissions of both Nitrogen Oxide
(NOx) and microscopic airborne solid matter (particulates). Our principal
target
markets are presently the
railroad,
trucking, heavy construction and maritime shipping industries. We also expect
that revenues will be derived in the future from the mining and offshore
drilling industries. Each of these industries share certain common financial
characteristics, i.e. (i) diesel fuel represents a disproportionate share
of
operating costs; and (ii) relatively small operating margins are prevalent.
Considering these factors, management believes that the use of EnerBurn and
the
corresponding derived savings in diesel fuel costs can positively effect
the
operating margins of its customers while contributing to a cleaner environment.
Our
corporate address is 10701 Corporate Drive, Suite 150, Stafford, Texas 77477.
Our telephone number is (281) 240-1787.
Summary
of the Offering
Common
stock offered by the Company:
|
None
|
Common
stock offered by selling stockholders:
|
7,396,650
shares. Of this number, 4,946,650 shares are issuable upon exercise
of
warrants, of which 10,000 have been exercised to date.
|
Capital
stock outstanding:
|
As
of the date hereof, we had outstanding 17,761,359 shares of common
stock;
warrants to purchase 4,936,650 shares of common stock; and options
to
purchase 64,200 shares of common
stock.
|
Proceeds
to the Company:
|
We
will not receive proceeds from the resale of shares by the selling
stockholders. We may, however, receive proceeds in the event some
or all
of the warrants held by the selling stockholders are exercised for
cash.
|
OCT
Bulletin Board Symbol:
|
ETCK
|
We
are
registering for resale common stock issued or issuable as follows:
|
·
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2,450,000
shares issued to a private placement investor in December 2005 and
1,510,000 shares issuable upon exercise of warrants issued to such
investor.
|
|
·
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3,436,650
shares issued or issuable to other warrant holders of which 10,000
have
been exercised to date.
|
NOTICE
ABOUT FORWARD LOOKING STATEMENTS
When
used
in this document, the words “may,” “will,” “expect,” “anticipate,” “continue,”
“estimate,” “intend,” “plans”, and similar expressions are intended to identify
forward-looking statements regarding events, conditions and financial trends
which may affect our future plans of operations, business strategy, operating
results and financial position. Forward looking statements in this prospectus
include without limitation statements relating to trends affecting our financial
condition or results of operations, our business and growth strategies and
our
financing plans.
Such
statements are not guarantees of future performance and are subject to risks
and
uncertainties and actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors include, among other things, general economic conditions; cyclical
factors affecting our industry; lack of growth in our industry; our ability
to
comply with government regulations; a failure to manage our business
effectively; our ability to sell products at profitable yet competitive prices;
and other risks and factors set forth from time to time in our filings with
the
Securities and Exchange Commission (the “SEC”).
Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date made. We undertake no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect
the
occurrence of unanticipated events.
RISK
FACTORS
An
investment in our securities is highly speculative and extremely risky. You
should carefully consider the following risks, in addition to the other
information contained in this prospectus, before deciding to buy our
securities
.
Business
and Financial Risks
WE
HAVE A
HISTORY OF LOSSES WHICH MAY CONTINUE AND WHICH MAY NEGATIVELY IMPACT OUR
ABILITY
TO ACHIEVE OUR BUSINESS OBJECTIVES AND OUR FINANCIAL RESULTS. For the years
ended December 31, 2007 and 2006, we generated revenues of $396,000 and
$641,000, respectively, and incurred net losses of $
1,004,000
and
$639,000, respectively. Continued failure to increase our revenues significantly
will harm our business. Even if we do achieve profitability, we may not be
able
to sustain or increase profitability on a quarterly or annual basis in the
future. If our revenues grow more slowly than we anticipate, our gross margins
fail to maintain its current improvement, or our operating expenses exceed
our
expectations, our operating results will suffer. If we are unable to sell
our
products at acceptable prices relative to our costs, or if we fail to develop
and introduce on a timely basis new products from which we can derive additional
revenues, our financial results will suffer.
OUR
CHANCES FOR SUCCESS ARE REDUCED BECAUSE WE ARE AN EARLY STAGE COMPANY WITH
REGARD TO OUR NEW BUSINESS OPERATION. In recent years we were inactive and
had
not generated revenues until we acquired EnerTeck Sub on January 9, 2003.
Furthermore, EnerTeck Sub was only formed in November 2000 and has a limited
operating history. Accordingly, we are subject to all the risks and challenges
associated with the operation of a new enterprise, including inexperience,
lack
of a track record, difficulty in entering the targeted market place, competition
from more established businesses with greater financial resources and
experience, an inability to attract and retain qualified personnel (including,
most importantly, sales and marketing personnel) and a need for additional
capital to finance our marketing efforts and intended growth. We cannot assure
you that we will be successful in overcoming these and other risks and
challenges that we face as a new business enterprise.
THE
ENERBURN TECHNOLOGY HAS NOT GAINED MARKET ACCEPTANCE, NOR DO WE KNOW WHETHER
A
MARKET WILL DEVELOP FOR IT IN THE FORESEEABLE FUTURE TO GENERATE ANY MEANINGFUL
REVENUES. The EnerBurn technology has received only limited market acceptance.
This technology is a relatively new product to the market place and we have
not
generated any significant sales. Although ever growing concerns and regulation
regarding the environment and pollution has increased interest in
environmentally friendly products generally, the engine treatment and fuel
additive market remains an evolving market. The EnerBurn technology competes
with more established companies such as Lubrizol Corporation, Chevron Oronite
Company (a subsidiary of Chevron Corporation), Octel Corp., Clean Diesel
Technologies, Inc. and Ethyl Corporation, as well as other companies whose
products or services alter, modify or adapt diesel engines to increase their
fuel efficiency and reduce pollutants. Acceptance of EnerBurn as an alternative
to such traditional products and/or services depends upon a number of factors
including:
|
·
|
financial
benefits resulting from projected savings from increased fuel
efficiency
|
|
·
|
the
ability to establish the reliability of EnerBurn products relative
to
available fleet data
|
|
·
|
public
perception of the product
|
For
these
reasons, we are uncertain whether our technology will gain acceptance in any
commercial markets or that demand will be sufficient to create a market large
enough to produce any meaningful revenue or earnings. Our future success depends
upon customers’ demand for our products in sufficient amounts.
OUR
TECHNOLOGY MAY BE ADVERSELY AFFECTED BY FUTURE TECHNOLOGICAL CHANGES AND
ENVIRONMENTAL REGULATORY REQUIREMENTS. Although diesel engines are now being
manufactured that have reduced dangerous emissions, this has not satisfied
governmental regulators and legislators. We believe that diesel engines
themselves may soon be required to adhere to stringent guidelines that produce
nearly zero tailpipe emissions. Research in this area is currently being
sponsored by governmental agencies, major engine companies, truck manufacturers,
automobile makers, catalyst producers, oil refining companies and their
technology suppliers. If such research is successful, it could eventually reduce
the need for diesel fuel additives such as EnerBurn as they relate to pollution
control.
SINCE
WE
MARKET A RANGE OF PRODUCTS WITHIN ONLY ONE PRODUCT LINE, WE ARE ENTIRELY
DEPENDENT UPON THE ACCEPTANCE OF ENERBURN IN THE MARKET PLACE FOR OUR SUCCESS.
Our business operations are not diversified. If we do not generate sufficient
sales of the EnerBurn product, we will not be successful, and unlikely to be
able to continue in business. We cannot assure you that we will be able to
develop other product lines to hedge against our dependency on EnerBurn, or
if
our EnerBurn sales will be sufficient for us to generate revenue or be
profitable.
OUR
SALES
PROCESS IS COSTLY AND TIME CONSUMING WHICH DECREASES OUR ABILITY TO EFFECT
SALES. In order to effect EnerBurn sales, we must prove to a potential customer
that the use of our product is specifically beneficial to and cost effective
for
that potential customer. We accomplish this by conducting proof of performance
demonstrations. Our supplier, our sales agent and/or we bear the cost to
provide
the personnel to do the monitoring and analyzing of compiled data. However,
the
potential customer must bear the cost of the EnerBurn and equipment used
during
the trial period. We cannot assure you that we will be able to convince
potential customers to undertake this expense and affect a significant number
of
sales. Furthermore, we cannot assure you that the results of a specific proof
of
performance demonstration will prove that the use of EnerBurn will be beneficial
to that specific potential customer, or if beneficial, that the potential
customer will purchase EnerBurn. If, after conducting the proof of performance
demonstration, the potential customer does not purchase our product, we will
have wasted the time and the cost of providing personnel to the proof of
performance demonstration.
WE
FACE
INTENSE COMPETITION AND MAY NOT HAVE THE FINANCIAL AND HUMAN RESOURCES NECESSARY
TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES WHICH MAY RESULT IN OUR TECHNOLOGY
BECOMING OBSOLETE. The diesel fuel additive business and related anti-pollutant
businesses are subject to rapid technological change, especially due to
environmental protection regulations, and subject to intense competition. We
compete with both established companies and a significant number of startup
enterprises. We face competition from producers and/or distributors of other
diesel fuel additives (such as Lubrizol Corporation, Chevron Oronite Company,
Octel Corp., Clean Diesel Technologies, Inc. and Ethyl Corporation), from
producers of alternative mechanical technologies (such as Algae-X International,
Dieselcraft, Emission Controls Corp. and JAMS Turbo, Inc.) and from alternative
fuels (such as bio-diesel fuel and liquefied natural gas) all targeting the
same
markets and claiming increased fuel economy, and/or a decrease in toxic
emissions and/or a reduction in engine wear. Most of our competitors have
substantially greater financial and marketing resources than we do and may
independently develop superior technologies which may result in our technology
becoming less competitive or obsolete. We may not be able to keep pace with
this
change. If we cannot keep up with these advances in a timely manner, we will
be
unable to compete in our chosen markets.
THE
COMPANY NEEDS TO MAINTAIN ENERBURN’S EPA REGISTRATIONS. In accordance with the
regulations promulgated under the US Clean Air Act, manufacturers (including
importers) of gasoline, diesel fuel and additives for gasoline or diesel fuel,
are required to have their products registered with the EPA prior to their
introduction into the market place. Currently, EnerBurn products have two such
registrations (EPA # 5805A and 5931A). However, unforeseen future changes to
the
registration requirements may be made, and these products, or either one of
them, may not be able to qualify for registration under such new requirements.
The loss of the EPA registrations or restrictions on the current registrations
could have an adverse affect on our business and plan of operation.
Ruby
Cat
registered these products with the US Environmental Protection Agency which
registrations we acquired in connection with the EnerBurn Acquisition Agreement.
EnerBurn is registered in the United States only, and we are considering its
registration in other countries. Further testing could be needed in these or
other countries. We cannot assure you that EnerBurn will pass any future testing
that may be required. The failure of EnerBurn to obtain registration in
countries or areas where we would like to market it, could have a materially
adverse effect on our business and plan of operation.
FAILURE
TO PROPERLY MANAGE OUR POTENTIAL GROWTH POTENTIAL WOULD BE DETRIMENTAL TO
HOLDERS OF OUR SECURITIES. Since we have limited operating history, any
significant growth will place considerable strain on our financial resources
and
increase demands on our management and on our operational and administrative
systems, controls and other resources. There can be no assurance that our
existing personnel, systems, procedures or controls will be adequate to support
our operations in the future or that we will be able to successfully implement
appropriate measures consistent with our growth strategy. As part of this
growth, we may have to implement new operational and financial systems,
procedures and controls to expand, train and manage our employees and maintain
close coordination among our technical, accounting, finance, marketing, sales
and editorial staff. We cannot guarantee that we will be able to do so, or
that
if we are able to do so, we will be able to effectively integrate them into
our
existing staff and systems. We may fail to adequately manage our anticipated
future growth. We will also need to continue to attract, retain and integrate
personnel in all aspects of our operations. Failure to manage our growth
effectively could hurt our business.
LOSS
OF
OUR LARGEST CUSTOMER COULD RESULT IN SUBSTANTIAL DECREASE IN REVENUES.
Primarily
as a result of our relationship with Custom Fuel Services Inc. (“Custom”), we
recognized product sales in 2006 of $641,000 and $396,000 in 2007. At present
this one customer represents a majority of our sale revenues. With Custom’s
assistance, negotiations are currently underway with several over large
customers in the same industry to expand this market. However, there is no
assurance that we will be able to expand this market. The loss of Custom
as a
customer would adversely affect our business and we cannot provide any
assurances that we could adequately replace the loss of this customer.
RELIANCE
UPON THIRD-PARTY MANUFACTURER FOR OUR PRODUCTS. The manufacturing of our
EnerBurn products are undertaken pursuant to a Manufacturing and Supply
Agreement entered into on August 18, 2006 with Independent Contract Packaging,
Inc., a Texas corporation located in Cut and Shoot, Texas (“ICP”). Pursuant to
the agreement, ICP has been appointed as our non-exclusive manufacturer, blender
and packager of our EnerBurn product for a term of three years. ICP is presently
our sole manufacturer. Although we believe we can secure other manufacturers,
we
expect that the deterioration or cessation of our relationship with ICP would
have a material adverse effect, at least temporarily, until new relationships
are satisfactorily in place. In addition, any manufacturers that we rely upon
may possibly become unreliable in meeting delivery schedules, experience their
own financial difficulties or provide products of inadequate quality. Any
problems with our third-party manufacturers can be expected to have a material
adverse effect on our financial condition, business, results of operations
and
continued growth prospects.
THE
PAYMENTS DUE TO THE SELLER OF THE ENERBURN TECHNOLOGY WILL DRAW SIGNIFICANTLY
ON
FUTURE CASH RESERVES. On July 13, 2006, we completed the acquisition of the
EnerBurn formulas, technology and associated assets pursuant to an Asset
Purchase Agreement executed as of the same date (the “EnerBurn Acquisition
Agreement”) between the Company and the owner of Ruby Cat (the “Seller”).
Pursuant thereto, the Company acquired from the Seller all of its rights
with
respect to the liquid diesel motor vehicle fuel additives known as EC5805A
and
EC5931A products (the “Products”) as well as its rights to certain intellectual
property and technology associated with the Products (collectively, the
“Purchased Assets”). The purchase price for the Purchased Assets was $3.0
million, payable as follows: (i) $1.0 million paid on July 13, 2006 in cash,
and
(ii) the remaining $2.0 million evidenced by a promissory note (the “Note”)
bearing interest each month at a rate of 4.0% per annum, compounded monthly,
and
which shall be paid in four annual payments of $500,000 plus accumulated
interest to that date on each anniversary of the closing until the entire
purchase price is paid in full. In order to secure the debt represented by
the
Note, the Company executed and delivered to the Seller a Security Agreement
in
which the Company granted the Seller a first priority lien on the Purchased
Assets. The foregoing payments will draw significantly on future cash reserves.
In addition, if we are unable to make such payment obligations, the Seller
could
foreclose on its lien on the Purchase Assets or take other action, all of
which
would likely have a material adverse effect on our business. The first payment
of $500,000 plus related interest was paid to the Seller on May 10, 2007,
two
months in advance of the due date to take advantage of the savings in interest
expense.
WE
DEPEND
ON OUR EXECUTIVE OFFICERS AND NEED ADDITIONAL MARKETING AND TECHNICAL PERSONNEL
TO SUCCESSFULLY MARKET OUR PRODUCT. WE CAN NOT ASSURE YOU THAT WE WILL BE ABLE
TO RETAIN OR ATTRACT SUCH PERSONS. Since we are a small company, a loss of
one
or both of our current officers would severely and negatively impact our
operations. To implement our business plan, we will need additional marketing
and technical personnel to successfully market our product. The market for
such
persons remains competitive and our limited financial resources may make it
more
difficult for us to recruit and retain qualified persons.
Risks
Related To Our Common Stock
WE
HAVE
ISSUED A SUBSTANTIAL NUMBER OF WARRANTS TO PURCHASE OUR COMMON STOCK WHICH
WILL
RESULT IN SUBSTANTIAL DILUTION TO THE OWNERSHIP INTERESTS OF OUR EXISTING
SHAREHOLDERS.
As
of the
date hereof, we have 17,761,359 shares of common stock outstanding. Up to an
additional 4,936,650 shares are issuable upon the exercise of the warrants
currently outstanding. The exercise of all of these warrants substantially
dilute the ownership interests of our existing shareholders.
WE
DO NOT
INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. We have never declared or
paid a dividend on our common stock. We intend to retain earnings, if any,
for
use in the operation and expansion of our business and, therefore, do not
anticipate paying any dividends in the foreseeable future.
THE
TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE. The trading price of our
shares has, from time to time, fluctuated widely and in the future may be
subject to similar fluctuations. The trading price may be affected by a number
of factors including the risk factors set forth in this report as well as our
operating results, financial condition, announcements of innovations or new
products by us or our competitors, general conditions in the market place,
and
other events or factors. Although we believe that approximately 19 registered
broker dealers currently make a market in our common stock, we cannot assure
you
that any of these firms will continue to serve as market makers or have the
financial capability to stabilize or support our common stock. A reduction
in
the number of market makers or the financial capability of any of these market
makers could also result in a decrease in the trading volume of and price of
our
shares. In recent years, broad stock market indices, in general, and the
securities of technology companies, in particular, have experienced substantial
price fluctuations. Such broad market fluctuations may adversely affect the
future trading price of our common stock.
OUR
STOCK
PRICE MAY EXPERIENCE VOLATILITY. The market price of the common stock, which
currently is listed in the OTC Bulletin Board, has, in the past, fluctuated
over
time and may in the future be volatile. The Company believes that there are
a
small number of market makers that make a market in the Company’s common stock.
The actions of any of these market makers could substantially impact the
volatility of the Company’s common stock.
POTENTIAL
FUTURE SALES PURSUANT TO RULE 144. Many of the shares of Common Stock presently
held by management and others are “restricted securities” as that term is
defined in Rule 144, promulgated under the Securities Act. Under Rule 144,
a
person (or persons whose shares are aggregated) who has satisfied a certain
holding period, may, under certain circumstances sell such shares or a portion
of such shares. Effective as of February 15, 2008, the
holding
period for the resale of restricted securities of reporting companies was
shortened from one year to six months. Additionally, the SEC substantially
simplified Rule 144 compliance for non-affiliates by allowing non-affiliates
of
reporting companies to freely resell restricted securities after satisfying
a
six-month holding period (subject only to the Rule 144(c) public information
requirement until the securities have been held for one year) and by allowing
non-affiliates of non-reporting companies to freely resell restricted securities
after satisfying a 12-month holding period.
Such
holding periods have already been satisfied in many instances. Therefore,
actual
sales or the prospect of sales of such shares under Rule 144 in the future
may
depress the prices of the Company’s securities.
OUR
COMMON STOCK IS A PENNY STOCK. Our Common Stock is classified as a penny Stock,
which is traded on the OTCBB. As a result, an investor may find it more
difficult to dispose of or obtain accurate quotations as to the price of the
shares of the Common Stock. In addition, the “penny stock” rules adopted by the
Securities and Exchange Commission subject the sale of the shares of the Common
Stock to certain regulations which impose sales practice requirements on
broker-dealers. For example, broker-dealers selling such securities must, prior
to effecting the transaction, provide their customers with a document that
discloses the risks of investing in such securities. Furthermore, if the person
purchasing the securities is someone other than an accredited investor or an
established customer of the broker-dealer, the broker-dealer must also approve
the potential customer’s account by obtaining information concerning the
customer’s financial situation, investment experience and investment objectives.
The broker-dealer must also make a determination whether the transaction is
suitable for the customer and whether the customer has sufficient knowledge
and
experience in financial matters to be reasonably expected to be capable of
evaluating the risk of transactions in such securities. Accordingly, the
Commission’s rules may result in the limitation of the number of potential
purchasers of the shares of the Common Stock. In addition, the additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Common Stock, which could
severely limit the market of the Company’s Common Stock.
LIMITATIONS
OF THE OTCBB CAN HINDER COMPLETION OF TRADES. Trades and quotations on the
OTCBB
involve a manual process that may delay order processing. Price fluctuations
during a delay can result in the failure of a limit order to execute or cause
execution of a market order at a price significantly different from the price
prevailing when an order was entered. Consequently, one may be unable to trade
in the Company’s Common Stock at optimum prices.
THE
OTCBB
IS VULNERABLE TO MARKET FRAUD. OTCBB securities are frequent targets of fraud
or
market manipulation, both because of their generally low prices and because
OTCBB reporting requirements are less stringent than those of the stock
exchanges or NASDAQ.
INCREASED
DEALER COMPENSATION COULD ADVERSELY AFFECT STOCK PRICE. OTCBB dealers’ spreads
(the difference between the bid and ask prices) may be large, causing higher
purchase prices and less sale proceeds for investors.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
The
Company’s common stock currently trades on the OTC Bulletin Board under the
symbol “ETCK”. The following table sets forth the range of high and low bid
prices per share of the common stock for each of the calendar quarters
identified below as reported by the OTC Bulletin Board. These quotations
represent inter-dealer prices, without retail mark-up, markdown or commission,
and may not represent actual transactions.
Period
|
|
Bid
Prices
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006:
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
Jan.
1, 2006 to March 31, 2006
|
|
$
|
2.39
|
|
$
|
1.65
|
|
April
l, 2006 to June 30, 2006
|
|
$
|
2.11
|
|
$
|
1.40
|
|
July
1, 2006 to Sept. 30, 2006
|
|
$
|
1.90
|
|
$
|
1.10
|
|
Oct.
1, 2006 to Dec. 31, 2006
|
|
$
|
1.25
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007:
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
Jan.
1, 2007 to March 31, 2007
|
|
$
|
0.95
|
|
$
|
0.53
|
|
April
l, 2007 to June 30, 2007
|
|
$
|
1.51
|
|
$
|
0.60
|
|
July
1, 2007 to Sept. 30, 2007
|
|
$
|
1.30
|
|
$
|
0.71
|
|
Oct.
1, 2007 to Dec. 31, 2007
|
|
$
|
1.35
|
|
$
|
0.75
|
|
The
closing bid and asked prices of our common stock on March 24, 2008 were $0.90
and $1.03, respectively.
Holders
As
of
March 24, 2008, there were approximately 916 stockholders of record of the
Company’s Common Stock. This does not reflect persons or entities that hold
their stock in nominee or “street name”.
Dividends
The
Company has not paid any cash dividends to date, and it has no intention of
paying any cash dividends on its common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of its Board
of Directors and to certain limitations imposed under the Delaware Corporation
law. The timing, amount and form of dividends, if any, will depend on, among
other things, results of operations, financial condition, cash requirements
and
other factors deemed relevant by the Board of Directors.
Equity
Compensation Plan Information
Information
regarding equity compensations plans, as of December 31, 2007, is set forth
in
the table below:
Plan
category
|
|
Number of securities
to be issued upon exercise of
outstanding
options, warrants and rights (a)
|
|
Weighted-average
exercise price of outstanding options,
warrants and rights (b)
|
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plans (excluding securities reflected in column
(a)) (c)
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
-0-
|
|
|
-0-
|
|
|
1,000,000
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
4,936,650
|
(2)
|
$
|
1.41
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,936,650
|
|
$
|
1.41
|
|
|
-0-
|
|
_________________________
(1)
|
Represents
shares underlying the 2003 Employee Stock Option Plan. As of December
31,
2007, no options have been issued pursuant to the Plan. The exercise
prices will be determined at the time of issuance.
|
(2)
|
Represents
shares underlying the individual grant of
warrants.
|
BUSINESS
Introduction
Enerteck
Corporation (the “Company” or “EnerTeck Parent”) was originally incorporated,
under the name of Gold Bond Mining Company, under the laws of the State of
Washington on July 30, 1935. Gold Bond Mining Company, was initially formed
for
the purpose of acquiring, exploring, and developing precious metal mines
and, if
warranted, the mining of precious metals. Our name was subsequently changed
to
Gold Bond Resources, Inc. in July 2000. On January 9, 2003, we acquired EnerTeck
Chemical Corp. (“EnerTeck Sub”) as our wholly owned operating subsidiary. For a
number of years prior to our acquisition of EnerTeck Sub, we were an inactive,
public “shell” corporation seeking to merge with or acquire an active, private
company. As a result of the acquisition, we are now acting as a holding company,
with EnerTeck Sub as our only operating business. Subsequent to this
transaction, on November 24, 2003, we changed our domicile from the State
of
Washington to the State of Delaware, changed our name from Gold Bond Resources,
Inc. to EnerTeck Corporation and affected a one for 10 reverse common stock
split. Unless the context otherwise requires, the terms “we,” “us” or “our”
refer to EnerTeck Corporation and its consolidated subsidiary.
EnerTeck
Sub, our wholly owned operating subsidiary, was incorporated in the State of
Texas on November 29, 2000. It was formed for the purpose of commercializing
a
diesel fuel specific combustion catalyst known as EnerBurn®, as well as other
combustion enhancement and emission reduction technologies. Nalco/Exxon Energy
Chemicals, L.P. (“Nalco/Exxon L.P.”), a joint venture between Nalco Chemical
Corporation and Exxon Corporation commercially introduced EnerBurn in 1998.
When
Nalco/Exxon L.P. went through an ownership change in 2000, our founder, Dwaine
Reese, formed EnerTeck Sub. It acquired the EnerBurn trademark and related
assets and took over the Nalco/Exxon L.P. relationship with the EnerBurn
formulator and blender, and its then supplier, Ruby Cat Technology, LLC (“Ruby
Cat”). The decision to form EnerTeck Sub and acquire the EnerBurn business was
motivated by Mr. Reese’s belief that:
|
·
|
EnerBurn
was clearly beginning to gain market
acceptance;
|
|
·
|
the
gross margins associated with EnerBurn sales would support the business
model, since existing customers would likely continue to buy the
product
due to the significant impact on diesel fuel savings and reduced
emissions;
|
|
·
|
EnerBurn
had been professionally tested extensively in field applications
as well
as in the laboratory, clearly demonstrating its effectiveness in
increasing fuel economy and reducing emissions and engine
wear;
|
|
·
|
use
of the product in diesel applications has a profound impact on a
cleaner
environment.
|
Business
of the Company and Current Operations
We,
through our wholly owned subsidiary, specialize in the sales and marketing,
and
since August 2006, in the manufacturing of a fuel borne catalytic engine
treatment for diesel engines known as EnerBurn®. We utilize a sales process that
includes detailed proprietary customer fleet monitoring protocols in on-road
applications that quantify data and assists in managing certain internal
combustion diesel engine operating results while utilizing EnerBurn. Test
data
prepared by Southwest Research Institute and actual customer usage has indicated
that the use of EnerBurn in diesel engines improves fuel economy, lowers
smoke,
and decreases engine wear and the dangerous emissions of both Nitrogen Oxide
(NOx) and microscopic airborne solid matter (particulates). Our principal
target
markets are presently the
railroad,
trucking, heavy construction and maritime shipping industries. We also expect
that revenues will be derived in the future from the mining and offshore
drilling industries. Each of these industries share certain common financial
characteristics, i.e. (i) diesel fuel represents a disproportionate share
of
operating costs; and (ii) relatively small operating margins are prevalent.
Considering these factors, management believes that the use of EnerBurn and
the
corresponding derived savings in diesel fuel costs can positively effect
the
operating margins of its customers while contributing to a cleaner environment.
We
own
the EnerBurn trademark and, since July 2006, the EnerBurn formulas and
technology. Prior to July 13, 2006, we obtained EnerBurn products and services
from Ruby Cat and its affiliates pursuant to arrangement made with Ruby Cat.
Pursuant to a memorandum of understanding with Ruby Cat which expired on
December 31, 2003, the Company was granted the exclusive, global marketing
rights from Ruby Cat and an option to purchase the EnerBurn technology and
associated assets by December 31, 2003 for $6.6 million which was not exercised.
Following expiration of the memorandum of understanding, Ruby Cat and its
affiliates continued to supply EnerBurn products to the Company but not pursuant
to a formal written contract. On July 13, 2006, we completed the acquisition
of
the EnerBurn formulas, technology and associated assets pursuant to an Asset
Purchase Agreement executed as of the same date between the Company and the
owner of Ruby Cat (see “Our Purchase of the EnerBurn Technology” below). Since
we were primarily a sales and marketing organization prior our acquisition
of
the EnerBurn formulas and technology, we have not spent any funds on research
and development activities through 200
7
.
We
expect this to change however in the future.
Since
inception and through 2005, we engaged in limited marketing of the EnerBurn
technology and generated minimal sales, principally to the trucking and maritime
industries. Total revenue from sales for 2004 amounted to $179,000 and for
2005
amounted to $48,000, much of which came during the fourth quarter of 2005.
Due
to a lack of working capital, and a nearly complete turnover in upper management
and sales staff dating back into 2004, senior management changed its method
of
marketing the operation during 2005. The majority of the marketing effort for
2005 was directed at targeting and gaining a foothold in one of our major target
areas, the inland marine diesel market. Management focused virtually all of
our
resources at pinpointing and convincing one major customer within this market,
Custom Fuel Services Inc. (“Custom”) to go full fleet with our diesel fuel
additive product lines. A substantial portion of 2005 was spent testing our
primary product, EnerBurn, on one large inland marine vessel belonging to this
major potential customer.
As
a
result thereof, on July 28, 2005, EnerTeck Sub entered into an Exclusive
Reseller and Market Development Agreement (the “Custom Agreement”) with Custom.
Under the Custom Agreement, EnerTeck Sub has appointed Custom, which provides
dockside and midstream fueling from nine service locations in Louisiana,
Kentucky, Illinois, West Virginia, Missouri and Iowa, as its exclusive reseller
of EnerBurn and the related technology on the Western Rivers of the United
States, meaning the Mississippi River, its tributaries, South Pass, and
Southwest Pass, excluding the Intra Coastal Waterway. The Agreement has an
initial term of three years but can be terminated upon 60 days prior written
notice by either party. Custom is not required to purchase a minimum volume
of
EnerBurn during the term of the Custom Agreement. Subsequent to the signing
of
the Custom Agreement, Custom obtained the regulatory approvals and installed
the
blending equipment necessary to facilitate its distribution of EnerBurn.
In
February 2006, we delivered our first shipment of EnerBurn to Custom by
delivering 4,840 gallons. During the first quarter and most of the second
quarter on 2006, Custom concentrated on completing the required infrastructural
work to allow Custom to begin servicing the Ingram and other fleets. This
work
was completed late in the second quarter of 2006 and treatment of the Ingram
fleet was commenced. Late in the second quarter of 2006, Custom placed a
second
order of 4,840 gallons and began treatment on the Mississippi River.
Primarily
as a result of our relationship with Custom, we had product sales of $641,000
in
2006 and $396,000 in 2007, with a $105,000
additional
order made but not yet shipped at year end December 31, 2007. At present
this
one customer represents a majority of our sale revenues. With Custom’s
assistance, however, negotiations are currently underway with several over
large
customers in the same industry to expand this market. The loss of Custom
as a
customer would adversely affect our business and we cannot provide any
assurances that we could adequately replace the loss of this customer.
Sales
revenues for 2007 were considerably less than earlier anticipated primarily
due
to three unforeseen events occurring during 2007: (1) an equipment malfunction
on the Mississippi River that apparently occurred early in the Spring of
2007,
which went undetected by the vendor for a period of time, causing a severe
reduction of fuel dosage during the year, (2) a delay of nearly seven months
in
the completion of one of the principal Marine fueling facilities for EnerBurn
on
the Mississippi River from the original date projected until February, 2008
which also delayed the shipment and required the reclassification of a material
sale from 2007 to 2008, and (3) a delay of nearly a year by a major vendor
in
the completion of final development, testing and availability of the on-truck
dosing unit required for use by most trucks operating in the trucking industry,
until early 2008. We believe that if not for the occurrence of these three
events, we may have been able to achieve sufficient sales to have likely
made it
a profitable 2007. With our assistance, each of these problems has been
addressed and is either corrected or close to being corrected. It is expected
that sales should show significant increases throughout 2008.
The
Industry
General
Discussion of Diesel Fuel and Diesel Fuel Additives
As
crude
oil is heated, various components evaporate at increasingly higher temperatures.
First to evaporate is butane, the lighter-than-air gas used in cigarette
lighters, for instance. The last components of crude oil to evaporate, and
the
heaviest, include the road tars used to make asphalt paving. In between are
gasoline, jet fuel, heating oil, lubricating oil, bunker fuel (used in ships),
and of course diesel fuel. The fuel used in diesel engine applications such
as
trucks and locomotives is a mixture of different types of molecules of hydrogen
and carbon and include aromatics and paraffin. Diesel fuel cannot burn in
liquid
form. It must vaporize into its gaseous state. This is accomplished by injecting
the fuel through spray nozzles at high pressure. The smaller the nozzles
utilized and the higher the pressure, the finer the fuel spray and vaporization.
When more fuel vaporizes, combustion is more complete, so less soot will
form
inside the cylinders and on the injector nozzles. Soot is the residue of
carbon,
partially burned and unburned fuel.
Sulfur
is
also found naturally in crude oil. Sulfur is a slippery substance and it
helps
lubricate fuel pumps and injectors. It also forms sulfuric acid when it burns
and is a catalyst for the formation of particulate matter (one of the exhaust
emissions being regulated). In an effort to reduce emissions, the sulfur
content
of diesel fuel is being reduced through the refinery process; however, the
result is a loss of lubricity.
Diesel
fuel has other properties that affect its performance and impact on the
environment as well. The main problems associated with diesel fuel
include:
|
·
|
Difficulty
getting it to start burning o Difficulty getting it to burn completely
o
Tendency to wax and gel
|
|
·
|
With
introduction of low sulfur fuel, reduced
lubrication
|
|
·
|
Soot
clogging injector nozzles
|
Diesel
fuel additives have been developed to address the variety of problems associated
with diesel fuel performance.
Diesel
Fuel and the Environment
Diesel
fuel is the most cost effective fuel/engine technology available for heavy-duty
industrial and vehicle service. However, environmentally it needs dramatic
improvement. Governments worldwide are legislating specifications regarding
the
fuel itself and diesel engine design.
Today’s
advanced diesel engines are far cleaner than the smoke-belching diesels of
recent decades. Unfortunately, even smokeless diesel engines are not clean
enough to meet current stricter air pollution regulations.
While
diesel engines are the only existing cost-effective technology making
significant inroads in reducing “global warming” emissions from motor vehicles,
it is not sufficient to satisfy regulators and legislators. Diesel engines
will
soon be required to adhere to stringent regulatory/legislative guidelines that
meet near “zero” tailpipe emissions, especially on smog-forming nitrogen oxides
(NOx), particulate matter (PM) and “toxins”; the organic compounds of diesel
exhaust.
Diesel
engines can become ultra-clean. Meeting the environmental challenges will
require extensive research on clean-diesel technology. Research in this area
is
currently being sponsored by government agencies, major engine companies, truck
manufacturers, automobile makers, catalyst producers and, for fuels, oil
refining companies and their technology suppliers.
The
search for ultra-clean diesel is far from over. Discoveries and breakthroughs
will continue to prevail. Large Fortune 500 companies, as well as small,
emerging technology companies are investing hundreds of millions of dollars
in
research and development worldwide on these and other clean-diesel technologies.
Today,
there is no economic alternative to diesel engines for most industrial
applications. This is true for ocean vessels, tug boats, commercial/recreational
vessels, locomotive, trucking, bus transport, construction, mining, agriculture,
logging, distributed power generation, and, in many parts of the world, personal
transportation. In short, diesel fuel does the world’s heavy work.
Products
and Services
The
Diesel Fuel Additive Product Line
EnerBurn
Combustion Catalyst for Diesel Fuel
EnerBurn
is a liquid, chemical formulation, presently sold in bulk quantities to fleet
and vessel operators, under three product codes differentiated by market
application and product concentration, as indicated below:
Product
|
|
Application
|
EnerBurn
EC5805A
|
|
U.S.
On-Road Market
|
EnerBurn
EC5931A
|
|
U.S.
Off-Road Market
|
EnerBurn
EC5805C
|
|
International
Market
|
Although
added to diesel fuel and generally referred to as a diesel fuel additive within
the industry, EnerBurn functions as an engine treatment application by removing
carbon deposits from the combustion surfaces of the engine and greatly reducing
further carbon deposit buildup. It also provides for an increased rate of
combustion. By adding EnerBurn to diesel fuel in accordance with proprietary
methodology, it forms a non-hazardous catalytic surface in the diesel engine
combustion chamber and on the surface of the piston heads. This surface is
visible in the form of a monomolecular film that develops after initiation
of
treatment and remains active for a period of time after cessation of treatment.
The
buildup of carbon within the combustion chamber of a diesel engine can generate
greater exhaust opacity and increased engine wear. These carbon deposits can
cause piston rings to stick and reduce compression resulting in decreased engine
efficiency with extended use.
The
unique chemical formulation of EnerBurn, when applied in accordance with
proprietary methodology, has been shown to produce benefits in fuel economy,
NOx
formation, smoke, brake horsepower and engine wear (See “Product Testing”,
below).
EnerBurn
Volumetric Proportioning Injector Equipment (VPI)
Volumetric
proportioning injection equipment is used to deliver proper dosage ratios of
EnerBurn to the diesel fuel, and are typically offered to our customers in
support of an EnerBurn sale. Three equipment vendors supply additive injection
equipment to us that is either installed at a bulk fueling depot or onboard
the
vehicle or vessel.
Product
Testing
Southwest
Research Institute
The
Southwest Research Institute (“SWRI”) of San Antonio, Texas has extensively
tested the EnerBurn technology. This institute is an independent, nonprofit,
applied engineering and physical sciences research and development organization
with 11 technical divisions using multidisciplinary approaches to problem
solving. The Institute occupies 1,200 acres and provides nearly two million
square feet of laboratories, test facilities, workshops, and offices for more
the 2,700 employees who perform contract work for industry and government
clients.
The
extensive testing of EnerBurn conducted by SWRI confirmed product claims of
lower highway smoke, reduced NOx emissions, a significant reduction in engine
wear and an increase in horsepower. Actual customer usage data has also
confirmed the claim that EnerBurn usage reduces fuel consumption.
EnerBurn
Proof of Performance Demonstrations
An
integral part of our sales process is to conduct proof of performance
demonstrations for potential customers wherein we accumulate historical fleet
data that documents the effects of the use of EnerBurn (i.e. advantages in
terms
of increased fuel economy, a decrease in engine wear and reductions in toxic
emissions) on that customer’s specific vehicles or vessels. In connection with
these proofs of performance demonstrations, we provide fleet monitoring services
and forecasts of fuel consumption for purposes of the prospective customer’s own
analysis.
The
results below are indicative of typical customer experiences using EnerBurn.
In
many instances, customers have directly informed us about their satisfaction
with EnerBurn and the fuel savings that its use has provided them. In all cases,
our own comparison of the customer provided historical fuel usage data with
the
EnerBurn usage (which we have monitored) data has proven to us and the customer
that the use of EnerBurn has reduced their fuel consumption. In addition to
fuel
consumption reduction, the decrease in emissions resulting from EnerBurn use
is
measured with a device called the UEI Intelligent Solutions Meter. Similarly,
the percentage reduction in opacity (smoke generated by diesel engines) is
measured by the Wager 6500 Meter (manufactured by Robert H. Wager Co., Inc.).
|
·
|
An
EnerBurn proof of performance demonstration of a long haul truck
fleet
began in August of 1998. The number of trucks treated with EnerBurn
exceeded 3,000-Century Class Freightliners, most of that were equipped
with Caterpillar or similar type engines. This company’s measurable fuel
savings averaged 10.4% over a 3 plus year period while using EnerBurn,
resulting in annual fuel savings in excess of $6.5 million. In addition,
the company’s maintenance department observed significant reductions in
metal loss in crankcase wear-parts, although they did not attempt
to
quantify the value of this
phenomenon.
|
|
·
|
A
fleet of 24 three-year-old 1400 horsepower Morrison Knudson MK1500
locomotives with Caterpillar 3512 diesel engines were used for a
12-month
proof of performance demonstration of the effectiveness of EnerBurn.
This
demonstration started on July 1, 1999 and clearly documented a 10.8%
reduction in fuel consumption and a 9.5% reduction in Brake Specific
Fuel
Consumption (“BSFC”). The demonstration also reflected a significant
reduction in engine wear, confirmed by a 56% reduction in copper
content
of the lube oil.
|
|
·
|
Three
maritime vessels were selected from a large fleet, based on size
and
typical routes for accessibility of regular fueling at this company’s bulk
fueling barge. A proof of performance protocol was developed under
the
guidance and supervision of this company’s management. The base line
demonstration commenced on July 11, 2001 and the final demonstration
was
performed on February 28, 2002. One of the three demonstration vessels
represented an untreated placebo; two were treated with EnerBurn.
The two
treated vessels exhibited a measured reduction in fuel consumption
of 7%
and 9.9%, while the untreated placebo experienced nearly a 10% increase
in
fuel consumption. Additionally five vessels with different diesel
engines
were selected for proof of performance under the same protocols yielding
results in excess of 10% in fuel savings, significant reductions
in
opacity, from 33%-86%, reductions of NOx emissions between 11% and
20%.
|
Overview
of Worldwide Diesel Fuel Consumption
The
U.S.
Department of Energy, Energy Information Administration (“EIA”) estimates that
worldwide annual consumption of diesel fuel approximates 210 billion U.S.
gallons. A breakdown of this estimate is summarized as follows:
|
|
Annual
consumption of
|
|
|
|
Diesel Fuel - Billion USG/Year
|
|
|
|
|
|
United
States
|
|
|
60
|
|
Europe
|
|
|
60
|
|
Pacific
Rim
|
|
|
50
|
|
Rest
of the World
|
|
|
40
|
|
Total
Gallons Consumption
|
|
|
210
|
|
Domestic
Diesel Fuel Consumption
Based
on
further EIA published data, the following table* depicts domestic distillate
fuel oil consumption by energy use for 2001.
|
|
2001 (Thousand Gallons)
|
|
|
|
|
|
U.S.
Total
|
|
|
58,971,486
|
|
Residential
|
|
|
6,263,440
|
|
Commercial
|
|
|
3,505,057
|
|
Industrial
|
|
|
2,323,797
|
|
Oil
Company
|
|
|
820,321
|
|
Farm
|
|
|
3,427,343
|
|
Electric
Power
|
|
|
1,510,273
|
|
Railroad
|
|
|
2,951,831
|
|
Vessel
Bunkering
|
|
|
2,093,252
|
|
|
|
|
33,215,320
|
|
Military
|
|
|
346,060
|
|
Off-Highway
Diesel
|
|
|
2,514,791
|
|
*
Sources: Energy Information Administration’s Form EIA-821, “Annual Fuel Oil and
Kerosene Sales Report,” for 1997-2001 and “Petroleum Supply Annual,” Volume 1,
1997-2001. Totals may not equal sum of components due to independent rounding.
Our
Target Markets
Our
primary domestic target markets presently include the trucking, rail, heavy
construction and maritime shipping industries. We also expect that revenues
will
be derived in the future from the mining and offshore drilling industries.
Combined, management believes these industries consume billions of gallons
of
diesel fuel. Furthermore, each of these industries typically experiences
relatively small operating margins. Because of these financial factors,
management believes that the ability to reduce fuel consumption, even by
a small
amount, could have a dramatic effect on its customers’ competitive viability.
Sales
and Marketing Strategy
The
fuel
additive industry has historically been mired by a myriad of technically dubious
products and potential customers are usually wary of promotional claims by
product manufacturers or “snake oil” peddlers as they are sometimes labeled.
Prospective
customers in all targeted market sectors and geographic locations are primarily
concerned about the potential business risks associated with the adoption of
any
new fuel or engine treatment. Thus, the first resistant barrier to adoption
of a
fleet proof of performance demonstration is dispelling fear about impact on
engine warranties and any potential business risk associated with a fleet
shutdown caused by our product. The potential EnerBurn fuel and maintenance
savings are strong motivators but are secondary to risk avoidance. The SWRI
fitness for use testing and customer testimonials are paramount in assisting
us
in addressing these fears.
Potential
customers have a strong predisposition to accept only demonstrable
proof-of-benefit in their own fleet as justification for any new expenditure.
After risk avoidance, the ability to demonstrate and prove results is the
primary obstacle for market adoption of the EnerBurn product.
Our
sales
process begins with a proof of performance demonstration that is a thorough
analysis of the potential customer, including fleet type, size, and opportunity.
(See “Business - Product Testing - EnerBurn Proof of Performance
Demonstrations”, above). This is followed with sales presentations at both the
executive level and maintenance level. Executive level sales presentations
emphasize return on investment (“ROI”), while maintenance level sales
presentations emphasize our technology and why it does not impact engine
warranties and any potential business risk associated with a fleet shutdown.
Convincing
a potential customer to undertake a proof of performance demonstration is a
difficult task because there is a significant expense to be borne by the
potential customer. Specifically, the potential customer must pay for both
the
EnerBurn that is used during the demonstration as well as purchase the additive
injection equipment that is also needed. The cost will vary according to the
potential customer and the industry in which it is in. For a proof of
performance demonstration on a typical fleet of 100 diesel engine trucks, the
cost of the EnerBurn would be approximately $30,000, while the average cost
of
the equipment used would be approximately $20,000 to $50,000. The personnel
costs related to providing fleet monitoring services and forecasts of fuel
consumption for the potential customer’s analysis are borne either by the
Company, its supplier or the sales agent. For a demonstration involving a fleet
of 100 hundred trucks, typically 50 to 100 man-hours are involved. The current
sales cycle from inception to full customer implementation is typically six
to
12-months from initial customer contact. This includes the two to six months
it
usually takes for the benefits of EnerBurn to begin to take effect in the
subject engines during the proof of performance demonstration period.
The
BATL Agreement and Our Purchase of the EnerBurn Technology
As
mentioned above, prior to July 2006, we obtained EnerBurn products and services
from Ruby Cat and its affiliates pursuant to arrangement made with Ruby Cat.
Pursuant to a memorandum of understanding with Ruby Cat which expired on
December 31, 2003, the Company was granted the exclusive, global marketing
rights from Ruby Cat and an option to purchase the EnerBurn technology and
associated assets by December 31, 2003 for $6.6 million which was not exercised.
Following expiration of the memorandum of understanding, Ruby Cat and its
affiliates continued to supply EnerBurn products to the Company but not pursuant
to a formal written contract.
On
December 8, 2005, we entered into a Securities Purchase Agreement (the “BATL
Agreement”) with BATL Bioenergy LLC (“BATL”), then an unrelated third party,
pursuant to which we agreed to issue and sell to BATL, for the aggregate
purchase price of $3,000,000 (the “BATL Purchase Price”), (i) 2,450,000 shares
(the “BATL Shares”) of the common stock of the Company, and (ii) a warrant (the
“BATL Warrant”) expiring in five years to purchase an additional 1,000,000
shares of common stock at an exercise price of $2.00 per share. In accordance
with the terms of the BATL Agreement, BATL shall be entitled to nominate one
director to the Board of Directors of the Company. On December 9, 2005 (the
“BATL Closing Date”), the transactions contemplated by the BATL Agreement were
completed with the Purchase Price being paid and the BATL Shares and BATL
Warrant being issued. In addition, on the BATL Closing Date,
Thomas
Donino, President of BATL, was appointed by the Board of Directors of the
Company to serve on the Board. The BATL Agreement provides that
for
so
long as BATL shall beneficially own in excess of 10% of the outstanding shares
of the common stock of the Company, BATL shall be entitled to nominate one
director to the Board of Directors of the Company.
In
accordance with the terms on the BATL Agreement, we agreed that the proceeds
of
the Purchase Price shall be used as follows: (i) $1,000,000 to complete the
purchase of Ruby Cat Technology, LLC (the “Ruby Cat Transaction”); (ii) no more
than $340,000 to repay certain outstanding debt of the Company and its
subsidiary; and (iii) the balance for working capital purposes. We have granted
BATL an irrevocable, unconditional right, exercisable on one occasion only
for a
period of 90 days following the earlier to occur of (i) the termination of
any
definitive agreement or letter of intent in respect of the Ruby Cat Transaction,
and (ii) if the Ruby Cat Transaction shall not yet have been consummated, 90
days following the BATL Closing Date, to sell to the Company up to 816,667
shares of common stock at a per share purchase price of $1.2245 per
share.
In
connection with the BATL Agreement, the Company and BATL entered into a
Registration Rights Agreement dated as of December 8, 2005 (the “Registration
Rights Agreement”), whereby we have agreed to prepare and file with the
Commission not later than the 60th day (the “Filing Date”) after the BATL
Closing Date a Registration Statement covering the resale of all of the BATL
Shares and the shares of common stock underlying the BATL Warrant. We have
agreed to use our best efforts to cause the Registration Statement to be
declared effective as promptly as possible after the filing thereof, but in
any
event prior to the 240
th
day
after the Filing Date (such day referred to as the “Effective Date”); provided
that, if the Registration Statement is not filed by the Filing Date or declared
effective by the Effective Date (each a “Penalty Event”) then we shall issue a
five-year warrant (“Penalty Warrant”) to BATL to acquire another 49,000 shares
of common stock, at an exercise price equal to the exercise price of the BATL
Warrant, per each 30-day period following the Penalty Event that the
Registration Statement has not been filed and/or that the Effective Date has
not
occurred. In April 2006, we entered into a letter agreement with BATL amending
and clarifying certain provisions of the Registration Rights Agreement. Pursuant
to the April 2006 letter agreement, it was agreed (i) that the number of Penalty
Warrants issuable for all periods prior to April 30, 2006 in respect of delays
in filing the Registration Statement shall be 30,000, and (ii) 28,500 of such
warrants shall be issued to Thomas F. Donino and 1,500 of such warrants shall
be
issued to Jay Goldstein. In October 2007, we entered into another letter
agreement with BATL pursuant to which it was agreed that in the event the
Effective Date occurs during the period from and including April 30, 2006
through April 30, 2008 (the “Fixed Period”), the number of shares of Common
Stock underlying any Penalty Warrant issuable due to the fact that the
Registration Statement was not declared effective by the Effective Date shall
be
510,000 (the “Fixed Penalty Warrant”), regardless of at which point during the
Fixed Period the Effective Date occurs. In October 2007, the Fixed Penalty
Warrant was delivered to BATL. The October 2007 letter agreement further
provides that if the Effective Date shall have not occurred on or prior to
April
30, 2008, then we shall once again be obligated to issue a Penalty Warrant
to
BATL per 30-day period following the Fixed Period that the Effective Date has
not occurred, in accordance with the terms of the Registration Rights Agreement.
On
July
13, 2006, we completed the acquisition of the EnerBurn formulas, technology
and
associated assets pursuant to an Asset Purchase Agreement executed as of
the
same date (the “EnerBurn Acquisition Agreement”) between the Company and the
owner of Ruby Cat (the “Seller”). Pursuant thereto, the Company acquired from
the Seller all of its rights with respect to the liquid diesel motor vehicle
fuel additives known as EC5805A and EC5931A products (the “Products”) as well as
its rights to certain intellectual property and technology associated with
the
Products (collectively, the “Purchased Assets”). The purchase price for the
Purchased Assets was $3.0 million, payable as follows: (i) $1.0 million paid
on
July 13, 2006 in cash, and (ii) the remaining $2.0 million evidenced by a
promissory note (the “Note”) bearing interest each month at a rate of 4.0% per
annum, compounded monthly, and which is to be paid in four annual payments
of
$500,000 plus accumulated interest to that date on each anniversary of the
closing until the entire purchase price is paid in full. In order to secure
the
debt represented by the Note, the Company executed and delivered to the Seller
a
Security Agreement in which the Company granted the Seller a first priority
lien
on the Purchased Assets. In May 2007, the initial payment of $500,000 plus
interest was made in advance of the due date to take advantage of a significant
saving in interest.
The
EnerBurn Acquisition Agreement provides that for five years after closing the
Seller will not, within the United States or anywhere abroad, be engaged in
the
business of
researching,
developing, manufacturing, marketing or selling products intended to improve
the
fuel efficiency of heavy duty diesel engines.
In
addition, so long as any amounts payable to the Seller under the Note remain
unpaid, the Company shall provide observation rights to one representative
designated by the Seller to attend meeting of the Company’s Board of Directors.
Such observer shall have the right to observe and participate in such meetings
but shall not have the right to vote.
Contemporaneously
with the closing, the Company granted the Seller a non-exclusive, fully paid,
perpetual, non-revocable, royalty-free, assignable license, to manufacture,
market and sell a certain product known as “Thermoboost II”, which has the same
chemical formulation as one of the Products and which is used exclusively
in
home heating oil. During the fourth quarter of 2007, we negotiated a
manufacturing agreement with the Seller and have begun production of its
Thermoboost II product line at our ICP manufacturing facility at Cut and
Shoot,
Texas. We will wholesale this product exclusively to the Seller for its resale
and distribution in the home heating oil market.
Manufacturing
The
acquisition of the EnerBurn formulas, technology and associated assets has
provided us the ability to transform our business from a sales organization
to a
fully integrated manufacturer and distributor of EnerBurn. The manufacturing
of
our EnerBurn product is now undertaken pursuant to a Manufacturing and Supply
Agreement entered into on August 18, 2006 with Independent Contract Packaging,
Inc., a Texas corporation located in Cut and Shoot, Texas (“ICP”). Pursuant to
the agreement, ICP has been appointed as our non-exclusive manufacturer, blender
and packager of our EnerBurn product for a term of three years. As provided
in
the agreement, we have agreed to purchase and supply certain tanks and related
equipment and raw materials to be used by ICP to manufacture, blend and package
the EnerBurn product, and ICP has agreed to provide its manufacturing, blending
and packaging services on a commercially reasonably prompt basis according
to
the specifications received from and required by us. For such services, we
have
agreed to pay ICP its fees pursuant to an agreed upon fee schedule.
Competition
The
market for products and services that increase diesel fuel economy, reduce
emissions and engine wear is rapidly evolving and intensely competitive and
management expects it to increase due to the implementation of stricter
environmental standards. Competition can come from other fuel additives, fuel
and engine treatment products and from producers of engines that have been
modified or adapted to achieve these results. In addition, the we believe that
new technologies, including additives, will further increase competition.
Our
primary current competitors include Lubrizol Corporation, Chevron Oronite
Company (a subsidiary of Chevron Corporation), Octel Corp., Clean Diesel
Technologies, Inc. and Ethyl Corporation.
Many
of
our competitors have been in business longer than it has, have significantly
greater financial, technical, and other resources, or greater name recognition.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements. Competition could negatively
impact our business. Competitive pressures could cause us to lose market share
or to reduce the price of its products, either of which could harm its business,
financial condition and operating results.
Management
believes that the principal competitive factors in the Company’s market include
the:
|
·
|
effectiveness
of the product;
|
|
·
|
proprietary
technology;
|
|
·
|
quality
of customer service and support.
|
Government
Regulation - Fuel Additive Registration
We
need
to comply with registration requirements for each geographic jurisdiction
in
which it sells EnerBurn. On January 21, 2001, the US Environmental Protection
Agency, pursuant to the Environmental Protection Act (the “Act”) (40 CFR 79.23)
issued permit number EC 5805A in connection with the use of EnerBurn. This
registration allows EnerBurn to be used anywhere in the United States for
highway use in all over-the-road diesel applications. Additionally, on March
30,
2004, we received a second EPA permit, permit number EC 5931A in connection
with
the use of EnerBurn. This registration allows EC 5931A to be used anywhere
in
the United States for use in all diesel applications. Under these registrations,
we have pass through rights from the formulator, blender and supplier to
sell
EnerBurn in on-road applications. However, there are provisions in the Act
under
which the EPA could require further testing. The EPA has not exercised these
provisions yet for any additive. Internationally, we intend to seek registration
in other countries as we develops market opportunities.
Our
business is impacted by air quality regulations and other regulations governing
vehicle emissions as well as emissions from stationary engines. If such
regulations were abandoned or determined to be invalid, its prospects may
be
adversely affected. As an example, if crude oil and resulting diesel prices
were
to reach or approach historical lows, the emphasis for fuel efficiency would
be
diminished, potentially impacting sales velocity of the products, consequently
adversely affecting our performance. Typically, there are registration and
regulation requirements for fuel additives in each country in which they
are
sold. In the United States, fuel and fuel additives are registered and regulated
pursuant to Section 211 of the Clean Air Act. 40 CFR Part 79 and 80 specifically
relates to the registration of fuels and fuel additives
In
accordance with the Clean Air Act regulations at 40 CFR 79, manufacturers
(including importers) of gasoline, diesel fuel and additives for gasoline or
diesel fuel, are required to have their products registered by the EPA prior
to
their introduction into commerce. Registration involves providing a chemical
description of the fuel or additive, and certain technical, marketing, and
health-effects information. The health-effects research is divided into three
tiers of requirements for specific categories of fuels and additives. Tier
1
requires a health-effects literature search and emissions characterization.
Tier
2 requires short-term inhalation exposures of laboratory animals to emissions
and screened for adverse health effects, unless comparable data are already
available. Alternative Tier 2 testing can be required in lieu of standard Tier
2
if EPA concludes that such testing would be more appropriate. Certain small
businesses are exempt from some or all the Tier 1 and Tier 2 requirements.
Tier
3 provides for follow-up research, if necessary.
Employees
We
currently employ five individuals on a full-time basis, and we also engage
independent sales representatives. None of our employees are covered by a
collective bargaining agreement. We believe that relations with our employees
are good.
LEGAL
PROCEEDINGS
We
are
not a party to any pending material legal proceeding nor are we aware of
any
proceeding contemplated by any individual, company, entity or governmental
authority involving the Company.
DESCRIPTION
OF PROPERTY
We
do not
own any real estate. We lease approximately 2,722 square feet of space for
our
executive offices at 10701 Corporate Drive, Suite No. 150, Stafford, Texas.
Such
lease, which commenced on February 1, 2001, had an original term of three
years
and has been extended to April 30, 2010. Rent expense for the years ended
December 31, 2007 and December 31, 2006 totaled approximately $
43,553
and
$43,140, respectively. Management believes that the current facility is adequate
for the foreseeable future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the audited consolidated
financial statements and the notes thereto appearing elsewhere herein and is
qualified in its entirety by the foregoing.
Executive
Overview
EnerTeck
Corporation (the “Company” or “EnerTeck Parent”) was incorporated in the State
of Washington on July 30, 1935 under the name of Gold Bond Mining Company
for
the purpose of acquiring, exploring, and developing and, if warranted, the
mining of precious metals. We subsequently changed our name to Gold Bond
Resources, Inc. in July 2000. We acquired EnerTeck Chemical Corp. (“EnerTeck
Sub”) as a wholly owned subsidiary on January 9, 2003. For a number of years
prior to our acquisition of EnerTeck Sub, we were an inactive, public “shell”
corporation seeking to merge with or acquire an active, private company.
As a
result of this acquisition, we are now acting as a holding company, with
EnerTeck Sub as our only operating business. Subsequent to this transaction,
on
November 24, 2003 we changed our domicile from the State of Washington to
the
State of Delaware, changed our name from Gold Bond Resources, Inc. to EnerTeck
Corporation and affected a one for 10 reverse common stock split.
EnerTeck
Sub, our wholly owned operating subsidiary, was incorporated in the State
of
Texas on November 29, 2000. It was formed for the purpose of commercializing
a
diesel fuel specific combustion catalyst known as EnerBurn (TM), as well
as
other combustion enhancement and emission reduction technologies. Nalco/Exxon
Energy Chemicals, L.P. (“Nalco/Exxon L.P.”), a joint venture between Nalco
Chemical Corporation and Exxon Corporation commercially introduced EnerBurn
in
1998. When Nalco/Exxon L.P. went through an ownership change in 2000, our
founder, Dwaine Reese, formed EnerTeck Sub. It acquired the EnerBurn trademark
and related assets and took over the Nalco/Exxon L.P. relationship with the
EnerBurn formulator and blender, and its supplier, Ruby Cat Technology, LLC
(“Ruby Cat”). The decision to form EnerTeck Sub and acquire the EnerBurn
business was motivated by Mr. Reese’s belief that:
|
·
|
EnerBurn
was clearly beginning to gain market
acceptance;
|
|
·
|
the
gross margins associated with EnerBurn sales would
support the business model, since existing customers would likely
continue
to buy the product due to the significant impact on diesel fuel
savings
and reduced emissions;
|
|
·
|
EnerBurn
had been professionally tested extensively in field applications
as well
as in the laboratory, clearly demonstrating its effectiveness in
increasing fuel economy and reducing emissions and engine
wear;
|
|
·
|
The
use of the product in diesel applications has a profound impact
on a
cleaner environment.
|
We
utilize a sales process that includes detailed proprietary customer fleet
monitoring protocols in on-road applications that quantify data and assists
in
managing certain internal combustion diesel engine operating results while
utilizing EnerBurn. Test data prepared by Southwest Research Institute and
actual customer usage has indicated that the use of EnerBurn in diesel engines
improves fuel economy, lowers smoke, and decreases engine wear and the dangerous
emissions of both Nitrogen Oxide (NOx) and microscopic airborne solid matter
(particulates). Our principal target markets presently include the trucking,
heavy construction and maritime shipping industries. We also expect that
revenues will be derived in the future from the railroad, mining and offshore
drilling industries. Each of these industries shares certain common financial
characteristics, i.e. (i) diesel fuel represents a disproportionate share
of
operating costs; and (ii) relatively small operating margins are prevalent.
Considering these factors, management believes that the use of EnerBurn and
the
corresponding derived savings in diesel fuel costs can positively effect
the
operating margins of its customers while contributing to a cleaner
environment.
Results
of Operations
Revenues
We
recognized revenues of $396,000 for the year ended December 31, 2007 compared
to
revenues of $641,000 for the year ended December 31, 2006, a decrease of
$245,000 or 38.0%. The primary source of revenue for the years ended December
31, 2007 and 2006 is from the sale of EnerBurn to the railroad, heavy
construction and maritime industries. During 2007, we sold 4,840 fewer gallons
of EnerBurn than sold in 2006. The price levels of product sold in 2007 was
relatively comparable to pricing in 2006. This
decrease
in revenues can be traced primarily to
(i)
a
customer owned equipment malfunction on the Mississippi River that went
undetected for several months, (ii) a seven month delay in the completion
of one
of the principal Marine fueling facilities for EnerBurn from the original
date
projected, which also delayed the shipment and required the reclassification
of
a major sale from 2007 into 2008, and (iii) a delay of nearly a year in the
final development, testing and availability of the on-truck dosing unit required
for use by most trucks operating in the trucking industry, until early 2008.
We
believe that if not for the occurrence of these three events, we may have
been
able to achieve sufficient sales to have likely made it a profitable 2007.
With
our assistance, each of these problems has been addressed and is either
corrected or close to being corrected, and therefore should not reoccur in
the
future. It is expected that sales should show significant increases throughout
2008.
On
July
28, 2005, EnerTeck Sub entered into an Exclusive Reseller and Market Development
Agreement (the “Custom Agreement”) with Custom Fuel Services, Inc. (“Custom”), a
subsidiary of Ingram Barge. Under the Custom Agreement, EnerTeck Sub has
appointed Custom, which provides dockside and midstream fueling from nine
service locations in Louisiana, Kentucky, Illinois, West Virginia, Missouri
and
Iowa, as its exclusive reseller of EnerBurn and the related technology on
the
Western Rivers of the United States, meaning the Mississippi River, its
tributaries, South Pass, and Southwest Pass, excluding the Intra Coastal
Waterway. The Agreement has an initial term of three years but can be terminated
upon 60 days prior written notice by either party. Custom is not required
to
purchase a minimum volume of EnerBurn during the term of the Custom Agreement.
Therefore, we cannot guarantee that any meaningful revenues will be derived
from
the Custom Agreement. Subsequent to the signing of the Custom Agreement,
Custom
obtained the regulatory approvals and installed the blending equipment necessary
to facilitate its distribution of EnerBurn. In February 2006, we delivered
our
first shipment of EnerBurn to Custom by delivering 4,840 gallons. During
most of
2006, Custom concentrated on completing the required infrastructural work
to
allow Custom to begin servicing the Ingram and other fleets. This work was
completed late in the second quarter of 2006 and treatment of the Ingram
fleet
was commenced. Late in the second quarter, Custom placed a second order of
4,840
gallons. However, Custom was unable to take delivery until late in the fourth
quarter of 2006. Sales to Custom, currently the Company’s largest customer have
been slower than initially anticipated principally due to the equipment
malfunction and delay in the completion of a principal Marine fueling facility
as described above. Each of these problems has been addressed and is either
corrected or close to being corrected.
We
expect
future revenue trends to initially come from the trucking, rail, heavy
construction and maritime industries, and subsequently expect revenues to
also
be derived from the mining and offshore drilling industries. We expect this
to
occur as sales increase and the sales and marketing strategies are implemented
into the targeted markets and we create an understanding and awareness of
our
technology through proof of performance demonstrations with potential customers.
Our
future growth is significantly dependent upon our ability to generate sales
from
heavy construction companies such as those currently coming on line, trucking
companies with fleets of 500 trucks or more, and barge and tugboat companies
with large maritime fleets, and railroad, mining and offshore drilling and
genset applications. Our main priorities relating to revenue are: (1) increase
market awareness of EnerBurn product through its strategic marketing plan,
(2)
growth in the number of customers and vehicles or vessels per customer, (3)
accelerating the current sales cycle, and (4) providing extensive customer
service and support.
In
early
September 2006, we made our initial sale to a member of the heavy construction
industry working in the South Central Texas area. After successful testing
this
initial customer has led to introductions and initial testing with a large
concrete company in West Texas, one of the largest highway contracts in the
state of Texas and most recently one to largest highway and heavy construction
contractor in the United States. We feel as this market matures it can become
a
major source of business for the Company.
Also,
negotiations have been completed to begin demonstration and testing with
a major
American railroad company in April 2008. This follows several years of
successful usage of EnerBurn, our principal product for several years with
a
small railroad company, work
ing
principally in the Houston area. Successful completion of this test, which
is
projected to take several months, should lead to the Company’s entry into a
significantly larger market.
Gross
Profit
Gross
profit, defined as revenues less cost of goods sold, was $322,000 or 81.3%
of
sales for the year ended December 31, 2007, compared to $401,000 or 62.6%
of
sales for the year ended December 31, 2006. In terms of absolute dollars,
gross
profit decreased $79,000 primarily due to the reduced sales achieved in 2007
compared to 2006
.
The
gross
profit percentage increased 18.7% for the 2007 calendar year compared to
the
2006 calendar year due primarily to the fact that we are now the manufacturer
of
our core products, instead of a purchaser and relabeler. As our overall volume
increases, we feel confident that this improvement in the gross profit
percentage should continue as our manufacturing proficiency improves for
our
core products.
Cost
of
good sold was $74,000 for the 2007 calendar year which represented 18.7%
of
revenues compared to $241,000 for the 2006 calendar year which represented
37.6%
of revenues. The decrease in cost of goods sold as a percentage of revenues
primarily reflects the decrease in overall product cost from our initiation
of
manufacturing of our products.
We
have
owned the EnerBurn technology and associated assets since its purchase in
July
2006. Although our actual manufacturing function is performed for us by an
unrelated third party under contract to us, we should continue to realize
better
gross margins through the manufacturing of our product lines, compared to
those
we achieved in the past when we purchased all of our products from an outside
vendor.
Cost
and Expenses
Costs
and
expenses decreased to $928,000 for the year ended December 31, 2007 from
1,068,000 for the year ended December 31, 2006, a decrease of $140,000. Costs
and expenses in all periods primarily consisted of payroll, professional
fees,
rent expense, depreciation expense and other general and administrative
expenses. While there has been some decrease, costs and expenses for 2007
are
reasonably consistent with those of the prior year overall.
Net
Loss
Our
net
operating loss amounted to $605,000 for the year ended December 31, 2007
as
compared to $667,000 for the year ended December 31, 2006, a decrease in
net
operating loss of $62,000, despite a decrease in sales revenues of $245,000
from
the prior year. As stated earlier, our gross profit percentage increased
18.7%
in 2007 compared to 2006. We believe that such increase should better position
the Company for profitability as sales volumes increase.
Total
net
loss for the year ended December 31, 2007, was $1,004,000 as compared to
a total
net loss of $639,000 for the year ended December 31, 2006. This amounts to
an
increase in net loss for the year ended December 31, 2007 of $365,000 as
compared with the year ended December 31, 2006. Such increase was primarily
due
to a $310,000 increase in a non-cash expense for stock-based delay awards
in
2007 compared to the prior year. In 2007, we were required to issue stock
warrants to BATL in compliance with our December 2005 agreement, as amended.
We
do not expect that this should reoccur in the future. An additional $66,000
of
the net loss in 2007 consisted of interest expenses paid or payable on the
remaining principal of the Note for the purchase of the technology, which
will
decrease each year until the Note is paid in full. We also had interest income
of $24,000 in 2007 compared to $75,000 in 2006, primarily due to a greater
amount of cash on hand during 2006 compared to 2007 which was not needed
for
day-to-day operations and could therefore be deposited in interest earning
accounts. We also had other income of $18,000 in 2007 compared to $58,000
in
2006. Such other income primarily consisted of certain non-repeating entries
such as previously accrued expenses which were determined not to be a liability
and other entries which we deemed not to be material. We do not expect that
such
will reoccur in the future.
Net
income in the future will be dependent upon our ability to successfully complete
testing in our projected new markets and to increase revenues faster than
we
increase our selling, general and administrative expenses, research and
development expense and other expenses. Our improved gross margin resulting
from
our manufacturing of our products should help us in our ability to hopefully
become profitable in the future.
Operations
Outlook
Beginning
in 2005, management began a period of reassessing the Company’s direction. Due
to a lack of working capital, and a nearly complete turnover in upper management
and sales staff dating back into 2004, senior management changed its method
of
marketing the operation during 2005. The majority of the marketing effort
for
2005 was directed at targeting and gaining a foothold in one of our major
target
areas, the inland marine diesel market. Management focused virtually all
resources at pinpointing and convincing one major customer within this market,
Custom, to go full fleet with our diesel fuel additive product lines. A
substantial portion of 2005 was spent testing our primary product, EnerBurn,
on
one large inland marine vessel belonging to this major potential customer.
This
resulted in the signing of the Custom Agreement and delivery of the first
shipment of Enerburn to Custom as discussed above. This initial purchase
order
plus the second order received in the second quarter of 2006, amount in size
to
more revenue and a higher margin than all the orders combined for 2005, 2004
and
2003. In addition to our efforts in the marine sales, the sales effort resulted
in initial sales to customers in the heavy construction industry market
beginning in the third quarter of 2006 in which we have used the same strategies
that had successfully started with the marine market. To date, we have signed
on
three new customers with testing to begin with another major heavy equipment
contractor in the very near future.
At
present, one customer, Custom,
represents
a majority of our sale revenues. With Custom’s assistance, however, negotiations
are currently underway with several other large customers in the same industry
to expand this market. The loss of Custom as a customer would adversely affect
our business and we cannot provide any assurances that we could adequately
replace the loss of this customer. Sales revenues to Custom and its clients
have
been less to date than had originally been projected. This has been due
primarily to the equipment malfunction and delay in the completion of a
principal Marine fueling facility as described above. With our assistance,
each
of these problems has been addressed and is either corrected or close to
being
corrected. It is expected that sales should show significant increases
throughout 2008. It is also anticipated that other new customers coming on
board
during 2007 and 2008 will lessen the impact of a loss of Custom, should that
happen. In this regard, in May 2007, we entered into an Exclusive Reseller
and
Market Development Agreement with Tanner Fuel Services, LLC appointing Tanner
the exclusive reseller of EnerBurn on the Inter Coastal Waterway from Houma,
Louisiana to the Port of Houston, Texas.
A
major
change in the way EnerTeck does business commenced in the third quarter of
2006
with the completion of the purchase of the EnerBurn technology and the
commencement of manufacturing operation. This gave us permanent, exclusive
rights to the EnerBurn formulas and protocols and allows for a much better
gross
margin than in the past. The purchase of the EnerBurn technology and associated
assets had been completed on July 13, 2006 and both the formulation equipment
and raw materials were in place to manufacture both our on and off road product
lines. The opening of the on road market to our products offers great potential
to the Company in coming years. Our marketing efforts from that point broadened
from principally marine applications to a wide range of new industries. It
remains to be seen how, when or if this effort will become successful, however
the potential for success is much broader with our increased ability to service
these markets.
Liquidity
and Capital Resources
On
December 31, 2007, we had negative working capital of $31,000 and stockholders’
equity of $2,088,000 compared to a working capital of $301,000 and stockholders’
equity of $1,968,000 on December 31, 2006. On December 31, 2007, the Company
had
$319,000 in cash, total assets of $3,660,000 and total liabilities of $1,572,000
compared to $429,000 in cash, total assets of $4,072,000 and total liabilities
of $2,105,000 on December 31, 2006.
The
decrease in cash and working capital for the year ended December 31, 2007
compared to the prior year was primarily due to lower than anticipated sales
revenues. As stated above, the principal cause for these lower revenues can
be
traced to technical difficulties suffered by principal customer and the delay
in
availability of the on-road truck dosing equipment, both of which were
unanticipated and beyond our control. We have assisted in the correction
of both
of these issues during the later part of 2007 and feel both are now under
control.
Cash
used
in operating activities was $382,000 for the year ended December 31, 2007,
which
was primarily the result of a loss of $1,004,000 partially offset by non-cash
charges for depreciation of $46,000 and warrants issued of $375,000. Cash
used
in operating activities was $985,000 for the year ended December 31, 2006,
which
was primarily the result of a loss of $639,000 partially offset by non-cash
charges for depreciation of $48,000 and common stock and warrants issued
for
services of $157,000.
Cash
provided by investing activities was $22,000 for the year ended December
31,
2007 which was primarily the result of employee advances and capital
expenditures. Cash used by investing activities was $1,119,000 for the year
ended December 31, 2006 which was primarily the result of the acquisition
of the
intellectual property. The $3,000,000 purchase of the Intellectual Property
related to the manufacture of EnerBurn was paid for by an initial down payment
of $1,000,000 and the issuance of a note payable for $2,000,000, $500,000
of
which was paid during 2007.
On
July
13, 2006, we completed the acquisition of the EnerBurn formulas, technology
and
associated assets pursuant to an Asset Purchase Agreement executed as of
the
same date (the “EnerBurn Acquisition Agreement”) between the Company and the
owner of Ruby Cat (the “Seller”). Pursuant thereto, the Company acquired from
the Seller all of its rights with respect to the liquid diesel motor vehicle
fuel additives known as EC5805A and EC5931A products (the “Products”) as well as
its rights to certain intellectual property and technology associated with
the
Products (collectively, the “Purchased Assets”). The purchase price for the
Purchased Assets was $3.0 million, payable as follows: (i) $1.0 million paid
on
July 13, 2006 in cash, and (ii) the remaining $2.0 million evidenced by a
promissory note (the “Note”) bearing interest each month at a rate of 4.0% per
annum, compounded monthly, and which shall be paid in four annual payments
of
$500,000 plus accumulated interest to that date on each anniversary of the
closing until the entire purchase price is paid in full. In order to secure
the
debt represented by the Note, the Company executed and delivered to the Seller
a
Security Agreement in which the Company granted the Seller a first priority
lien
on the Purchased Assets. The foregoing payments will draw significantly on
future cash reserves. This acquisition, however, allows us to manufacture
our
own on and off road versions of the EnerBurn product line and will allow
for
significant savings in the cost requirements of product sales from
manufacturing. The first payment of $500,000 was made in July 2007. An
additional $500,000 will become payable during 2008.
In
the
past, we have been able to finance our operations primarily from capital
which
has been raised. To date, sales have not been adequate to finance our operations
without investment capital. In addition to the $750,000 financing affected
in
2007, during the quarter ended September 30, 2005, we issued 250,000 shares
of
our common stock to certain accredited investors for aggregate proceeds of
$250,000. In addition, in December 2005, we sold to BATL Bioenergy LLC 2,450,000
shares of the common stock and a warrant to purchase an additional 1,000,000
shares of common stock at an exercise price of $2.00 per share for the aggregate
purchase price of $3,000,000. Also, in 2005, we received loans for working
capital of an aggregate of $115,000 from various parties. All loans were
repaid
in December 2005.
Cash
provided by financing activities was $250,000 for the year ended December
31,
2007 primarily from the sale of a private placement of common stock in the
amount of $750,000 used primarily to fund the scheduled 2007 $500,000 payment
due on the purchase of the intellectual property. This is compared to $12,000
obtained from financing activities during the year ended December 31, 2006
from
the exercise of warrants.
Other
than the Note Payable for the purchase of the intellectual property, we
currently have no material commitments for capital requirements. We anticipate,
based on currently proposed plans and assumptions relating to our operations,
that in addition to our current cash and cash equivalents together with
projected cash flows from operations and projected revenues, we may require
additional investment to satisfy our contemplated cash requirements for the
next
12 months. We anticipate that our costs and expenses over the next 12 months
will be approximately $1.1 million which includes the amount we will have
to pay
in 2008 on the Note. Our continuation as a going concern is contingent upon
our
ability to obtain additional financing and to generate revenues and cash
flow to
meet our obligations on a timely basis. As mentioned above, management believes
that sales revenues for 2007 were considerably less than earlier anticipated
primarily due to circumstances which have been corrected or are in the process
of being corrected and therefore should not reoccur in the future. Management
expects that sales should show significant increases in 2008.
Currently
there are 4,936,650 warrants outstanding with a total exercised value of
$6,955,480. Of these, there are 2,426,650 stock warrants with an exercised
value
of $2,731,480 which will expire during 2008. If a substantial number of these
warrants are exercised on or before the expiration date, this will provide
sufficient capital for the next 12 months. In addition, we have been able
to
generate working capital in the past through private placements and believe
that
these avenues will remain available to us if additional financing is necessary.
No assurances can be made that the warrants will be exercised or that we
will be
able to obtain such other investment on terms acceptable to us or at all.
Our
contemplated cash requirements beyond 2008 will depend primarily upon level
of
sales of our products, inventory levels, product development, sales and
marketing expenditures and capital expenditures.
Inflation
has not significantly impacted the Company’s operations.
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, and results
of
operations, liquidity or capital expenditures.
Significant
Accounting Policies
Business
and Basis of Presentation
EnerTeck
Corporation, formerly Gold Bond Resources, Inc. was incorporated under the
laws
of the State of Washington on July 30, 1935. On January 9, 2003, the Company
acquired EnerTeck Chemical Corp. ("EnerTeck Sub") as its wholly owned operating
subsidiary. As a result of the acquisition, the Company is now acting as a
holding company, with EnerTeck Sub as its only operating business. Subsequent
to
this transaction, on November 24, 2003, the Company changed its domicile from
the State of Washington to the State of Delaware, changed its name from Gold
Bond Resources, Inc. to EnerTeck Corporation.
EnerTeck
Sub, the Company’s wholly owned operating subsidiary is a Houston-based
corporation. It was incorporated in the State of Texas on November 29, 2000
and
was formed for the purpose of commercializing a diesel fuel specific combustion
catalyst known as EnerBurn (TM), as well as other combustion enhancement
and
emission reduction technologies for diesel fuel. EnerTeck’s primary product is
EnerBurn, and is registered for highway use in all USA diesel applications.
The
products are used primarily in on-road vehicles, locomotives and diesel marine
engines throughout the United States and select foreign markets.
Principles
of Consolidation
The
consolidated financial statements include the accounts of EnerTeck Corporation
and its wholly-owned subsidiary, EnerTeck Chemical Corp. All significant
inter-company accounts and transactions are eliminated in
consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three (3) months or less to be cash and cash
equivalents.
Inventory
Inventory
consists of market ready EnerBurn plus raw materials required to manufacture
the
products. Inventory is valued at the lower of cost or market, using the average
cost method. Also included in inventory are three large Hammonds EnerBurn
doser
systems amounting to $57,000, which will be transferred to marine or railroad
customers during 2008. The Company’s remaining inventory was split on
approximately a 60/40 basis between raw materials and finished goods at December
31, 2007.
Accounts
Receivable
Accounts
receivable represent uncollateralized obligations due from customers of the
Company and are recorded at net realizable value. This value includes an
appropriate allowance for estimated uncollectible accounts to reflect any
loss
anticipated on the accounts receivable balances and charged to the provision
for
doubtful accounts. The Company calculates this allowance based on historical
write-offs, level of past due accounts and relationships with and economic
status of the customers. As of December 31, 2007 and 2006, there were no
uncollectible accounts and no allowance has been provided.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation
is provided for on the straight-line or accelerated method over the estimated
useful lives of the assets. The average lives range from five (5) to ten (10)
years. Maintenance and repairs that neither materially add to the value of
the
property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred.
Intangible
Assets
Intellectual
property and other intangibles are recorded at cost. The Company has determined
that its intellectual property has an indefinite life because there is no
legal,
regulatory, contractual, competitive, economic or other factor to limits
its
useful life, and therefore will not be amortized. For other intangibles,
amortization would be computed on the straight-line method over the identifiable
lives of the assets. The Company has adopted the provisions of Statement
of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets,
effective
for periods beginning January 1, 2002, and thereafter. SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17,
Intangible
Assets
.
Specifically, the statement addresses how intangible assets that are acquired
should be accounted for in financial statements upon their acquisition, as
well
as how goodwill and other intangible assets should be accounted for after
they
have been initially recognized in the financial statements. The statement
requires the Company to evaluate its intellectual property each reporting
period
to determine whether events and circumstances continue to support an indefinite
life. In addition, the Company will test its intellectual property for
impairment on an annual basis, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The statement requires
intangible assets with finite lives to be reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts may
not
be recoverable and that a loss shall be recognized if the carrying amount
of an
intangible exceeds its fair value. The Company tested its intangible assets
for
impairment as of December 31, 2007. It was determined at that time that no
impairment existed based primarily on projected sales and the resulting
discounted projected cash flow analyses.
Revenue
Recognition
The
Company follows the provisions of SEC Staff Accounting Bulletin (SAB) No.
104,
"Revenue Recognition"
which
was issued in December 2003, and recognizes revenues when evidence of a
completed transaction and customer acceptance exists, and when title passes,
if
applicable. SAB No. 104 codified, revised and rescinded certain sections of
Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements",
in order
to make this interpretive guidance consistent with current authoritative
accounting guidance and SEC rules and regulations.
Revenues
from sales of product and equipment are recognized at the point when a customer
order has been shipped and invoiced.
Income
Taxes
The
Company will compute income taxes using the asset and liability method. Under
the asset and liability method, deferred income tax assets and liabilities
are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax
rates and laws. A valuation allowance is provided for the amount of deferred
tax
assets that, based on evidence from prior years, may not be realized over the
next calendar year or for some years thereafter.
Income
(Loss) Per Common Share
The
basic
net income (loss) per common share is computed by dividing the net income (loss)
applicable to common stockholders by the weighted average number of common
shares outstanding.
Diluted
net income (loss) per common share is computed by dividing the net income
applicable to common stockholders, adjusted on an "as if converted" basis,
by
the weighted average number of common shares outstanding plus potential dilutive
securities. For 2007 and 2006, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted
net
loss per common share.
Management
Estimates and Assumptions
The
accompanying financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Financial
Instruments
The
Company’s financial instruments recorded on the balance sheet include cash and
cash equivalents, accounts receivable, accounts payable and note payable. The
carrying amounts approximate fair value because of the short-term nature of
these items.
Stock
Options and Warrants
Effective
January 1, 2006, the Company began recording compensation expense associated
with stock options and other forms of equity compensation in accordance with
Statement of Financial Accounting Standards No. 123R,
Share-Based Payment,
as
interpreted by SEC Staff Accounting Bulletin No. 107. Prior to
January 1, 2006, EnerTeck had accounted for stock options according to
the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees,
and
related interpretations, and therefore no related compensation expense was
recorded for awards granted with no intrinsic value. The Company adopted the
modified prospective transition method provided for under SFAS No. 123R, and,
consequently, has not retroactively adjusted results from prior periods. Under
this transition method, compensation cost associated with stock options
recognized in the first quarter of fiscal 2006 includes the quarterly
amortization related to the remaining unvested portion of all stock option
awards granted prior to January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123. There
was
no unvested portion of stock options or warrants as of January 1,
2006.
Recently
Issued Accounting Pronouncements
In
May
2003, the Financial Accounting Standards Board issued SFAS No. 150,
Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity
.
SFAS
No. 150 established standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
The
statement requires that a company classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances) if certain criteria
are met. Freestanding financial instruments that obligate the issuer to redeem
the holder’s shares, or are indexed to such an obligation, and are settled in
cash or settled with shares meeting certain conditions would be treated as
liabilities. Many of those instruments were previously classified as equity.
In
June 2005, the FASB issued FSP FAS 150-5, Issuers Accounting under FASB
Statement No. 150 for Freestanding Warrants and Other Similar Instruments
on
Shares that are Redeemable (“FAS 150-5”). FAS 150-5 clarifies that freestanding
warrants and similar instruments on shares that are redeemable should be
accounted for as liabilities under FAS 150 regardless of the timing of the
redemption feature or price, even though the underlying shares may be classified
as equity. FAS 150-5 is effective for the first reporting period beginning
after
June 30, 2005. Although the Company had outstanding warrants as of December
31, 2006, the shares issued upon exercise of the warrants are not redeemable;
consequently, the adoption of FAS 150-5 did not have a material impact on
the
Company’s financial position, results of operations or cash
flows.
In
May 2005, the FASB issued FAS No. 154,
Accounting
Changes and Error Corrections—A replacement of APB Opinion No. 20 and FASB
Statement No. 3
(“FAS
154”). FAS 154 replaces APB Opinion No. 20,
Accounting
Changes
(“APB
20”)
,
and FAS
No. 3,
Reporting
Accounting Changes in Interim Financial Statements
(“FAS
3”) and changes the requirements for the accounting for, and reporting of, a
change in accounting principles. FAS 154 applies to all voluntary changes in
accounting principles and changes required by an accounting pronouncement in
the
unusual instance that the pronouncement does not include specific transition
provisions. Under previous guidance, changes in accounting principle were
recognized as a cumulative effect in the net income of the period of the change.
FAS 154 requires retrospective application of changes in accounting
principle, limited to the direct effects of the change, to prior periods’
financial statements, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change in accounting
principle. Additionally, FAS 154 requires that a change in depreciation,
amortization or depletion method for long-lived, non-financial assets be
accounted for as a change in accounting estimate affected by a change in
accounting principle and that correction of errors in previously issued
financial statements should be termed a “restatement.” The provisions in
FAS 154 are effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005.
In
March
2006, the EITF reached a tentative consensus on Issue No. 06-03,
How
Sales Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
(“EITF
06-03”). EITF 06-03 addresses income statement classification and disclosure
requirements of externally-imposed taxes on revenue-producing transactions.
EITF
06-03 is effective for periods beginning after December 15, 2006. Management
has
determined that adoption of EITF 06-03 has not had a material effect on the
Company’s financial position, results of operations and cash
flows.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.
SAB No. 108 was issued to address diversity in practice in quantifying
financial statement misstatements. Current practice allows for the evaluation
of
materiality on the basis of either (1) the error quantified as the amount
by which the current year income statement was misstated (“rollover method”) or
(2) the cumulative error quantified as the cumulative amount by which the
current year balance sheet was misstated (“iron curtain method”). The guidance
provided in SAB No. 108 requires both methods to be used in evaluating
materiality (“dual approach”). SAB No. 108 permits companies to
initially apply its provisions either by (1) restating prior financial
statements as if the dual approach had always been used or (2) recording
the cumulative effect of initially applying the “dual approach” as adjustments
to the carrying values of assets and liabilities as of January 1, 2006 with
an offsetting adjustment recorded to the opening balance of retained earnings.
During
June 2006, the FASB issued FIN 48 which prescribes rules for the financial
statements accounting for uncertainty in income tax positions. FIN 48 requires
all material tax positions to undergo a new two-step recognition and measurement
process. All material tax positions in all jurisdictions in all tax years
in
which the statute of limitations remains open upon the initial date of adoption
are required to be assessed. The criteria for asset recognition is that it
is
more likely than not that a tax position will be sustained upon examination
based solely on its technical merits. If the recognition standard is not
satisfied, then no tax benefit otherwise arising from the tax position can
be
recorded for financial statement purposes. If the recognition standard is
satisfied, the amount of tax benefit recorded for financial statement purposes
is the largest amount of tax benefit with a greater than 50% likelihood of
being
realized upon ultimate settlement with a taxing authority. FIN 48 became
effective for the Company’s fiscal 2007 year. The adoption of FIN 48 has not had
a material impact on the Company’s financial position, results of the
operations, or cash flows.
In
September 2006, the FASB issued SFAS No. 157; "Fair Value Measurements".
This
statement defines fair value, establishes a framework for measuring fair
value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is
a
relevant measurement attribute. Accordingly, this statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007.
Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. In November 2007, FASB agreed
to a
one-year deferral of the effective date for nonfinancial assets and liabilities
that are recognized or disclosed at fair value on a recurring basis. We are
currently evaluating the provisions of FASB 157 to determine the future impact
on the Company’s consolidated financial statements.
In
December 2006, the FASB issued FASB Staff Position EITF Issue No. 00-19-2,
“Accounting for Registration Payment Arrangements,” or FSP 00-19-2, which
addresses an issuer’s accounting for registration payment arrangements.
FSP 00-19-2 specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized
and measured in accordance with SFAS No. 5, “Accounting for
Contingencies.”
FSP EITF 00-19-2
also requires additional disclosure regarding the nature of any registration
payment arrangements, alternative settlement methods, the maximum potential
amount of consideration and the current carrying amount of the liability,
if
any.
FSP 00-19-2
was issued in December 2006 and was effective immediately for registration
payment arrangements and the financial instruments subject to those arrangements
that were entered into or modified subsequent to the issuance of
FSP 00-19-2. For registration payment arrangements and financial
instruments subject to those arrangements entered into prior to the issuance
of
FSP 00-19-2, it is effective for financial statements issued for fiscal
years beginning after December 15, 2006. We have adopted the provisions of
FSP 00-19-2 effective January 1, 2007 and have determined that the
adoption had no material impact on our consolidated financial
statements.
On
February 15, 2007, the FASB issued Statement of Financial Accounting
Standards No. 159,
“The
Fair Value Option for Financial Assets and Financial Liabilities — Including an
Amendment of FASB Statement No. 115”
(“SFAS
159”). This standard permits an entity to measure financial instruments and
certain other items at estimated fair value. Most of the provisions of SFAS
No. 159 are elective; however, the amendment to FASB
No. 115,
“Accounting
for Certain Investments in Debt and Equity Securities,”
applies
to all entities that own trading and available-for-sale securities. The fair
value option created by SFAS 159 permits an entity to measure eligible items
at
fair value as of specified election dates. The fair value option (a) may
generally be applied instrument by instrument, (b) is irrevocable
unless a new election date occurs, and (c) must be applied to the entire
instrument and not to only a portion of the instrument. SFAS 159 is effective
as
of the beginning of the first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of the previous fiscal
year provided that the entity (i) makes that choice in the first
120 days of that year, (ii) has not yet issued financial statements
for any interim period of such year, and (iii) elects to apply the
provisions of
FASB
157.
Management is currently evaluating the impact of SFAS 159, if any, on the
Company’s financial statements. The adoption of SFAS No. 159 is not expected to
have a material effect on its financial position, results of operations or
cash
flows.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and
the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement
of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15,
2008,
and interim periods within those fiscal years. Early adoption is prohibited.
The
adoption of SFAS No. 160 is not expected to have a material effect on its
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS 141R,
Business Combinations
(“SFAS
141R”), which replaces FASB SFAS 141,
Business Combinations.
This
Statement retains the fundamental requirements in SFAS 141 that the acquisition
method of accounting be used for all business combinations and for an acquirer
to be identified for each business combination. SFAS 141R defines the acquirer
as the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. SFAS 141R will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition. SFAS 141R will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that date. This
compares to the cost allocation method previously required by SFAS No.
141. SFAS 141R will require an entity to recognize as an asset or
liability at fair value for certain contingencies, either contractual or
non-contractual, if certain criteria are met. Finally, SFAS 141R will
require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date. This Statement
will be effective for business combinations completed on or after the first
annual reporting period beginning on or after December 15,
2008. Early adoption of this standard is not permitted and the
standards are to be applied prospectively only. Upon adoption of this
standard, there would be no impact to the Company’s results of operations and
financial condition for acquisitions previously completed. The
adoption of SFAS No. 141R is not expected to have a material effect on its
financial position, results of operations or cash flows.
The
Company does not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on The Company's results of
operations, financial position or cash flow.
MANAGEMENT
Set
forth
below are our present directors and executive officers. Note that there are
no
other persons who have been nominated or chosen to become directors nor are
there any other persons who have been chosen to become executive officers.
There
are no arrangements or understandings between any of the directors, officers
and
other persons pursuant to which such person was selected as a director or an
officer. Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers serve at the discretion of the Board of Directors.
Name
|
|
Age
|
|
Present
Position
and
Offices
|
|
Has
Served as
Director
Since
|
|
|
|
|
|
|
|
Dwaine
Reese
|
|
65
|
|
Chairman
of the
|
|
January
2003
|
|
|
|
|
Board,
Chief Executive
|
|
|
|
|
|
|
Officer
and Director
|
|
|
|
|
|
|
|
|
|
Gary
B. Aman
|
|
60
|
|
Director
|
|
March
2005
|
|
|
|
|
|
|
|
Jack
D. Cowles
|
|
47
|
|
Director
|
|
March
2005
|
|
|
|
|
|
|
|
Thomas
F. Donino
|
|
46
|
|
Director
|
|
December
2005
|
|
|
|
|
|
|
|
Stan
Crow
|
|
59
|
|
President
|
|
-
|
|
|
|
|
|
|
|
Richard
B. Dicks
|
|
60
|
|
Chief
Financial Officer
|
|
-
|
Set
forth
below are brief accounts of the business experience during the past five years
of each director and executive officer of the Company and each significant
employee of the Company.
DWAINE
REESE has been the Chairman of the Board and the Company’s Chief Executive
Officer of EnerTeck Sub since 2000 and of EnerTeck Parent since 2003. From
approximately 1975 to 2000, Mr. Reese held various executive, management, sales
and marketing positions in the refining and specialty chemical business with
Nalco Chemical Corporation and later Nalco/Exxon Energy Chemicals, LP. In 2000,
he founded EnerTeck Chemical Corp., and has been its President and Chief
Executive Officer since that time. Mr. Reese has been and will continue to
devote his full-time to the Company’s business. Mr. Reese has B.S. degree in
Biology and Chemistry from Lamar University and a M.S. degree in Chemistry
from
Highland New Mexico University.
GARY
B.
AMAN has been a director of the Company since March 2005. He has been employed
with Nalco Company since 1994, most recently serving as General Manager of
ADOMITE Subsurface Chemicals, a Nalco division, since 1999. ADOMITE is
recognized as a technology leader in energy exploration additives including
drilling fluids, cementing, fracturing and well stimulation additives. Mr.
Aman
received a Bachelor of Science degree in Mathematics from the University of
South Dakota in 1970.
JACK
D.
COWLES has been a director of the Company since March 2005. He has been a
Managing Director of JDC Consulting, a management consulting firm, since 1997.
JDC, headquartered in New York City, provides a broad range of senior level
management consulting services including strategy, business process improvement
and implementation, change management, financial management, due diligence
and
merger integration. Mr. Cowles received a Bachelor of Arts, Economics degree;
Phi Beta Kappa, from the University of Michigan in 1983 and a Masters of
Business Administration degree for the University of Pennsylvania, Wharton
School of Business in 1994.
THOMAS
F.
DONINO has been a director of the Company since December 2005. Since August
1997, he has been a partner at First New York Securities (FNY) in New York,
New
York. FNY is an investment management company with assets over $250 million
dollars. Mr. Donino is also the General Partner of BATL Management LP, a family
Limited Partnership, and President of BATL Bioenergy LLC.
STAN
CROW
has been President of the Company since September 2005. Since 1986, Mr. Crow
has
been President and Chief Executive Officer of Stanmar Manufacturing Inc.
(“Stanmar”) located in Livingston, Texas, a company founded by Mr. Crow, which
is engaged in the manufacturing and sales of chemical injection equipment for
the refining industry as well as the transportation industry. Mr. Crow has
also
owned and operated several other companies in his career.
RICHARD
B. DICKS has been Chief Financial Officer of the Company since December 2005.
Mr. Dicks is a certified public accountant and since January 1985 has had his
own accounting practice focusing on tax, financial, cash management and MAS
services. In addition, from July 1993 to December 2001, Mr. Dicks was President
and Chief Executive Officer of Combustion Process Manufacturing Corporation,
located in Houston, Texas. Mr. Dicks received a Bachelor’s Degree from Oklahoma
State University in 1969.
None
of
the directors and officers is related to any other director or officer of the
Company.
To
the
knowledge of the Company, none of the officers or directors has been personally
involved in any bankruptcy or insolvency proceedings. To the knowledge of the
Company, none of the directors or officers have been convicted in any criminal
proceedings (excluding traffic violations and other minor offenses) or are
the
subject of a criminal proceeding which is presently pending, nor have such
persons been the subject of any order, judgment, or decree of any court of
competent jurisdiction, permanently or temporarily enjoining them from acting
as
an investment advisor, underwriter, broker or dealer in securities, or as an
affiliated person, director or insurance company, or from engaging in or
continuing in any conduct or practice in connection with any such activity
or in
connection with the purchase or sale of any security, nor were any of such
persons the subject of a federal or state authority barring or suspending,
for
more than 60 days, the right of such person to be engaged in any such activity,
which order has not been reversed or suspended.
Audit
Committee Financial Expert
We
do not
have an audit committee financial expert, as such term is defined in Item 401(e)
of Regulation S-B, serving on our audit committee because we have no audit
committee and are not required to have an audit committee because we are not
a
listed security.
Code
of Ethics
The
Board
of Directors has adopted a Code of Ethics applicable to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, which is designed to
promote honest and ethical conduct; full, fair, accurate, timely and
understandable disclosure; and compliance with applicable laws, rules and
regulations. A copy of the Code of Ethics will be provided to any person without
charge upon written request to the Company at its executive offices, 10701
Corporate Drive, Suite 150, Stafford, Texas 77477.
EXECUTIVE
COMPENSATION
The
following summary compensation tables set forth information concerning the
annual and long-term compensation for services in all capacities to the Company
for the years ended December 31, 2007 and December 31, 2006, of those persons
who were, at December 31, 2007 (i) the chief executive officer and (ii) the
other most highly compensated executive officers of the Company, whose annual
base salary and bonus compensation was in excess of $100,000 (the named
executive officers):
Summary
Compensation Table
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other Compensation
($)
|
|
Total
|
|
Dwaine
Reese,
|
|
|
2007
|
|
$
|
178,500
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
7,807
|
(2)
|
$
|
186,307
|
|
Chairman
of the
|
|
|
2006
|
|
$
|
269,520
|
(1)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
$
|
7,53
|
(2)
|
$
|
277,051
|
|
Board
and Chief
Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
$104,500 of accrued salary for 2004 which was paid to Mr. Reese in
2006.
|
(2)
|
Mr.
Reese was reimbursed $7,807 and $7,531 in 2007 and 2006, respectively,
for
health insurance costs.
|
2003
Stock Option Plan
In
September 2003, our shareholders approved an employee stock option plan (the
“2003 Option Plan”) authorizing the issuance of options to purchase up to
1,000,000 shares of our common stock. This plan is intended to give us greater
ability to attract, retain, and motivate officers, key employees, directors
and
consultants; and is intended to provide us with the ability to provide
incentives more directly linked to the success of our business and increases
in
shareholder value. As of December 31, 2007, no options have been issued under
the 2003 Option Plan. On January 15, 2008, options to acquire 64,200 shares
were
issued under the 2003 Option Plan to five employees which options are
immediately exercisable.
These
options have an exercise price of $0.80 per share and expire in five years
from
their issue date.
2005
Stock Compensation Plan
In
June
2005, the Board of Directors adopted the 2005 Stock Compensation Plan (the
“2005
Stock Plan”) authorizing the issuance of up to 2,500,000 shares of common stock.
Pursuant to the 2005 Stock Plan, employees, directors, officers or individuals
who are consultants or advisors of the Company or any subsidiary may be awarded
shares under the 2005 Stock Plan. The 2005 Stock Plan is intended to offer
those
employees, directors, officers, or consultants or advisors of the Company or
any
subsidiary who assist in the development and success of the business of the
Company or any subsidiary, the opportunity to participate in a compensation
plan
designed to reward them for their services and to encourage them to continue
to
provide services to the Company or any subsidiary. To date, 2,050,000 shares
have been awarded under the 2005 Stock Plan, of which 1,000,000 were granted
to
Parrish B. Ketchmark. At the time of the grant, Mr. Ketchmark was an officer
and
director of the Company but has since resigned. In December 2005, Mr. Ketchmark
agreed to return 500,000 shares granted to him under the 2005 Stock Plan. No
other officers or directors of the Company have been granted shares under the
2005 Stock Plan.
Other
Options, Warrants or Rights
We
have
no other outstanding options or rights to purchase any of our securities.
However, as of December 31, 2007, we do have outstanding warrants to purchase
up
to 4,936,650 shares of our common stock.
Employment
Agreements - Executive Officers and Certain Significant Employees
None
of
our officers and key employees are presently bound by employment agreements.
However, in connection with the Securities Purchase Agreement entered into
with
BATL in December 2005 and as a further inducement to BATL for making an
investment in the Company, Dwaine Reese had agreed not to unilaterally resign
as
our Chief Executive Officer for a period of two years from December 7, 2005.
This period has now elapsed.
We
do not
have any termination or change in control arrangements with any of our named
executive officers.
Compensation
of Directors
At
the
present time, directors receive no cash compensation for serving on the Board
of
Directors, other than reimbursement of reasonable expenses incurred in attending
meetings. In June 2005, we issued 200,000 shares of common stock to each of
Gary
B. Aman and Jack D. Cowles, each a director of the Company, for their services
as Board members.
Indebtedness
of Management
No
member
of management was indebted to the Company during its last fiscal year.
CERTAIN
RELATIONSHIPS AND TRANSACTIONS
AND CORPORATE GOVERNANCE
S
ince
January 1, 2007, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be
a
party: (i) in which the amount involved exceeds the lesser of $120,000 or
one
percent of the average of our total assets at year-end for the last three
completed fiscal years; and (ii) in which any director, executive officer,
shareholder who beneficially owns 5% or more of our common stock or any member
of their immediate family had or will have a direct or indirect material
interest.
Director
Independence
Our
board
of directors currently consists of four members. They are Dwaine Reese, Gary
B.
Aman, Jack D. Cowles and Thomas F. Donino. Mr. Reese is the Company’s Chairman
of the Board and Chief Executive Officer. Messrs. Aman, Cowles and Donino are
independent directors. We have determined their independence using the
definition of independence set forth in NASD Rule 4200.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of the date hereof, certain information with
regard to the record and beneficial ownership of the Company’s Common Stock by
(i) each stockholder owning of record or beneficially 5% or more of the
Company’s Common Stock, (ii) each director of the Company, (iii) the Company’s
Chief Executive Officer and other executive officers, if any, of the Company
whose annual base salary and bonus compensation was in excess of $100,000 (the
“named executive officers”), and (iv) all executive officers and directors of
the Company as a group:
Name
of Beneficial Owner
|
|
|
Amount and Nature
of Beneficial Ownership
|
|
|
Percent
of Class
|
|
|
|
|
|
|
|
|
|
Dwaine
Reese
|
|
|
3,590,000
|
(1)
|
|
20.2
|
%
|
BATL
Bioenergy LLC
|
|
|
3,960,000
|
(2)
|
|
20.5
|
%
|
Thomas
F. Donino
|
|
|
5,558,083
|
(3)
|
|
28.8
|
%
|
Gary
B. Aman
|
|
|
660,000
|
(4)
|
|
3.7
|
%
|
Jack
D. Cowles
|
|
|
398,550
|
(5)
|
|
2.2
|
%
|
Stan
Crow
|
|
|
700,500
|
(6)
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
Richard
B. Dicks
|
|
|
114,200
|
(7)
|
|
*
|
|
|
|
|
|
|
|
|
|
All
Executive Officers and Directors as a Group (6 persons)
|
|
|
11,021,133
|
|
|
56.6
|
%
|
(1)
|
Consists
of 3,565,000 shares held by Mr. Reese and 25,000 shares underlying
an
option granted to him. The address for Mr. Reese is 10701 Corporate
Drive,
Suite 150, Stafford, Texas.
|
(2)
|
Consists
of 2,450,000 shares held by BATL Bioenergy LLC (“BATL”) and 1,510,000
shares underlying warrants held by BATL. This information is based
solely
upon information reported in filings made to the SEC on behalf of
BATL.
The address for BATL is 7 Lakeside Drive, Rye, New
York.
|
(3)
|
Consists
of 1,184,883 shares held by Mr. Donino, 2,450,000 shares held by
BATL,
384,700 shares held by BATL Management LP (“BATL Management”), 1,510,000
shares underlying warrants held by BATL and 28,500 shares underlying
warrants held by Mr. Donino. As the president and managing member
of BATL
and the sole officer, director and shareholder of BATL Management’s
general partner, Mr. Donino may be deemed to be the beneficial owner
of
shares owned by BATL and BATL Management. BATL Management is a family
limited partnership whose members are certain relatives and trusts
for the
benefit of certain relatives of Mr. Donino. This information is based
solely upon information reported in filings made to the SEC on behalf
of
Thomas Donino, BATL and BATL Management. The address for Mr. Donino
is 7
Lakeside Drive, Rye, New York.
|
(4)
|
The
address for Mr. Aman is 6119 Apple Valley Lane, Houston,
Texas.
|
(5)
|
The
address for Mr. Cowles is 30 Lansdowne Drive, Larchmont, New
York.
|
(6)
|
Consists
of 565,500 shares held by Mr. Crow and 135,000 shares underlying
warrants
held by him. The address for Mr. Crow 1410 Andover Street, Livingston,
Texas.
|
(7)
|
Consists
of 100,000 shares underlying warrants held by Mr. Dicks and 14,200
shares
underlying an option granted to him. The address for Mr. Dicks
is 10701
Corporate Drive, Suite 150, Stafford, Texas.
|
DESCRIPTION
OF SECURITIES
Common
Stock
We
are
authorized to issue 100,000,000 shares of common stock, $.001 par value per
share, of which 17,761,359 are outstanding as of the date of this prospectus.
Holders
of our common stock have equal rights to receive dividends when, as and if
declared by our Board of Directors, out of funds legally available therefor.
Holders of our common stock have one vote for each share held of record and
do
not have cumulative voting rights.
Holders
of our common stock are entitled, upon liquidation of the Company, to share
ratably in the net assets available for distribution, subject to the rights,
if
any, of holders of any preferred stock then outstanding. Shares of common stock
are not redeemable and have no preemptive or similar rights. All outstanding
shares of common stock are fully paid and non-assessable.
Preferred
Stock
We
are
authorized to issue 10,000,000 shares of preferred stock, $.001 par value per
share, none of which are issued and outstanding. The preferred stock will be
entitled to preference over the common stock with respect to the distribution
of
assets of the Company in the event of its liquidation, dissolution, or
winding-up, whether voluntarily or involuntarily, or in the event of any other
distribution of assets of the corporation among its stockholders for the purpose
of winding-up its affairs. The authorized but unissued shares of preferred
stock
may be divided into and issued in designated series from time to time by one
or
more resolutions adopted by our Board of Directors. The Board in its sole
discretion shall have the power to determine the relative powers, preferences,
and rights of each series of preferred stock. The issuance of preferred shares
with such voting or conversion rights may have the effect of delaying, deferring
or preventing a change in control of our Company.
There
are
no other provisions in our certificate of incorporation or our bylaws that
may
result in the delaying, deferring or preventing of a change in control of our
Company.
The
transfer agent for our common stock is Jersey Transfer & Trust Company, 201
Bloomfield Avenue, Verona, New Jersey 07044. Its telephone number is
973-239-2712.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
Certificate of Incorporation provides for the elimination of the personal
liability of our officers, directors, corporate employees and agents to the
fullest extent permitted by the provisions of Delaware General Corporation
Law.
Under such provisions, the director, officer, corporate employee or agent who
in
his capacity as such is made or threatened to be made, party to any suit or
proceeding, shall be indemnified if it is determined that such director or
officer acted in good faith and in a manner he reasonably believed to be in
or
not opposed to the best interests of our company.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC,
such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
PLAN
OF DISTRIBUTION
We
are
registering the shares of common stock on behalf of the selling stockholders.
Sales of shares may be made by the selling stockholders, including their
respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the over-the-counter market,
or
on any other exchange upon which our shares may trade in the future, at market
prices prevailing at the time of sale, at prices related to market prices,
or at
negotiated or fixed prices. The shares may be sold by one or more of, or a
combination of, the following:
|
•
|
a
block trade in which the broker-dealer so engaged will attempt to
sell the
shares as agent but may position and resell a portion of the block
as
principal to facilitate the transaction (including crosses in which
the
same broker acts as agent for both sides of the transaction);
|
|
•
|
purchases
by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this prospectus;
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
|
|
•
|
through
options, swaps or derivatives;
|
|
•
|
in
privately negotiated transactions;
|
|
•
|
in
making short sales or in transactions to cover short sales; and
|
|
|
|
|
•
|
put
or call option transactions relating to the
shares.
|
If
the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers
or
agents may be in excess of those customary in the types of transactions
involved). Any brokers, dealers or agents that participate in the distribution
of the common stock may be deemed to be underwriters, and any profit on the
sale
of common stock by them and any discounts, concessions or commissions received
by any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act.
The
selling stockholders may enter into hedging transactions with broker-dealers
or
other financial institutions. In connection with those transactions, the
broker-dealers or other financial institutions may engage in short positions
or
other derivative transactions relating to the shares of our common stock or
of
securities convertible into or exchangeable for the shares of our common stock
in the course of hedging positions they assume with the selling stockholders
and
may deliver such securities to close out their short positions or otherwise
settle short sales or other transactions. The selling stockholders may also
loan
or pledge shares to broker-dealers or other third parties. In connection with
those transactions, the broker-dealers or other third parties may sell such
loaned or pledged shares. The selling stockholders may also enter into options
or other transactions with broker-dealers or other financial institutions which
require the delivery of shares offered by this prospectus to those
broker-dealers or other financial institutions. The broker-dealer or other
financial institution may then resell the shares pursuant to this prospectus
(as
amended or supplemented, if required by applicable law, to reflect those
transactions).
Under
the
securities laws of certain states, the shares of common stock may be sold in
such states only through registered or licensed brokers or dealers. The selling
stockholders are advised to ensure that any underwriters, brokers, dealers
or
agents effecting transactions on behalf of the selling stockholders are
registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
Our
common stock is deemed to be “penny stock” as that term is defined in
Rule 3a51-1 promulgated under the Exchange Act. Penny stocks are stock: (i)
with a price of less than $5.00 per share; (ii) that are not traded on a
“recognized” national exchange; (iii) whose prices are not quoted on the Nasdaq
automated quotation system (Nasdaq listed stock must still have a price of
not
less than $5.00 per share); or (iv) in issuers with net tangible assets less
than $2.0 million (if the issuer has been in continuous operation for at
least three years) or $5.0 million (if in continuous operation for less
than three years), or with average revenues of less than $6.0 million for the
last three years.
Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock
to
sell shares to third parties or to otherwise dispose of them. This could cause
our stock price to decline.
The
selling stockholders should be aware that the anti-manipulation provisions
of
Regulation M under the Exchange Act will apply to purchases and sales of shares
of common stock by the selling stockholders, and that there are restrictions
on
market-making activities by persons engaged in the distribution of the shares.
Under Registration M, the selling stockholders or their agents may not bid
for, purchase, or attempt to induce any person to bid for or purchase, our
shares of common stock while such selling stockholder is distributing shares
covered by this prospectus. Accordingly, except as noted below, the selling
stockholders are not permitted to cover short sales by purchasing shares while
the distribution is taking place. The selling stockholders are advised that
if a
particular offer of common stock is to be made on terms constituting a material
change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the SEC.
The
selling stockholders also may resell all or a portion of their shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of Rule 144.
We
will
pay all the expenses incident to the registration, offering and sale of the
shares of common stock to the public hereunder other than commissions, fees
and
discounts of underwriters, brokers, dealers and agents. We will not receive
any
proceeds from the sale of any of the shares of common stock by the selling
stockholders.
SELLING
STOCKHOLDERS
Selling
Stockholder Table
This
prospectus covers the offer and sale by the selling stockholders of up to
7,396,650 shares of common stock. We are registering for resale shares issued
by
us in a private placements and shares issued or issuable on exercise of warrants
issued by us in private placements and other private transactions. All such
shares issued or to be issued are and will be restricted securities as that
term
is defined in Rule 144 under the Securities Act, and will remain restricted
unless and until such shares are sold pursuant to this prospectus or otherwise
are sold in compliance with Rule 144.
All
of
the selling stockholders, except for BATL, Thomas F. Donino and Jay Goldstein,
acquired the shares issued or to be issued and being offered hereby as a result
of the issuance during 2003, 2004 and 2005 of warrants to officers, employees,
consultants and our then investment banker/selling agent, in private
transactions at varying exercise prices.
BATL,
Mr.
Donino and Mr. Goldstein acquired their shares which are being offered hereby
pursuant to a Securities Purchase Agreement entered into with us on December
8,
2005 and letter agreements entered into between BATL and us in April 2006 and
October 2007. See “Business - The BATL Agreement and Our Purchase of the
EnerBurn Technology”.
The
following table sets forth, to our best knowledge and belief, with respect
to
the selling stockholders:
|
·
|
The
number of shares of common stock beneficially owned as of the date
hereof,
|
|
·
|
The
number of shares of common stock eligible for resale and to be offered
by
each selling stockholder pursuant to this prospectus,
|
|
·
|
The
number of shares owned by each selling stockholder after the offering
contemplated hereby, assuming all the shares eligible for resale
pursuant
to this prospectus actually are
sold,
|
|
·
|
The
percentage of shares of common stock beneficially owned by each selling
stockholder after the offering contemplated hereby, and
|
|
·
|
In
the notes to the table, additional information concerning the selling
stockholders including the material terms of the warrants described
in the
notes. Except as indicated in the notes to the table, no selling
stockholder which is not a natural person, is a broker-dealer or
an
affiliate of a broker-dealer. In addition, except as indicated in
the
notes to the table, no selling stockholder has had a material relationship
during the past three years with the Company or any of its predecessors
or
affiliates.
|
We
will
not receive any proceeds from the resale of the common stock by the selling
stockholders. We will receive proceeds from the warrants, if exercised.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under the rule,
beneficial ownership includes any shares as to which the selling stockholder
has
or within 60 days has the right to acquire sole or shared voting power or
investment power, and each selling stockholder’s percentage ownership is
computed without regard to the amounts of shares that other selling stockholders
have the right to acquire.
Selling
Stockholder
|
|
Shares
Beneficially
Owned
Before Offering
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned
Before
Offering
|
|
Shares
to
be
Sold
In
the
Offering
|
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
After
Offering
|
|
BATL
Bioenergy LLC
|
|
|
3,960,000
|
(1)
|
|
20.5
|
%
|
|
3,960,000
|
|
|
0
|
%
|
Thomas
F. Donino
|
|
|
5,558,083
|
(2)
|
|
28.8
|
%
|
|
3,988,500
|
|
|
8.1
|
%
|
Allan
F. Dow & Associates, Inc.
|
|
|
498,150
|
(3)
|
|
2.7
|
%
|
|
498,150
|
|
|
0
|
%
|
Waxtech
International, Inc.
|
|
|
175,000
|
(4)
|
|
1.0
|
%
|
|
175,000
|
|
|
0
|
%
|
J.D.McGraw
|
|
|
146,000
|
(5)
|
|
*
|
|
|
146,000
|
|
|
0
|
%
|
James
M. Mullen
|
|
|
100,000
|
(6)
|
|
*
|
|
|
100,000
|
|
|
0
|
%
|
Roy
Stern
|
|
|
110,000
|
(7)
|
|
*
|
|
|
100,000
|
|
|
*
|
|
Leon
van Kraayenberg
|
|
|
350,000
|
(8)
|
|
1.9
|
%
|
|
350,000
|
|
|
0
|
%
|
Maxim
Partners LLC
|
|
|
252,500
|
(9)
|
|
1.4
|
%
|
|
2,500
|
|
|
1.4
|
%
|
Russell
Family Investment LP
|
|
|
10,000
|
(10)
|
|
*
|
|
|
10,000
|
|
|
0
|
%
|
Stan
Crow
|
|
|
700,500
|
(11)
|
|
3.9
|
%
|
|
135,000
|
|
|
3.2
|
%
|
John
Wrightson
|
|
|
28,000
|
(12)
|
|
*
|
|
|
20,000
|
|
|
*
|
|
Steven
Cloyes
|
|
|
300,850
|
(13)
|
|
1.7
|
%
|
|
170,000
|
|
|
*
|
|
Parrish
Brian Partners Inc.
|
|
|
410,333
|
(14)
|
|
2.3
|
%
|
|
300,333
|
|
|
*
|
|
Mountain
View Trust
|
|
|
130,000
|
(15)
|
|
*
|
|
|
130,000
|
|
|
0
|
%
|
Richard
B. Dicks
|
|
|
114,200
|
(16)
|
|
*
|
|
|
100,000
|
|
|
*
|
|
Atheneum
Capital LLC
|
|
|
500,000
|
(17)
|
|
2.7
|
%
|
|
500,000
|
|
|
0
|
%
|
Jay
Goldstein
|
|
|
1,500
|
(18)
|
|
*
|
|
|
1,500
|
|
|
0
|
%
|
Delray
Trust
|
|
|
596,667
|
(19)
|
|
3.3
|
%
|
|
276,667
|
|
|
1.8
|
%
|
Genesis
Financial, Inc.
|
|
|
75,000
|
(20)
|
|
*
|
|
|
75,000
|
|
|
*
|
|
William
P. Bingham Sr. Living Trust
|
|
|
300,000
|
(21)
|
|
1.6
|
%
|
|
100,000
|
|
|
1.1
|
%
|
Harry
Bush
|
|
|
310,667
|
(22)
|
|
1.7
|
%
|
|
76,667
|
|
|
1.3
|
%
|
Lou
Domjon
|
|
|
53,333
|
(23)
|
|
*
|
|
|
53,333
|
|
|
*
|
|
John
Giacchi
|
|
|
10,000
|
(24)
|
|
*
|
|
|
10,000
|
|
|
*
|
|
Douglas
L. Gill
|
|
|
40,000
|
(25)
|
|
*
|
|
|
40,000
|
|
|
*
|
|
Karl-Edo
Hoermann
|
|
|
38,000
|
(26)
|
|
*
|
|
|
38,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,396,650
|
|
|
|
|
(1)
|
Consists
of 2,450,000 shares held by BATL Bioenergy LLC (“BATL”) and 1,510,000
shares underlying warrants held by BATL. The warrants are exercisable
at
$2.00 per share. 1,000,000 of the warrants expire on December 8,
2010 and
510,000 expire on October 3, 2012. Thomas Donino, a director of the
Company, is the President and managing member of BATL. Mr. Donino
exercises dispositive voting or investment control over the shares
listed
on behalf of such entity.
|
(2)
|
Consists
of 1,184,883 shares held by Mr. Donino, 2,450,000 shares held by
BATL,
384,700 shares held by BATL Management LP (“BATL Management”), 1,510,000
shares underlying warrants held by BATL and 28,500 shares underlying
warrants held by Mr. Donino. See footnote (1) for information on
the
warrants held by BATL. The warrants held by Mr. Donino are exercisable
at
$2.00 per share and expire on April 19, 2011. As the president and
managing member of BATL and the sole officer, director and shareholder
of
BATL Management’s general partner, Mr. Donino may be deemed to be the
beneficial owner of shares owned by BATL and BATL Management. Mr.
Donino
is a director of the Company.
|
(3)
|
Consists
of 498,150 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.20 per share and expire on July 31,
2008.
Allan F. Dow exercises dispositive voting or investment control over
the
shares listed on behalf of such entity. The entity provided consulting
and
marketing services to us during late 2002 through early
2003.
|
(4)
|
Consists
of 175,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.20 per share and expire on July 31,
2008.
V. Patrick Keating exercises dispositive voting or investment control
over
the shares listed on behalf of such entity. The entity provided consulting
services to EnerTeck Sub prior to its acquisition by us. Mr. Keating
was
an officer of EnerTeck Sub in 2003 and 2004.
|
(5)
|
Consists
of 146,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.20 per share and expire on July 31,
2008.
Mr. McGraw rendered consulting and marketing services to us during
2002
and early 2003.
|
(6)
|
Consists
of 100,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.20 per share and expire on July 31,
2008.
Mr. Mullen was an officer of the Company in 2003 and 2004 and a director
only in 2004.
|
(7)
|
Consists
of 10,000 shares held by Mr. Stern, 90,000 shares issuable upon
exercise
of outstanding warrants and 10,000 shares issuable upon exercise
of
outstanding options. The warrants are exercisable at $1.20 per
share and
expire on July 31, 2008. The options are exercisable at $0.80 per
share
and expire on January 15, 2013. Mr. Stern, who was an officer of
EnerTeck
in 2003 and 2004, is currently an employee.
|
(8)
|
Consists
of 350,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.20 per share. 200,000 of the warrants
expire on July 31, 2008 and 150,000 of the warrants expire on September
1,
2009. Mr. van Kraayenburg was an officer of the Company in 2003,
2004 and
2005 and a director in 2004 and 2005.
|
(9)
|
Consists
of 250,000 shares held by Maxim Partners LLC and 2,500 shares issuable
upon exercise of outstanding warrants. The warrants are exercisable
at
$3.40 per share and expire on April 29, 2008. Mike Rabinowitz exercises
principal dispositive voting or investment control over the shares
listed
on behalf of such entity. The entity is an affiliate of Maxim Group
LLC, a
broker-dealer (“Maxim Group”). To the best of our knowledge, it purchased
the registered shares in the ordinary course of business and at the
time
of purchase it had no agreements or understandings, directly or
indirectly, with any person to distribute the registered shares.
The
warrants were issued to the entity as nominee of Maxim Group as partial
consideration for Maxim Group’s participating in our May 2003 private
placement and pursuant to its previous investment banking agreement
with
us.
|
(10)
|
Consists
of 10,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.00 per share and expire on July 31,
2008.
John Russell exercises dispositive voting or investment control over
the
shares listed on behalf of such entity.
|
(11)
|
Consists
of 565,500 shares held by Mr. Crow and 135,000 shares issuable upon
exercise of outstanding warrants. The warrants are exercisable at
$1.20
per share. 50,000 of the warrants expire on July 31, 2008 and 85,000
of
the warrants expire on October 1, 2008. Stan Crow is President of
the
Company.
|
(12)
|
Consists
of 8,000 shares held by Mr. Wrightson and 20,000 shares issuable
upon
exercise of outstanding warrants. The warrants are exercisable at
$1.00
per share and expire on July 31,
2008.
|
(13)
|
Consists
of 170,000 shares issuable upon exercise of outstanding warrants
held by
Mr. Cloyes and 130,000 shares issuable upon exercise of outstanding
warrants held by Mountain View Trust, an entity controlled by Mr.
Cloyes.
Also, includes 850 shares owned by Mr. Cloyes. The warrants held
by Mr.
Cloyes are exercisable at $1.20 per share and expire September 1,
2009.
The warrants held by Mountain View Trust are exercisable at $1.00
per
share and expire on July 31, 2008.
|
(14)
|
Consists
of 110,000 shares held by Parrish Brian Partners Inc. and 300,333
shares
issuable upon exercise of outstanding warrants. Parrish B. Ketchmark
is
the control person of Parrish Brian Partners Inc. The warrants
are
exercisable at $1.00 per share. 225,333 of the warrants expire
on July 31,
2008 and 75,000 of the warrants expire on October 1, 2008. Mr.
Ketchmark
exercises dispositive voting or investment control over the shares
listed
on behalf of such entity. Mr. Ketchmark was an officer and director
of the
Company in 2003, 2004 and 2005 and Parrish Brian Partners Inc.
provided
consulting services to the Company from 2003 to
2005.
|
(15)
|
Consists
of 130,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.00 per share and expire on July 31,
2008.
Steven Cloyes exercises dispositive voting or investment control
over the
shares listed on behalf of such
entity.
|
(16)
|
Consists
of 100,000 shares issuable upon exercise of outstanding warrants
and
14,200 shares issuable upon exercise of outstanding options. The
warrants
are exercisable at $2.00 per share and expire on November 1, 2010.
The
options are exercisable at $0.80 per share and expire on January
15, 2013.
Richard B. Dicks is Chief Financial Officer of the Company.
|
(17)
|
Consists
of 500,000 shares issuable upon exercise of outstanding warrants.
The
entity provided consulting services to us in 2005. The warrants are
exercisable at $1.00 per share and expire on December 8, 2010. Richard
Rankin exercises dispositive voting or investment control over the
shares
listed on behalf of such entity.
|
(18)
|
Consists
of 1,500 shares issuable upon exercise of outstanding warrants. Mr.
Goldstein is a minority member of BATL. The warrants are exercisable
at
$2.00 per share and expire on April 19, 2011.
|
(19)
|
Consists
of 320,000 shares held by Delray Trust and 276,667 shares issuable
upon
exercise of outstanding warrants. 76,667 of the warrants are exercisable
at $1.00 per share and 200,000 of the warrants are exercisable
at $1.20
per share. 50,000 of the warrants expire on September 1, 2009 and
226,667
of the warrants expire on July 31, 2008. Raymond L. Bradley exercises
dispositive voting or investment control over the shares listed
on behalf
of such entity.
|
(20)
|
Consist
of 75,000 shares issuable upon exercise of outstanding warrants.
John
Coghlan and Michael A Kirk exercise dispositive voting or investment
control over the shares listed on behalf of such entity.
|
(21)
|
Consists
of 200,000 shares held by William P. Bingham Sr. Living Trust and
100,000
shares issuable upon exercise of outstanding warrants. The warrants
are
exercisable at $1.00 per share and expire on July 31, 2008. William
P.
Bingham exercises dispositive voting or investment control over
the shares
listed on behalf of such entity.
|
(22)
|
Consists
of 234,000 shares held by Harry Bush and 76,667 shares issuable
upon
exercise of outstanding warrants. The warrants are exercisable
at $1.00
per share and expire on July 31, 2008.
|
(23)
|
Consists
of 53,333 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.00 per share and expire on July
31, 2008.
|
(24)
|
Consists
of 10,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.00 per share and expire on July
31,
2008.
|
(25)
|
Consists
of 40,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.00 per share and expire on July
31, 2008.
|
(26)
|
Consists
of 38,000 shares issuable upon exercise of outstanding warrants.
The
warrants are exercisable at $1.00 per share and expire on July
31, 2008.
|
LEGAL
MATTERS
The
validity of the shares of common stock being offered hereby will be passed
upon
for us by Kaye Cooper Fiore Kay & Rosenberg, LLP, 30A Vreeland Road, Florham
Park, New Jersey 07932.
EXPERTS
Our
consolidated financial statements appearing in this prospectus and registration
statement as of and for the years ended December 31, 2006 and 2007 have been
audited by Philip Vogel & Co. PC, independent accountants as set forth in
its report appearing elsewhere herein, and are included in reliance upon
such
report given on the authority of such firm as experts in accounting and
auditing.
AVAILABLE
INFORMATION
We
have
filed a registration statement on Form S-1 under the Securities Act, relating
to
the shares of common stock being offered by this prospectus, and reference
is
made to such registration statement. This prospectus constitutes the prospectus
of EnerTeck Corporation and its consolidated subsidiary filed as part of
the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance
with
the rules and regulations of the SEC.
We
are
subject to the informational requirements of the Exchange Act and
file
annual, quarterly and current reports, proxy statements and other information
with the SEC.
Such
reports, proxy statements and other information may be inspected at the public
reference room of the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies
of such material can be obtained from the facility at prescribed rates. Please
call the SEC toll free at 1-800-SEC-0330 for information about its public
reference room. Because we file documents electronically with the SEC, you
may
also obtain this information by visiting the SEC’s Internet website at
http://www.sec.gov.
Statements
contained in this prospectus as to the contents of any contract, agreement
or
any other document are summaries of the material terms of this contract,
agreement or other document. With respect to each of these contracts, agreements
or other documents filed as an exhibit to the registration statement, reference
is made to the exhibits for a more complete description of the matter involved.
You
should rely only on the information incorporated by reference or provided in
this prospectus. We have not authorized anyone else to provide you with
different information. The selling stockholders are not making an offer of
these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
EnerTeck
Corporation
Houston,
Texas
We
have
audited the accompanying consolidated balance sheet
s
of
EnerTeck Corporation and subsidiary as of December 31, 2007
and
2006,
and the related consolidated statements of operations, of changes in
stockholders' equity and of cash flows for each of the years in the two-year
period ended December 31, 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit
s
.
We
conducted our audit
s
in
accordance with the standards of the Public Company Accounting Oversight
Board
(United States). Those standards require that we plan and perform the
audit
s
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. The company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audit
included consideration of internal control over financial reporting as a
basis
for designing audit procedures that are appropriate in the circumstances,
but
not for the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit
s
provide
a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of EnerTeck
Corporation and subsidiary as of December 31, 2007 and 2006, and the
consolidated results of their operations and their cash flows for each of
the
years in the two-year period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
|
/s/
Philip Vogel & Co. PC
|
|
|
|
PHILIP VOGEL & CO. PC
|
|
|
|
|
|
|
Certified
Public Accountants
|
Dallas,
Texas
March
7,
2008
ENERTECK
CORPORATION AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
December
31, 2007 and 2006
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
|
$
|
319,126
|
|
$
|
429,483
|
|
Inventory
|
|
|
146,654
|
|
|
137,485
|
|
Receivables
- trade
|
|
|
50,920
|
|
|
290,072
|
|
Receivables
- employee
|
|
|
4,483
|
|
|
29,145
|
|
Prepaid
Expenses
|
|
|
19,639
|
|
|
19,625
|
|
Total
current assets
|
|
|
540,822
|
|
|
905,810
|
|
|
|
|
|
|
|
|
|
Intellectual
Property
|
|
|
3,000,000
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated
depreciation
of $202,271 and $168,011 respectively
|
|
|
119,894
|
|
|
166,832
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,660,715
|
|
$
|
4,072,642
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Note
payable - current maturity
|
|
$
|
500,000
|
|
$
|
500,000
|
|
Accounts
payable
|
|
|
10,649
|
|
|
64,510
|
|
Accrued
liabilities
|
|
|
61,666
|
|
|
40,000
|
|
Total
current liabilities
|
|
|
572,315
|
|
|
604,510
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
Note
s
Payable - long term portion
|
|
|
1,000,000
|
|
|
1,500,000
|
|
Total
Long Term Liabilities
|
|
|
1,000,000
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 100,000,000 shares
authorized,
none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value, 100,000,000
shares
authorized, 17,761,359 and 16,761,359 shares issued and outstanding,
respectively
|
|
|
17,761
|
|
|
16,761
|
|
Additional
paid-in capital
|
|
|
19,947,381
|
|
|
18,823,714
|
|
Accumulated
deficit
|
|
|
(17,876,742
|
)
|
|
(16,872,343
|
)
|
Total
stockholders’ equity
|
|
|
2,088,400
|
|
|
1,968,132
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,660,715
|
|
$
|
4,072,642
|
|
See
accompanying summary of accounting policies and notes to financial statements.
ENERTECK
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31, 2007 and 2006
|
|
2007
|
|
2006
|
|
Product
Sales
|
|
$
|
396,141
|
|
$
|
641,419
|
|
Cost
of goods sold
|
|
|
73,756
|
|
|
240,770
|
|
Gross
profit
|
|
$
|
322,385
|
|
|
400,649
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
General
and Administrative Expenses:
|
|
|
|
|
|
|
|
Wages
|
|
$
|
429,541
|
|
$
|
421,676
|
|
Non-cash
compensation
|
|
|
0
|
|
|
92,500
|
|
Depreciation
|
|
|
46,332
|
|
|
48,214
|
|
Other
Selling, General and Administrative Expenses
|
|
|
451,965
|
|
|
505,458
|
|
Total
Expenses
|
|
$
|
927,838
|
|
$
|
1,067,848
|
|
Operating
loss
|
|
|
($605,453
|
)
|
|
($667,199
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
23,765
|
|
|
74,845
|
|
Other
Income
|
|
|
17,990
|
|
|
57,805
|
|
Stock-based
delay awards
|
|
|
(374,667
|
)
|
|
(64,500
|
)
|
Interest
expense
|
|
|
(66,033
|
)
|
|
(40,000
|
)
|
Net
Income (loss)
|
|
|
($1,004,399
|
)
|
$
|
(639,049
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
($0.06
|
)
|
|
($0.04
|
)
|
Weighted
average
shares outstanding:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
17,413,414
|
|
|
16,540,181
|
|
See
accompanying summary of accounting policies and notes to financial statements.
ENERTECK
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
Years
Ended December 31, 2007 and 2006
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Balances,
December 31, 2005
|
|
|
16,451,359
|
|
$
|
16,451
|
|
$
|
18,067,524
|
|
$
|
(16,233,294
|
)
|
$
|
1,850,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of Founders' Stock
|
|
|
250,000
|
|
|
250
|
|
|
587,250
|
|
|
|
|
|
587,500
|
|
Common
stock for services
|
|
|
50,000
|
|
|
50
|
|
|
92,450
|
|
|
|
|
|
92,500
|
|
Warrants
Exercised
|
|
|
10,000
|
|
|
10
|
|
|
11,990
|
|
|
|
|
|
12,000
|
|
Warrants
Issued
|
|
|
|
|
|
|
|
|
64,500
|
|
|
|
|
|
64,500
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
(639,049
|
)
|
|
(639,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
|
|
16,761,359
|
|
|
16,761
|
|
|
18,823,714
|
|
|
(16,872,343
|
)
|
|
1,968,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Offering
|
|
|
1,000,000
|
|
|
1,000
|
|
|
749,000
|
|
|
|
|
|
750,000
|
|
Warrants
Issued
|
|
|
|
|
|
|
|
|
374,667
|
|
|
|
|
|
374,667
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
(1,004,399
|
)
|
|
(1,004,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
|
17,761,359
|
|
$
|
17,761
|
|
$
|
19,947,381
|
|
$
|
(17,876,742
|
)
|
$
|
2,088,400
|
|
See
accompanying summary of accounting policies and notes to financial statements.
ENERTECK
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31, 2007 and 2006
|
|
2007
|
|
2006
|
|
Net
(loss)
|
|
|
($1,004,399
|
)
|
|
($639,049
|
)
|
Adjustments
to reconcile net loss to cash used in
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
46,332
|
|
|
48,214
|
|
Common
stock issued for services
|
|
|
0
|
|
|
92,500
|
|
Warrants
issued to Investor
|
|
|
374,667
|
|
|
64,500
|
|
Non-cash
income items
|
|
|
3,392
|
|
|
(57,805
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
239,152
|
|
|
(265,079
|
)
|
Inventory
|
|
|
(9,169
|
)
|
|
(120,295
|
)
|
Prepaid
expenses and other
|
|
|
(14
|
)
|
|
(19,225
|
)
|
Accounts
payable
|
|
|
(53,861
|
)
|
|
12,223
|
|
Accrued
Interest payable
|
|
|
(933
|
)
|
|
40,000
|
|
Accrued
Liabilities
|
|
|
22,598
|
|
|
(141,310
|
)
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
($382,235
|
)
|
|
(985,326
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from sales of assets
|
|
|
4,800
|
|
|
0
|
|
Capital
expenditures
|
|
|
(7,584
|
)
|
|
(109,815
|
)
|
Acquisition
of intellectual property
|
|
|
0
|
|
|
(1,000,000
|
)
|
Employee
advances
|
|
|
24,662
|
|
|
(9,645
|
)
|
CASH
PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
$
|
21,878
|
|
|
(1,119,460
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
0
|
|
|
12,000
|
|
Proceeds
from sale of common stock
|
|
|
750,000
|
|
|
0
|
|
Repayments
of note payable
|
|
|
(500,000
|
)
|
|
0
|
|
CASH
PROVIDED BY FINANCING ACTIVITIES
|
|
$
|
250,000
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
($110,357
|
)
|
|
(2,092,786
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
429,483
|
|
|
2,522,269
|
|
Cash
and cash equivalents, end of year
|
|
$
|
319,126
|
|
$
|
429,483
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Income
tax
|
|
$
|
0
|
|
$
|
0
|
|
Interest
|
|
$
|
66,965
|
|
$
|
0
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Note
payable originated for the purchase of intellectual
|
|
|
|
|
|
|
|
property
|
|
|
|
|
$
|
2,000,000
|
|
See
accompanying summary of accounting policies and notes to financial statements.
ENERTECK
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
ENERTECK
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
and Basis of Presentation
EnerTeck
Corporation, formerly Gold Bond Resources, Inc. was incorporated under the
laws
of the State of Washington on July 30, 1935. On January 9, 2003, the Company
acquired EnerTeck Chemical Corp. ("EnerTeck Sub") as its wholly owned operating
subsidiary. As a result of the acquisition, the Company is now acting as
a
holding company, with EnerTeck Sub as its only operating business. Subsequent
to
this transaction, on November 24, 2003, the Company changed its domicile
from
the State of Washington to the State of Delaware, changed its name from Gold
Bond Resources, Inc. to EnerTeck Corporation.
EnerTeck
Sub, the Company's wholly owned operating subsidiary is a Houston-based
corporation. It was incorporated in the State of Texas on November 29, 2000
and
was formed for the purpose of commercializing a diesel fuel specific combustion
catalyst known as EnerBurn (TM), as well as other combustion enhancement
and
emission reduction technologies for diesel fuel. EnerTeck's primary product
is
EnerBurn, and is registered for highway use in all USA diesel applications.
The
products are used primarily in on-road vehicles, locomotives and diesel marine
engines throughout the United States and select foreign markets.
Certain
reclassifications have been made to the 2006 financial statements in order
to
conform to the current presentation. The primary reclassification relates
to the
presentation of stock-based delay awards which management believes are more
appropriately reflected as a non-operating expense. Net loss as previously
reported has not changed.
Principles
of Consolidation
The
consolidated financial statements include the accounts of EnerTeck Corporation
and its wholly-owned subsidiary, EnerTeck Chemical Corp. All significant
inter-company accounts and transactions are eliminated in
consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three (3) months or less to be cash and cash
equivalents.
Inventory
Inventory
consists of market ready EnerBurn plus raw materials required to manufacture
the
products. Inventory is valued at the lower of cost or market using the
average
cost method. Also included in inventory are three large Hammonds EnerBurn
doser
systems amounting to $57,000 which are projected to be transferred to marine
customers during 2008. Finished product amounted to approximately $42,000
at
December 31, 2007; the remainder being comprised of raw materials.
Included
in inventories at December 31, 2006, were four doser systems amounting
to
$76,000; with substantially all the remaining inventory being comprised
of raw
materials.
Accounts
Receivable
Accounts
receivable represent uncollateralized obligations due from customers of
the
Company and are recorded at net realizable value. This value includes an
appropriate allowance for estimated uncollectible accounts to reflect any
loss
anticipated on the accounts receivable balances and charged to the provision
for
doubtful accounts. The Company calculates this allowance based on historical
write-offs, level of past due accounts and relationships with and economic
status of the customers. As of December 31, 2006 and 2005, there were no
uncollectible accounts and no allowance has been provided.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation
is provided for on the straight-line or accelerated method over the estimated
useful lives of the assets. The average lives range from five (5) to ten
(10)
years. Maintenance and repairs that neither materially add to the value
of the
property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred.
Intangible
Assets
Intellectual
property and other intangibles are recorded at cost. The Company has determined
that its intellectual property has an indefinite life because there is
no legal,
regulatory, contractual, competitive, economic or other factor to limit
its
useful life, and therefore will not be amortized. For other intangibles,
amortization would be computed on the straight-line method over the identifiable
lives of the assets. The Company has adopted the provisions of Statement
of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets,
effective
for periods beginning January 1, 2002, and thereafter. SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17,
Intangible
Assets
.
Specifically, the statement addresses how intangible assets that are acquired
should be accounted for in financial statements upon their acquisition,
as well
as how goodwill and other intangible assets should be accounted for after
they
have been initially recognized in the financial statements. The statement
requires the Company to evaluate its intellectual property each reporting
period
to determine whether events and circumstances continue to support an indefinite
life. In addition, the Company will test its intellectual property for
impairment on an annual basis, or more frequently if events or changes
in
circumstances indicate that the asset might be impaired. The statement
requires
intangible assets with finite lives to be reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts
may not
be recoverable and that a loss shall be recognized if the carrying amount
of an
intangible exceeds its fair value. The Company tested its intangible assets
for
impairment as of December 31, 2007. It was determined at that time that
no
impairment existed based primarily on projected sales and the resulting
discounted projected cash flow analyses.
Revenue
Recognition
The
Company follows the provisions of SEC Staff Accounting Bulletin (SAB) No.
104,
"Revenue Recognition"
which
was issued in December 2003, and recognizes revenues when evidence of a
completed transaction and customer acceptance exists, and when title passes,
if
applicable. SAB No. 104 codified, revised and rescinded certain sections
of
Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements",
in order
to make this interpretive guidance consistent with current authoritative
accounting guidance and SEC rules and regulations.
Revenues
from sales of product and equipment
are
recognized at the point when a customer order has been shipped and
invoiced.
Income
Taxes
EnerTeck
will compute income taxes using the asset and liability method. Under the
asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases
of assets
and liabilities and are measured using the currently enacted tax rates
and laws.
A valuation allowance is provided for the amount of deferred tax assets
that,
based on evidence from prior years, may not be realized over the next calendar
year or for some years thereafter.
Income
(Loss) Per Common Share
The
basic
net income (loss) per common share is computed by dividing the net income
(loss)
applicable to common stockholders by the weighted average number of common
shares outstanding.
Diluted
net income (loss) per common share is computed by dividing the net income
applicable to common stockholders, adjusted on an "as if converted" basis,
by
the weighted average number of common shares outstanding plus potential
dilutive
securities. For 2007 and 2006, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted
net
loss per common share.
Management
Estimates and Assumptions
The
accompanying financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue
and
expenses during the reporting period. Actual results could differ from
those
estimates.
Financial
Instruments
The
Company’s financial instruments recorded on the balance sheet include cash and
cash equivalents, accounts receivable, accounts payable and note payable.
The
carrying amounts approximate fair value because of the short-term nature
of
these items.
Stock
Options and Warrants
Effective
January 1, 2006, EnerTeck began recording compensation expense associated
with
stock options and other forms of equity compensation in accordance with
Statement of Financial Accounting Standards No. 123R,
Share-Based Payment,
as
interpreted by SEC Staff Accounting Bulletin No. 107. Prior to
January 1, 2006, EnerTeck had accounted for stock options according to
the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees,
and
related interpretations, and therefore no related compensation expense
was
recorded for awards granted with no intrinsic value. EnerTeck adopted the
modified prospective transition method provided for under SFAS No. 123R,
and,
consequently, has not retroactively adjusted results from prior periods.
Under
this transition method, compensation cost associated with stock options
recognized in the first quarter of fiscal 2006 includes the quarterly
amortization related to the remaining unvested portion of all stock option
awards granted prior to January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123. There
was
no unvested portion of stock options or warrants as of January 1,
2006.
Recently
Issued Accounting Pronouncements
In
May
2003, the Financial Accounting Standards Board issued SFAS No. 150,
Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity
.
SFAS
No. 150 established standards for how a company classifies and measures
certain
financial instruments with characteristics of both liabilities and equity.
The
statement requires that a company classify a financial instrument that
is within
its scope as a liability (or an asset in some circumstances) if certain
criteria
are met. Freestanding financial instruments that obligate the issuer to
redeem
the holder’s shares, or are indexed to such an obligation, and are settled in
cash or settled with shares meeting certain conditions would be treated
as
liabilities. Many of those instruments were previously classified as equity.
In
June 2005, the FASB issued FSP FAS 150-5, Issuers Accounting under FASB
Statement No. 150 for Freestanding Warrants and Other Similar Instruments
on
Shares that are Redeemable (“FAS 150-5”). FAS 150-5 clarifies that freestanding
warrants and similar instruments on shares that are redeemable should be
accounted for as liabilities under FAS 150 regardless of the timing of
the
redemption feature or price, even though the underlying shares may be classified
as equity. FAS 150-5 is effective for the first reporting period beginning
after
June 30, 2005. Although the Company had outstanding warrants as of December
31, 2006, the shares issued upon exercise of the warrants are not redeemable;
consequently, the adoption of FAS 150-5 did not have a material impact
on the
Company’s financial position, results of operations or cash flows.
In
May 2005, the FASB issued FAS No. 154,
Accounting
Changes and Error Corrections—A replacement of APB Opinion No. 20 and FASB
Statement No. 3
(“FAS
154”). FAS 154 replaces APB Opinion No. 20,
Accounting
Changes
(“APB
20”)
,
and FAS
No. 3,
Reporting
Accounting Changes in Interim Financial Statements
(“FAS
3”) and changes the requirements for the accounting for, and reporting of,
a
change in accounting principles. FAS 154 applies to all voluntary changes
in
accounting principles and changes required by an accounting pronouncement
in the
unusual instance that the pronouncement does not include specific transition
provisions. Under previous guidance, changes in accounting principle were
recognized as a cumulative effect in the net income of the period of the
change.
FAS 154 requires retrospective application of changes in accounting
principle, limited to the direct effects of the change, to prior periods’
financial statements, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change in accounting
principle. Additionally, FAS 154 requires that a change in depreciation,
amortization or depletion method for long-lived, non-financial assets be
accounted for as a change in accounting estimate affected by a change in
accounting principle and that correction of errors in previously issued
financial statements should be termed a “restatement.” The provisions in
FAS 154 are effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005.
In
March
2006, the EITF reached a tentative consensus on Issue No. 06-03,
How
Sales Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross Versus Net
Presentation)
(“EITF
06-03”). EITF 06-03 addresses income statement classification and disclosure
requirements of externally-imposed taxes on revenue-producing transactions.
EITF
06-03 is effective for periods beginning after December 15, 2006. Management
has
determined that adoption of EITF 06-03 has not had a material effect on
the
Company’s financial position, results of operations and cash flows.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.
SAB No. 108 was issued to address diversity in practice in quantifying
financial statement misstatements. Current practice allows for the evaluation
of
materiality on the basis of either (1) the error quantified as the amount
by which the current year income statement was misstated (“rollover method”) or
(2) the cumulative error quantified as the cumulative amount by which the
current year balance sheet was misstated (“iron curtain method”). The guidance
provided in SAB No. 108 requires both methods to be used in evaluating
materiality (“dual approach”). SAB No. 108 permits companies to
initially apply its provisions either by (1) restating prior financial
statements as if the dual approach had always been used or (2) recording
the cumulative effect of initially applying the “dual approach” as adjustments
to the carrying values of assets and liabilities as of January 1, 2006 with
an offsetting adjustment recorded to the opening balance of retained earnings.
During
June 2006, The FASB has issued FIN 48 which prescribes rules for the financial
statements accounting for uncertainty in income tax positions. FIN 48 requires
all material tax positions to undergo a new two-step recognition and measurement
process. All material tax positions in all jurisdictions in all tax years
in
which the statute of limitations remains open upon the initial date of
adoption
are required to be assessed. The criteria for asset recognition is that
it is
more likely than not that a tax position will be sustained upon examination
based solely on its technical merits. If the recognition standard is not
satisfied, then no tax benefit otherwise arising from the tax position
can be
recorded for financial statement purposes. If the recognition standard
is
satisfied, the amount of tax benefit recorded for financial statement purposes
is the largest amount of tax benefit with a greater than 50% likelihood
of being
realized upon ultimate settlement with a taxing authority. FIN 48 became
effective for the Company’s fiscal 2007 year. The adoption of FIN 48 has not had
a material impact on the Company’s financial position, results of the
operations, or cash flows.
In
September 2006, the FASB issued SFAS No. 157; "Fair Value Measurements".
This
statement defines fair value, establishes a framework for measuring fair
value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB
having
previously concluded in those accounting pronouncements that fair value
is a
relevant measurement attribute. Accordingly, this statement does not require
any
new fair value measurements. However, for some entities, the application
of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007.
Earlier
application is permitted provided that the reporting entity has not yet
issued
financial statements for that fiscal year. In November 2007, FASB agreed
to a
one-year deferral of the effective date for nonfinancial assets and liabilities
that are recognized or disclosed at fair value on a recurring basis. We
are
currently evaluating the provisions of FASB 157 to determine the future
impact
on the Company’s consolidated financial statements.
In
December 2006, the FASB issued FASB Staff Position EITF Issue No. 00-19-2,
“Accounting for Registration Payment Arrangements,” or FSP 00-19-2, which
addresses an issuer’s accounting for registration payment arrangements.
FSP 00-19-2 specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized
and measured in accordance with SFAS No. 5, “Accounting for
Contingencies.” FSP EITF 00-19-2 also requires additional disclosure
regarding the nature of any registration payment arrangements, alternative
settlement methods, the maximum potential amount of consideration and the
current carrying amount of the liability, if any. FSP 00-19-2 was issued in
December 2006 and was effective immediately for registration payment
arrangements and the financial instruments subject to those arrangements
that
were entered into or modified subsequent to the issuance of FSP 00-19-2.
For registration payment arrangements and financial instruments subject
to those
arrangements entered into prior to the issuance of FSP 00-19-2, it is
effective for financial statements issued for fiscal years beginning after
December 15, 2006. We have adopted the provisions of FSP 00-19-2
effective January 1, 2007 and have determined that the adoption had no
material impact on our consolidated financial statements.
On
February 15, 2007, the FASB issued Statement of Financial Accounting
Standards No. 159,
“The
Fair Value Option for Financial Assets and Financial Liabilities — Including an
Amendment of FASB Statement No. 115”
(“SFAS
159”). This standard permits an entity to measure financial instruments and
certain other items at estimated fair value. Most of the provisions of
SFAS
No. 159 are elective; however, the amendment to FASB
No. 115,
“Accounting
for Certain Investments in Debt and Equity Securities,”
applies
to all entities that own trading and available-for-sale securities. The
fair
value option created by SFAS 159 permits an entity to measure eligible
items at
fair value as of specified election dates. The fair value option (a) may
generally be applied instrument by instrument, (b) is irrevocable
unless a new election date occurs, and (c) must be applied to the entire
instrument and not to only a portion of the instrument. SFAS 159 is effective
as
of the beginning of the first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of the previous fiscal
year provided that the entity (i) makes that choice in the first
120 days of that year, (ii) has not yet issued financial statements
for any interim period of such year, and (iii) elects to apply the
provisions of
FASB
157.
Management is currently evaluating the impact of SFAS 159, if any, on the
Company’s financial statements. The adoption of SFAS No. 159 is not expected to
have a material effect on its financial position, results of operations
or cash
flows.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research
Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and
the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement
of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15,
2008,
and interim periods within those fiscal years. Early adoption is prohibited.
The
adoption of SFAS No. 160 is not expected to have a material effect on its
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS 141R,
Business Combinations
(“SFAS
141R”), which replaces FASB SFAS 141,
Business Combinations.
This
Statement retains the fundamental requirements in SFAS 141 that the acquisition
method of accounting be used for all business combinations and for an acquirer
to be identified for each business combination. SFAS 141R defines the acquirer
as the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. SFAS 141R will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition. SFAS 141R will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the
acquired
at the acquisition date, at their fair values as of that date. This
compares to the cost allocation method previously required by SFAS No.
141. SFAS 141R will require an entity to recognize as an asset or
liability at fair value for certain contingencies, either contractual or
non-contractual, if certain criteria are met. Finally, SFAS 141R will
require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date. This Statement
will be effective for business combinations completed on or after the first
annual reporting period beginning on or after December 15,
2008. Early adoption of this standard is not permitted and the
standards are to be applied prospectively only. Upon adoption of this
standard, there would be no impact to the Company’s results of operations and
financial condition for acquisitions previously completed. The
adoption of SFAS No. 141R is not expected to have a material effect on
its
financial position, results of operations or cash flows.
The
Company does not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on The Company's results of
operations, financial position or cash flow.
NOTE
2 - PROPERTY AND EQUIPMENT
At
December 31, 2007 and 2006 property and equipment consisted of the following:
|
|
Useful
|
|
2007
|
|
2006
|
|
|
|
Lives
|
|
Amount
|
|
Amount
|
|
Furniture
and fixtures
|
|
|
5-7
|
|
$
|
55,797
|
|
$
|
67,025
|
|
Equipment
|
|
|
5-7
|
|
|
266,368
|
|
|
267,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322,165
|
|
|
334,843
|
|
Less:
accumulated depreciation
|
|
|
|
|
|
202,271
|
|
|
168,011
|
|
|
|
|
|
|
$
|
119,894
|
|
$
|
166,832
|
|
NOTE
3 - INTELLECTUAL PROPERTY
In
July
2006, EnerTeck acquired the EnerBurn technology. The purchase price for
the
EnerBurn technology is as follows: (i) $1.0 million cash paid on July
13, 2006,
and (ii) a promissory note for $2.0 million. In May of 2007, we made
the initial
payment of $500,000 plus interest against the loan. EnerTeck has determined
that
the life of the intellectual property is indefinite; therefore, the asset
is not
amortized. The Company has tested the asset for impairment and has determined
that no impairment exists at December 31, 2007.
NOTE
4 - INCOME TAXES
EnerTeck
has incurred net losses since the merger with Gold Bond and, therefore,
has no
tax liability. The net deferred tax asset generated by the loss carry-forward
has been fully reserved. The cumulative operating loss carry-forward
is
approximately $9,600,000 at December 31, 2007, and will expire beginning
in
2024.
Deferred
income taxes consist of the following at December 31, 2007 and
2006:
|
|
2007
|
|
2006
|
|
Assets:
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
3,271,000
|
|
$
|
2,850,000
|
|
Valuation
allowance
|
|
|
(3,119,000
|
)
|
|
(2,850,000
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
152,000
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Amortization
differences
|
|
$
|
(108,000
|
)
|
$
|
-
|
|
Depreciation
differences
|
|
|
(44,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(152,000
|
)
|
$
|
-
|
|
The
change in the valuation allowance for the years ended December 31, 2007
and
2006, was $269,000 and $185,000, respectively
NOTE
5 - STOCKHOLDERS' EQUITY
On
March
20, 2004 four of the founders of Enerteck’s wholly owned operating subsidiary,
EnerTeck Chemical Corp., returned for cancellation 3,000,000 of the 5,000,000
shares of their common stock that they were issued in connection with
the
acquisition of EnerTeck Chemical Corp.
Also
during 2004, two consultants were issued a total of 400,000 shares of
common
stock for services to be rendered to EnerTeck Corporation.
During
the year ended December 31, 2004, EnerTeck received $224,800 from the
exercise
of 220,000 warrants at an exercise price of $1.00 per share and 4000
warrants at
an exercise price of $1.20 per share, resulting in the issuance of 224,000
common shares. Additionally, 135,484 common shares were issued to our
investment
banker, Maxim Partners, LLC under a cashless exercise provision to a
warrant
agreement. We received no proceeds from this exercise.
The
holders of a majority of the issued and outstanding shares of common stock
of
the Company authorized an amendment to the Company's Articles of Incorporation
to change the par value of the Company's common stock from $.001 to $.0001
to
enable it to affect a four to one forward stock split. An Information Statement
was circulated to all shareholders of the Company in October 2004. However,
the
Board of Directors, as was its right, chose to indefinitely postpone these
actions because of market conditions and the public trading price of the
Company's common stock.
During
August of 2004, EnerTeck authorized ten million shares of Preferred Stock
with
$0.001 par value. None of the Preferred Stock is issued and outstanding
for the
period ended December 31, 2004.
During
the quarter ended September 30, 2005, EnerTeck issued 250,000 shares of
its
common stock to certain accredited investors for aggregate proceeds of
$250,000.
All of such securities were issued in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended,
and Rule 506, hereunder.
During
2005, EnerTeck issued a total of 1,560,000 shares of common stock to various
individuals for services valued at $706,400.
In
April
2005, EnerTeck cancelled 260,150 shares of common stock.
In
July
2005, EnerTeck issued 1,000,000 shares of common stock to its President
and
acting Chief Financial Officer, Mr. Parrish B. Ketchmark, as compensation
for
his continued services to the company. These shares were recorded at their
fair
value of $985,000.
On
September 6, 2005, Mr. Ketchmark submitted his resignation as both an officer
and director of EnerTeck to pursue other outside interests. On December,
2005,
he agreed to allow the company to redeem 500,000 shares of this previous
issued
common stock, along with 500,000 warrants held by him.
During
2005, EnerTeck issued 650,000 shares of common stock to settle debt of
$155,687.
The shares had a value of $874,000 on the settlement date. EnerTeck recorded
a
loss of $718,313 on the settlement of the debt.
In
December 2005, EnerTeck reissued 2,750,000 shares of the 3,000,000 shares
of
common stock cancelled in 2004 (see above) to four of its founding shareholders.
The 250,000 remaining shares were not reissued until December 2006. The
3,000,000 shares were valued at $7,050,000, which was recorded as compensation
expense for 2005. $587,500 of the compensation expense, represented by
the
shares not yet reissued as of December 31, 2005, has been reported as a
current
accrued liability at that date.
On
December 9, 2005, EnerTeck sold 2,450,000 shares of common stock to BATL
Bioenergy LLC for $3,000,000. BATL Bioenergy LLC was granted 1,000,000
warrants
for future common stock purchases at an exercise price of $2.00 per
share.
Between
May 1, 2007 and May 16, 2007, the Company sold a total of 1,000,000 shares
of
common stock at $0.75 per share to seven investors for total gross proceeds
of
$750,000 in a private placement offering to accredited investors only.
NOTE
6 - STOCK WARRANTS
AND
OPTIONS
Stock
Warrants
During
2005 and 2006, EnerTeck issued warrants to consultants and employees as
follows:
During
2005, Enerteck’s board of directors approved the issuance of warrants to acquire
1,000,000 shares of common stock at $2.00 per share to BATL Bioenergy LLC
as
part of BATL’s equity investment transaction.
In
December 2005, warrants to acquire 100,000 shares of common stock at a
price of
$2.00 per share were issued to an employee as an incentive to join the
company.
These warrants were valued using Black-Scholes with the resulting fair
value of
$24,000 charged to compensation expense.
Also,
in
December 2005, Atheneum Capital LLC was issued warrants to acquire 500,000
shares of common stock at $1.00 per share for past consulting services.
These
warrants were valued using Black-Scholes with the resulting fair value
of
$1,172,380 charged to compensation expense.
Variables
used in the Black-Scholes option-pricing model to determine the value of
the
warrants issued during 2005 include (1) risk-free interest rate of 5.0%,
(2)
expected life is the actual remaining life of the warrants, (3) expected
volatility is 198.48%, and (4) zero expected dividends.
In
April,
2006, an additional 30,000 warrants were granted to Mr. Thomas Donino of
BATL
Bioenergy LLC and his designee pursuant to the terms of an agreement made
as
part of the BATL stock purchase in December, 2005. These warrants have
an
exercise price of $2.00 per share and expire in five years. These warrants
were
valued using the Black-Scholes Model and the fair value of $64,500 was
charged
to operating expense during 2006.
In
October, 2007, an additional 510,000 warrants were granted to Mr. Thomas
Donino
of BATL Bioenergy LLC and his designee pursuant to the terms of an agreement
made as part of the BATL stock purchase in December, 2005. These warrants
have
an exercise price of $2.00 per share and expire in five years from their
issue
date. These warrants were valued using the Black-Scholes Model and the
fair
value of $374,667 was charged to operating expense during 2007.
Summary
information regarding warrants is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
average
|
|
|
|
|
Warrants
|
|
|
Share
Price
|
|
Outstanding
at December 31, 2004
|
|
|
3,306,650
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,100,000
|
|
|
2.00
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2005
|
|
|
4,406,650
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
30,000
|
|
|
2.00
|
|
Exercised
|
|
|
10,000
|
|
|
1.20
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
4,426,650
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
510,000
|
|
|
2.00
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
4,936,650
|
|
$
|
1.41
|
|
Warrants
outstanding and exercisable as of December 31, 2007:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Exercisable
|
|
|
|
Number
of
|
|
Remaining
|
|
Number
of
|
|
Exercise
Price
|
|
Warrants
|
|
Life
|
|
Warrants
|
|
$1.00
|
|
|
1,430,000
|
|
|
1.4
|
|
|
1,430,000
|
|
$1.20
|
|
|
1,864,150
|
|
|
.8
|
|
|
1,864,150
|
|
$2.00
|
|
|
1,640,000
|
|
|
3.5
|
|
|
1,640,000
|
|
$3.40
|
|
|
2,500
|
|
|
.3
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,936,650
|
|
|
|
|
|
4,936,650
|
|
Stock
Options
In
September 2003, shareholders of the Company approved an employee stock
option
plan (the “2003 Option Plan”) authorizing the issuance of options to purchase up
to 1,000,000 shares of common stock. The 2003 Option Plan is intended to
give
the Company greater ability to attract, retain, and motivate officers,
key
employees, directors and consultants; and is intended to provide the Company
with the ability to provide incentives more directly linked to the success
of
the Company’s business and increases in shareholder value. As of December 31,
2007, no options have been issued under the 2003 Option Plan. On January
15,
2008, options to acquire 64,200 shares were issued under the 2003 Option
Plan to
five employees which options are immediately exercisable.
These
options have an exercise price of $0.80 per share and expire in five years
from
their issue date.
These
options were valued using the Black-Scholes Model and the fair value of
$47,000
will be charged to operating expense during the first quarter of
2008.
NOTE
7 - NOTE PAYABLE
The
Company has a note payable in connection with its acquisition of intellectual
property. The note requires four annual payments of $500,000 plus interest
at 4%
compounded on a monthly basis, starting July 2007. The note is secured
by the
intellectual property. The initial payment of $500,000 plus related interest
was
made in advance of the due date in May, 2007, leaving a remaining balance
of
$1,500,000.
NOTE
8 - COMMITMENTS AND CONTINGENCIES
RubyCat
Technology Agreement-
Effective
September 7, 2001, EnerTeck entered into an Exclusive Market Segment Development
Agreement with RubyCat Technology, Inc. (“RubyCat”). The agreement provided
EnerTeck exclusive rights to market RubyCat products, which includes EnerBurn,
to on-highway diesel large fleet truck market, small engine marine (<7,000
horsepower) market, railroad diesel and the international diesel fuel market.
In
addition, EnerTeck was able to obtain approval from the Environmental Protection
Agency to sell the product through its agreement with RubyCat.
In
October 2005, we entered into a letter of intent to acquire Ruby Cat, the
formulator of our products (the “Ruby Cat LOI”). Despite the Ruby Cat LOI to
acquire Ruby Cat, we subsequently changed negotiations to simply acquire
the
EnerBurn technology and associated assets. These negotiations were successfully
completed during the third quarter of 2006, with the completion of the
acquisition of the EnerBurn technology and associated assets on July 13,
2006
for a total purchase price of $3,000,000. As a result of the acquisition,
we
were required to make an immediate payment of $1,000,000 at closing and
we were
to make additional annual payments of $500,000 per year, plus interest
at a rate
of 4% for four years, all of which will draw significantly on future cash
reserves. During the second quarter of 2007, we made the first of these
$500,000
note payments in advance of the due date to allow us to take advantage
of a
significant savings in interest by doing so. This acquisition allows us
to
manufacture our own on and off road versions of the EnerBurn product line
and
has allowed for significant savings in the cost requirements of product
sales
from manufacturing.
Office
Lease -
EnerTeck
leases office space under a non-cancelable operating lease. Future minimum
rentals due under non-cancelable operating leases with an original maturity
of
at least one-year are approximately as follow:
December
31,
|
|
Amount
|
|
2008
|
|
$
|
47,635
|
|
2009
|
|
|
47,635
|
|
2010
|
|
|
15,878
|
|
|
|
|
|
|
Total
|
|
$
|
111,148
|
|
Rent
expense for the years ended December 31, 2007 and December 31, 2006 totaled
$43,553 and $43,140, respectively. The current lease expires April 30,
2010. A
three year lease was negotiated in 2007 and contained terms similar to
those of
past years.
Registration
Rights Agreement
In
connection with the BATL Agreement, the Company and BATL entered into a
Registration Rights Agreement dated as of December 8, 2005 (the “Registration
Rights Agreement”), whereby the Company has agreed to prepare and file with the
Commission not later than the 60th day (the “Filing Date”) after the BATL
Closing Date a Registration Statement covering the resale of all of the
BATL
Shares and the shares of common stock underlying the BATL Warrant. The
Company
has agreed to use its best efforts to cause the Registration Statement
to be
declared effective as promptly as possible after the filing thereof, but
in any
event prior to the 240th day after the Filing Date (such day referred to
as the
“Effective Date”); provided that, if the Registration Statement is not filed by
the Filing Date or declared effective by the Effective Date (each a “Penalty
Event”) then the Company shall issue a five-year warrant (“Penalty Warrant”) to
BATL to acquire another 49,000 shares of common stock, at an exercise price
equal to the exercise price of the BATL Warrant, per each 30-day period
following the Penalty Event that the Registration Statement has not been
filed
and/or that the Effective Date has not occurred. In April 2006, the Company
entered into a letter agreement with BATL amending and clarifying certain
provisions of the Registration Rights Agreement. Pursuant to the April
2006
letter agreement, it was agreed (i) that the number of Penalty Warrants
issuable
for all periods prior to April 30, 2006 in respect of delays in filing
the
Registration Statement shall be 30,000, and (ii) 28,500 of such warrants
shall
be issued to Thomas F. Donino and 1,500 of such warrants shall be issued
to Jay
Goldstein. In October 2007, the Company entered into another letter agreement
with BATL pursuant to which it was agreed that in the event the Effective
Date
occurs during the period from and including April 30, 2006 through April
30,
2008 (the “Fixed Period”), the number of shares of Common Stock underlying any
Penalty Warrant issuable due to the fact that the Registration Statement
was not
declared effective by the Effective Date shall be 510,000 (the “Fixed Penalty
Warrant”), regardless of at which point during the Fixed Period the Effective
Date occurs. In October 2007, the Fixed Penalty Warrant was delivered to
BATL.
The October 2007 letter agreement further provides that if the Effective
Date
shall have not occurred on or prior to April 30, 2008, then the Company
shall
once again be obligated to issue a Penalty Warrant to BATL per 30-day period
following the Fixed Period that the Effective Date has not occurred, in
accordance with the terms of the Registration Rights Agreement. As of the
date
of this statement, the Company does not believe that it is probable that
it will
be required to issue any additional Penalty Warrants to BATL under this
arrangement. However, no assurance can be given that such will be the
case.
Ability
to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern which contemplates the realization of
assets
and satisfaction of liabilities in the normal course of business. During
the
years ended December 31, 2007 and 2006, the Company incurred recurring
net
losses of $1,004,000 and $639,000, respectively. In addition, at December
31,
2007, the Company has an accumulated deficit of $17,876,742. These conditions
raise substantial doubt about the Company’s ability to continue as a going
concern. The financial statements do not include any adjustments that might
be
necessary if the Company is unable to continue as a going concern.
The
Company’s continuation as a going concern is contingent upon its ability to
obtain additional financing and to generate revenues and cash flow to meet
its
obligations on a timely basis. Management believes that sales revenues
for 2007
were considerably less than earlier anticipated primarily due to circumstances
which have been corrected or are in the process of being corrected and
therefore
should not reoccur in the future. Management expects that both marine and
trucking sales should show significant increases in 2008. In addition,
management is also currently putting sales strategies in place to other
industries in an effort to increase revenues and cash flow. No assurance
can be
made that any of these efforts will be successful.
Currently
there are 4,936,550 warrants outstanding with a total exercised value of
$6,955,000. Of these, there are 2,426,650 warrants with an exercised value
of
$2,731,000 which will expire during 2008. If a substantial number of these
warrants are exercised on or before the expiration date, this will provide
sufficient capital for the next twelve months. In addition, the Company
has been
able to generate working capital in the past through private placements
and
believes that these avenues will remain available to the Company if additional
financing is necessary. No assurances can be made, however, that the warrants
will be exercised or that the Company will be able to obtain such other
additional financing on terms acceptable to the Company or at all.
NOTE
9 - CONCENTRATION OF CREDIT RISK
For
the
year ended December 31, 2005 EnerTeck purchased 100% of its products from
RubyCat. In July, 2006 EnerTeck completed the purchase of the RubyCat technology
rights.
Financial
instruments that potentially subject EnerTeck to concentration of credit
risk
are accounts receivable. Currently all Accounts Receivable are considered
collectible. EnerTeck performs ongoing credit evaluations as to the financial
condition of its customers. Generally, no collateral is required.
EnerTeck
at times has cash in bank in excess of Federal Deposit Insurance Corporation
(“FDIC”) insurance limits. At December 31, 2007, EnerTeck had $256,046 in cash
in excess of FDIC insurance limits.
NOTE
10 - REVENUE FROM MAJOR CUSTOMERS
O
ne
customer represented 59.7% of the company’s sale revenues for the year ended
December 31, 2007 as compared to 80.8% of the company’s sales revenues for the
year ended December 31, 2006. The company had a pending sale prepared for
shipment, but had no receivables outstanding for this major customer at
year end
December 31, 2007 as compared to $264,000 in receivables from this customer
at
year end December 31, 2006.
WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
OR
ANY PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL OR
A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION
WHERE AN OFFER OR SOLICITATION IS NOT PERMITTED. NO SALE MADE PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF ENERTECK CORPORATION SINCE THE DATE OF
THIS PROSPECTUS.
ENERTECK
CORPORATION
7,396,650
SHARES OF COMMON STOCK
PROSPECTUS
_________________,
2008
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24.
INDEMNIFICATION
OF DIRECTORS, OFFICERS AND EMPLOYEES
The
Delaware General Corporation Law and the Registrant’s Bylaws provide for
indemnification of the Registrant’s officers and directors for liabilities and
expenses that they may incur in such capacities. In general, the Registrant’s
directors and officers are indemnified with respect to actions taken in good
faith and in a manner such person believed to be in the Registrant’s best
interests, and with respect to any criminal action or proceedings, actions
that
such person has no reasonable cause to believe were unlawful. Furthermore,
the
personal liability of the Registrant’s directors is limited as provided in the
Registrant’s Certificate of Incorporation.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended (the “Securities Act”), may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission (the “SEC”), such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM
25.
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses
of the Registrant in connection with the issuance and distribution of the
securities being registered, other than the underwriting discount, are estimated
as follows:
SEC
Registration Fee
|
|
$
|
1,500
|
|
Printing
and Engraving Expenses
|
|
$
|
10,000
|
|
Legal
Fees and Expenses
|
|
$
|
30,000
|
|
Accountants’
Fees and Expenses
|
|
$
|
10,000
|
|
Miscellaneous
Costs
|
|
$
|
3,500
|
|
|
|
|
|
|
Total
|
|
$
|
55,000
|
|
All
of
these expenses, except for the SEC registration and filing fees, represent
estimates only. The Registrant will pay all of the expenses of this
offering.
ITEM
26.
RECENT
SALES OF UNREGISTERED SECURITIES
On
January 9, 2003, the Registrant, then an inactive public corporation, issued
5,000,000 shares of common stock in exchange for 100% of the outstanding common
stock of EnerTeck Chemical Corp., whereby it became a wholly-owned subsidiary
of
the Registrant.
On
January 9, 2003, the Registrant issued 500,000 shares of its common stock to
Parrish Brian & Co., Inc. for business, financial and marketing consulting
services previously rendered to the Registrant's subsidiary before its
acquisition.
On
April
30, 2003 and May 28, 2003, the Registrant sold a total of 3,150,000 shares
of
its common stock at $.50 per share (1,000,000 shares to 22 investors and
2,150,000 shares to eight investors, respectively) for total gross proceeds
of
$1,575,000 in two separate private placement offerings to accredited investors
only. These securities were sold both directly by the Registrant with regard
to
some sales and through a NASD registered broker-dealer (“Selling Agent”) with
regard to others. The offerings were conducted without engaging in any
advertising or general solicitation of any kind and without payment of
underwriting discounts or commissions to any person except commissions to the
Selling Agent on sales effected by it.
In
addition, in 2003, the Registrant granted warrants to purchase up to 4,025,650
shares of common stock at varying exercise prices ranging from $.01 to $1.20
per
share. During 2003, the Registrant issued 1,000,000 shares of common stock
upon
the exercise of warrants granted in 2003 at an aggregate exercise price of
$10,000.
In
2004,
the Registrant granted warrants to purchase up to 705,000 shares of common
stock
at varying exercise prices ranging from $.01 to $1.20 per share. During 2004,
the Registrant issued 224,000 shares of common stock upon the exercise of
warrants at an aggregate exercise price of $224,800. Also, during 2004, the
Registrant issued an additional 135,484 shares of common stock to Maxim
Partners, LLC which exercised its rights under a cashless exercise provision
to
the warrant agreement whereby it exercised 200,000 warrants and received 135,484
common shares by forfeiting 64,516 warrants. The Registrant received no cash
proceeds from this exercise.
In
2005,
the Registrant received loans for working capital of an aggregate of $40,000
from three individuals. As an added inducement to the lenders and as additional
consideration for making the loans, the Registrant issued an aggregate of
400,000 shares of common stock to such individuals.
In
June
2005, the Registrant granted 200,000 shares of common stock to each of Gary
B.
Aman and Jack D. Cowles, each a director of the Registrant, for their services
as Board members.
During
the quarter ended September 30, 2005, the Registrant issued 250,000 shares
of
its common stock to certain accredited investors for aggregate proceeds of
$250,000.
In
November 2005, the Registrant issued 250,000 shares of common stock to Maxim
Partners LLC in full settlement of $130,000 of fees owed to Maxim Group LLC
for
investment banking services previously rendered.
In
December 2005, the Board of Directors of the Registrant authorized the return
and immediate reissuance of an aggregate of 2,750,000 shares of common stock
to
the four founding shareholders. In March 2004, such shareholders had delivered
3,000,000 shares (the “Returned Shares”) to the Registrant for cancellation as
part of a corporate reorganization and restructuring.
In
December 2005, the Registrant sold to BATL Bioenergy LLC (“BATL”) 2,450,000
shares of the common stock and a warrant to purchase an additional 1,000,000
shares of common stock at an exercise price of $2.00 per share for the aggregate
purchase price of $3,000,000.
In
addition to the warrants granted to BATL, the Registrant also granted warrants
to purchase up to an aggregate of 600,000 shares of common stock at exercise
prices ranging from $1.00 to $2.00 per share. During 2005, the Registrant issued
25,000 shares of common stock upon with the exercise of warrants at an aggregate
exercise price of $25,000.
During
the first quarter of 2006, the Registrant issued 10,000 shares of common stock
upon the exercise of warrants previously granted at an aggregate exercise price
of $12,000. During the second quarter of 2006, the Registrant granted warrants
to purchase up to an aggregate of 30,000 shares of common stock at an exercise
price of $2.00 per share. In December 2006, the Board of Directors of the
Registrant authorized the return and immediate reissuance of an aggregate of
250,000 shares of common stock to two of the four founding shareholders,
representing the balance of the Returned Shares which had not then yet been
reissued.
Between
May 1, 2007 and May 16, 2007, the Registrant sold a total of 1,000,000 shares
of
its common stock at $0.75 per share to seven investors for total gross proceeds
of $750,000 in a private placement offering to accredited investors only. These
securities were sold directly by the Registrant, without engaging in any
advertising or general solicitation of any kind and without payment of
underwriting discounts or commissions to any person. In October 2007, the
Registrant granted warrants to BATL to purchase up to an aggregate of 510,000
shares of common stock at an exercise price of $2.00 per share.
During
the first quarter of 2008, the Registrant issued options to acquire 64,200
shares of common stock under the Registrant’s 2003 Stock Option Plan to five
employees which options are immediately exercisable.
These
options have an exercise price of $0.80 per share and expire in five years
from
their issue date.
All
of
the foregoing securities were issued in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended,
and/or Rule 506 thereunder.
ITEM
27.
EXHIBITS.
The
following exhibits are included as part of this Form S-1.
Exhibit Number
|
|
Name
of Exhibit
|
|
Incorporated
by
Reference
to
|
|
|
|
|
|
2.1
|
|
Share
Exchange Agreement
|
|
Exhibit
2.1 (1)
|
|
|
|
|
|
2.2
|
|
Plan
of Merger
|
|
Exhibit
2.2 (2)
|
|
|
|
|
|
2.3
|
|
Article
of Merger (Delaware)
|
|
Exhibit
2.3 (2)
|
|
|
|
|
|
2.4
|
|
Articles
of Merger (Washington)
|
|
Exhibit
2.4 (2)
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation (July 8, 2003 filing date)
|
|
Exhibit
3.1 (2)
|
|
|
|
|
|
3.2
|
|
Bylaws
|
|
Exhibit
3.2 (2)
|
|
|
|
|
|
4.1
|
|
Specimen
of Common Stock Certificate
|
|
Exhibit
4.1 (2)
|
|
|
|
|
|
4.2
|
|
Registrant’s
2003 Stock Option Plan
|
|
Exhibit
4.1 (3)
|
|
|
|
|
|
4.3
|
|
Registrant’s
2005 Stock Compensation Plan
|
|
Exhibit
99.1(4)
|
|
|
|
|
|
4.4
|
|
Form
of Common Stock Purchase Warrant granted to various persons at
various
times from August 2003 to date
|
|
Exhibit
4.4 (5)
|
|
|
|
|
|
4.5
|
|
Registration
Rights Agreement dated December 8, 2005 between the Company and
BATL
Bioenergy LLC
|
|
Exhibit
4.1 (6)
|
|
|
|
|
|
4.6
|
|
Warrant
to purchase 1,000,000 shares issued to BATL Bioenergy LLC
|
|
Exhibit
4.2 (6)
|
|
|
|
|
|
5.1
|
|
Opinion
of Kaye Cooper Fiore Kay & Rosenberg, LLP
|
|
Exhibit
5.1 (9)
|
|
|
|
|
|
10.1
|
|
Memorandum
of Understanding by and between the Registrant’s Subsidiary and RubyCat
Technology dated February 1, 2003
|
|
Exhibit
10.22 (2)
|
|
|
|
|
|
10.2
|
|
Office
Lease dated February 1, 2001
|
|
Exhibit
10.23 (2)
|
|
|
|
|
|
10.3
|
|
Office
Lease Amendment dated March 31, 2003
|
|
Exhibit
10.24 (2)
|
|
|
|
|
|
10.4
|
|
Second
Amendment to Lease Agreement
|
|
Exhibit
10.4 (7)
|
|
|
|
|
|
10.5
|
|
Third
Amendment to Lease Agreement
|
|
Exhibit
10.5 (7)
|
|
|
|
|
|
10.6
|
|
Redemption
Agreement dated December 6, 2005 between the Company and Parrish
B.
Ketchmark and Parrish Brian Partners, Inc.
|
|
Exhibit
10.1 (6)
|
|
|
|
|
|
10.7
|
|
Securities
Purchase Agreement dated December 8, 2005 between the Company and
BATL
Bioenergy LLC
|
|
Exhibit
10.2 (6)
|
10.8
|
|
Asset
Purchase Agreement dated as of July 13, 2006
|
|
Exhibit
2.1 (8)
|
|
|
|
|
|
10.9
|
|
Manufacturing
and Supply Agreement dated August 18, 2006
|
|
Exhibit
10.9 (7)
|
|
|
|
|
|
10.10
|
|
Exclusive
Reseller and Market Development Alliance with Custom Fuel Services,
Inc.
|
|
**
|
|
|
|
|
|
10.11
|
|
Exclusive
Reseller and Market Development Alliance with Tanner Fuel Services
LLC
|
|
**
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of the Registrant
|
|
Exhibit
21.1 (7)
|
|
|
|
|
|
23.1
|
|
Consent
of Kaye Cooper Fiore Kay & Rosenberg, LLP (included in Exhibit
5.1)
|
|
Exhibit
23.1 (9)
|
|
|
|
|
|
23.2
|
|
Consent
of Philip Vogel & Co. PC
|
|
*
|
|
|
|
|
|
24
|
|
Power
of Attorney (included in the signature page of this Registration
Statement)
|
|
Exhibit
24 (9)
|
**
|
Redacted
version has been filed herewith. The Company has omitted portions
of the
referenced exhibit and filed such exhibit separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment
under Rule 406 promulgated under the Securities Act.
|
(1
)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on January
23, 2003, and incorporated by reference
herein.
|
(
2)
|
Filed
as an exhibit to the Company’s Registration Statement on Form SB-2, File
No. 333-108872, and incorporated by reference
herein.
|
(3)
|
Filed
as an exhibit to the Company’s Schedule 14A filed on August 12, 2003, and
incorporated by reference herein.
|
(4)
|
Filed
as an exhibit to the Company’s Registration Statement on Form S-8, File
No. 333-1258814, and incorporated by reference
herein.
|
(5)
|
Filed
as an exhibit to the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 2005, and incorporated by reference
herein.
|
(6)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on
December 12, 2005, and incorporated by reference
herein.
|
(7)
|
Filed
as an exhibit to the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 2006, and incorporated by reference
herein.
|
(8)
|
Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on July
19, 2006, and incorporated by reference
herein.
|
(9)
|
Filed
as an exhibit to Amendment No. 2 to the Company’s Registration Statement
on Form SB-2, File No. 333-133651, and incorporated by reference
herein.
|
ITEM
28.
UNDERTAKINGS.
The
undersigned Registrant hereby undertakes to:
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
1.
Include any prospectus required by Section 10(a)(3) of the Securities
Act;
2.
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the 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 SEC pursuant to Rule 424(b) under the Securities Act if, in
the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement,
and
3.
Include any additional or changed material information on the plan of
distribution.
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
File
a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the registrant of expenses incurred or paid by a director, officer
or
controlling person of the Registrant 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 Registrant 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
Securities Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Stafford, Texas, on this 24thday
of
March, 2008.
ENERTECK
CORPORATION
|
|
|
By:
|
/s/
Dwaine Reese
|
|
Dwaine
Reese,
|
|
Chief
Executive Officer
|
POWER
OF ATTORNEY
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Dwaine Reese
|
|
Chief
Executive Officer,
|
|
03/24/2008
|
Dwaine
Reese
|
|
Chairman
of the Board
and
Director
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Richard B. Dicks
|
|
Chief
Financial Officer
|
|
03/24/2008
|
Richard
B. Dicks
|
|
(Principal
Financial Officer and
Principal
Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Gary B. Aman*
|
|
Director
|
|
03/24/2008
|
Gary
B. Aman
|
|
|
|
|
|
|
|
|
|
/s/
Jack D. Cowles*
|
|
Director
|
|
03/24/2008
|
Jack
D. Cowles
|
|
|
|
|
|
|
|
|
|
/s/
Thomas F. Donino*
|
|
Director
|
|
03/24/2008
|
Thomas
F. Donino
|
|
|
|
|
*By:
|
/s/
Dwaine Reese
|
|
Dwaine
Reese,
|
|
Attorney-in-Fact
|
EXHIBIT
INDEX
|
|
Name
of Exhibit
|
|
Incorporated
by
Reference
to
|
|
|
|
|
|
2.1
|
|
Share
Exchange Agreement
|
|
Exhibit
2.1 (1)
|
|
|
|
|
|
2.2
|
|
Plan
of Merger
|
|
Exhibit
2.2 (2)
|
|
|
|
|
|
2.3
|
|
Article
of Merger (Delaware)
|
|
Exhibit
2.3 (2)
|
|
|
|
|
|
2.4
|
|
Articles
of Merger (Washington)
|
|
Exhibit
2.4 (2)
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation (July 8, 2003 filing date)
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Exhibit
3.1 (2)
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3.2
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Bylaws
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Exhibit
3.2 (2)
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4.1
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Specimen
of Common Stock Certificate
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Exhibit
4.1 (2)
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4.2
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Registrant’s
2003 Stock Option Plan
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Exhibit
4.1 (3)
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4.3
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Registrant’s
2005 Stock Compensation Plan
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Exhibit
99.1(4)
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4.4
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Form
of Common Stock Purchase Warrant granted to various persons at
various
times from August 2003 to date
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Exhibit
4.4 (5)
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4.5
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Registration
Rights Agreement dated December 8, 2005 between the Company and
BATL
Bioenergy LLC
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Exhibit
4.1 (6)
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4.6
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Warrant
to purchase 1,000,000 shares issued to BATL Bioenergy LLC
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Exhibit
4.2 (6)
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5.1
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Opinion
of Kaye Cooper Fiore Kay & Rosenberg, LLP
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Exhibit
5.1 (9)
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10.1
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Memorandum
of Understanding by and between the Registrant’s Subsidiary and RubyCat
Technology dated February 1, 2003
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Exhibit
10.22 (2)
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10.2
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Office
Lease dated February 1, 2001
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Exhibit
10.23 (2)
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10.3
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Office
Lease Amendment dated March 31, 2003
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Exhibit
10.24 (2)
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10.4
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Second
Amendment to Lease Agreement
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Exhibit
10.4 (7)
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10.5
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Third
Amendment to Lease Agreement
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Exhibit
10.5 (7)
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10.6
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Redemption
Agreement dated December 6, 2005 between the Company and Parrish
B.
Ketchmark and Parrish Brian Partners, Inc.
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Exhibit
10.1 (6)
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10.7
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Securities
Purchase Agreement dated December 8, 2005 between the Company and
BATL
Bioenergy LLC
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Exhibit
10.2 (6)
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10.8
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Asset
Purchase Agreement dated as of July 13, 2006
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Exhibit
2.1 (8)
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10.9
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Manufacturing
and Supply Agreement dated August 18, 2006
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Exhibit
10.9 (7)
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10.10
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Exclusive
Reseller and Market Development Alliance with Custom Fuel Services,
Inc.
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**
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10.11
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Exclusive
Reseller and Market Development Alliance with Tanner Fuel Services
LLC
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**
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21.1
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Subsidiaries
of the Registrant
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Exhibit
21.1 (7)
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23.1
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Consent
of Kaye Cooper Fiore Kay & Rosenberg, LLP (included in Exhibit
5.1)
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Exhibit
23.1 (9)
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23.2
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Consent
of Philip Vogel & Co. PC
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*
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Power
of Attorney (included in the signature page of this Registration
Statement)
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Exhibit
24 (9)
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**
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Redacted
version has been filed herewith. The Company has omitted portions
of the
referenced exhibit and filed such exhibit separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment
under Rule 406 promulgated under the Securities Act.
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(1)
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Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on January
23, 2003, and incorporated by reference
herein.
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(2)
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Filed
as an exhibit to the Company’s Registration Statement on Form SB-2, File
No. 333-108872, and incorporated by reference
herein.
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(3)
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Filed
as an exhibit to the Company’s Schedule 14A filed on August 12, 2003, and
incorporated by reference herein.
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(4)
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Filed
as an exhibit to the Company’s Registration Statement on Form S-8, File
No. 333-1258814, and incorporated by reference
herein.
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(5)
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Filed
as an exhibit to the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 2005, and incorporated by reference
herein.
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(6)
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Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on
December 12, 2005, and incorporated by reference
herein.
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(7)
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Filed
as an exhibit to the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 2006, and incorporated by reference
herein.
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(8)
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Filed
as an exhibit to the Company’s Current Report on Form 8-K filed on July
19, 2006, and incorporated by reference
herein.
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(9)
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Filed
as an exhibit to Amendment No. 2 to the Company’s Registration Statement
on Form SB-2, File No. 333-133651, and incorporated by reference
herein.
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Confidential
treatment has been requested for portions of this exhibit. The copy filed
herewith omits the information subject to a confidentiality request. Omissions
are designated [*****]. A complete version of this exhibit has been filed
separately with the Securities and Exchange Commission with the confidentiality
request.
EXCLUSIVE
RESELLER AND
MARKET
DEVELOPMENT ALLIANCE
This
Exclusive Reseller and Market Development Agreement (“Agreement”) is entered
into between Enerteck Chemical Corporation (“ECC”), and Custom Fuel Services
Inc. (“Custom Fuel”) as reseller, to be effective as of the date set forth on
the signature page hereof (the “Effective Date”). ECC and Custom Fuel agree as
follows:
RECITALS:
WHEREAS,
ECC has certain proprietary knowledge of the product EnerBurn and expertise
relating to the commercial application of the product in diesel engines to
improve fuel economy, increase engine life, and increase engine performance
(the
“Technology”).
WHEREAS,
Ingram Barge Company desires to use EnerBurn in their Lower Mississippi River
Fleet and EC desires to make Custom Fuel the exclusive reseller on the Western
Rivers of the United States. For the purposes of this Agreement, “Western Rivers
of the United States” means the Mississippi River, its tributaries, South Pass,
and Southwest Pass, to the navigational demarcation lines dividing the high
seas
from harbors, rivers and other inland waters of the United States, excluding
the
Intra Coastal Waterway.
NOW,
THEREFORE, ECC and Custom Fuel hereby agree as follows:
For
purposes of this Agreement, the term “Market” shall mean Western Rivers of the
United States excluding the Intra Coastal Waterway.
2.
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Appointment
of Reseller
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In
consideration of Custom Fuel’s activities promoting ECC’s Product and investment
in marketing programs to develop substantial sales in the Market for the
TECHNOLOGY, ECC hereby appoints Custom Fuel to serve as the exclusive reseller
in the Market of the TECHNOLOGY and the Product, subject to the terms and
conditions set forth herein.
The
initial term of this Agreement shall be three years (“Initial Term”). If this
Agreement has not been terminated earlier, on the third anniversary of the
Effective Date (such third anniversary, together with each successive
anniversary of the Effective Date in which the Agreement remains in effect,
collectively referred to as the “Renewal Date”) it shall renew automatically for
successive one year terms. (The Initial Term and each successive one year term
hereafter referred to collectively as the “Term”).
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(i)
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ECC
shall have the right to terminate this Agreement at any time if Custom
Fuel has defaulted under the terms hereof and such default remains
outstanding and uncured on and after the thirtieth day following
Custom
Fuel’s receipt of written notice of such
default.
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(ii)
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Custom
Fuel shall have the right to terminate this Agreement at any time
if ECC
has defaulted under the terms hereof and such default remains outstanding
and uncured on and after the thirtieth day following ECC’s receipt of
written notice of such default.
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(iii)
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This
Agreement is terminable by either party upon sixty (60) days prior
written
notice to the other party.
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(iv)
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Custom
Fuel and Ingram Barge Company will not use this agreement to retain
exclusive use of solely EnerBurn for its own
fleet.
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ECC
agrees that, throughout the term of this Agreement, Custom Fuel shall be the
exclusive authorized reseller of the Products and the TECHNOLOGY in the Market.
The foregoing notwithstanding, EC shall not be in breach of this Agreement
if,
unknown to EC, a purchaser of the TECHNOLOGY or the Products for use or resale
outside the Market also uses the TECHNOLOGY in part for diesel performance
enhancement.
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(i)
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ECC
will actively enforce the exclusive market rights granted
hereunder.
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(ii)
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ECC
will not attempt to circumvent Custom Fuel and sell the Products
or the
TECHNOLOGY directly to any end user in the Market. ECC additionally
will
not compete against Custom Fuel within the Market during the Term
of this
Agreement.
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(iii)
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However
if there is a potential customer who refuses to purchase through
Custom
Fuel, and wishes to purchase directly from
ECC.
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-ECC
shall with Custom Fuel’s knowledge and approval effect the sale at a wholesale
price of $
[*****]
per
gallon of product to other reseller’s in the market. Other end user’s will be
charged the retail price of $
[*****]
.
-If
the
product is sold through Custom Fuel, Custom Fuel retains all profit over and
above $
[*****]
.
-If
ECC
sells product at $
[*****]
per
gallon ECC will pay Custom Fuel $
[*****]
per
gallon sold. ECC retains $
[*****]
.
-
If ECC
sells product at $
[*****]
per
gallon ECC will pay Custom Fuel $
[*****]
per
gallon sold. ECC retains $
[*****]
.
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(iv)
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ECC
shall provide 100% of the Products required by Custom Fuel for resale
in
the Market.
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b.
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Support
for Market Development
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ECC
agrees that it shall provide Custom Fuel with support to develop the commercial
demand for the Technology and product within the Market. In furtherance of
this
commitment, ECC agrees that it shall, without limitation:
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(i)
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Provide
consulting statistician services to Custom
Fuel;
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(ii)
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Assist
Custom Fuel in marketing meetings and presentations at times and
places
agreed upon by ECC and Custom Fuel;
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(iii)
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Provide
Custom Fuel with performance assessment
methodology.
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During
the Initial Term, Custom Fuel agrees to pay ECC the price of $
[*****]
per
gallon FOB manufacturing point for the Product. The parties agree that the
price
can be adjusted at the end of the first year from the date of this agreement.
The price per gallon shall be adjusted no more than [*****] percent
(
[*****]
%),
based
upon ECC’s demonstrated costs. Any such increase in the price per gallon shall
also adjust the pricing for the Products sold by ECC under the terms of Section
3 hereof so as to also incrementally increase the payment to Custom Fuel from
ECC under Section 3.
ECC
agrees that it shall manufacture the Product to it’s proprietary specifications
and warranty the quality of it’s product.
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a.
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Confidential
Information Defined
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Both
parties shall maintain as confidential all information
relating
to their respective products, personnel, customers, business operations,
financial condition,
supplied
by either party separately and/or developed jointly by the parties. Both parties
further agree to safeguard as confidential all price books, customers’ lists,
quotations, discount schedules, product formulations and engineering data,
in
any form, and will not permit their use in any way which would be detrimental
to
either party. Both parties also agree to surrender all confidential data to
other party on request or on cancellation or termination of this agreement,
and
will not retain copies or memoranda of said information in any form whatsoever.
This clause shall remain effective even after the cancellation or termination
of
this agreement for any reason
.
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b.
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Use
of Confidential Information in Marketing
Activities
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ECC
agrees and consents to the use of Confidential Information by Custom Fuel for
purposes of marketing the Product and the TECHNOLOGY within the Market, subject
to the following terms and conditions:
|
(i)
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ECC
shall be provided with copies, in advance, of all written advertising
and
marketing materials that characterize the specifications, or assess
the
performance qualities, of the Products or otherwise disclose Confidential
Information;
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(ii)
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ECC
shall be entitled to utilize any Confidential Information relating
to its
own proprietary products, business operations or financial condition
for
all marketing and other purposes; except that ECC shall not disclose
any
Confidential Information for the purpose of competing with, or assisting
any other person to compete with, Custom Fuel within the Market;
and
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(iii)
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Custom
Fuel shall be entitled to utilize any Confidential Information relating
to
its own proprietary products, business operations or financial condition
for all marketing and other
purposes.
|
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c.
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Non-Disclosure
of Confidential
Information
|
Throughout
the term of this Agreement, and for twenty-four (24) months thereafter, neither
ECC nor Custom Fuel shall disclose any Confidential Information to any person,
and shall limit access to the Confidential Information to only those persons
having need during the normal course of their employment, except:
|
(i)
|
As
permitted in Section 5(c) above;
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(ii)
|
Upon
the written consent of the non-disclosing
party;
|
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(iii)
|
Where
the disclosing party can demonstrate, by written evidence, that such
Confidential Information:
|
-Is
or
becomes part of the public domain through no act or omission of the disclosing
party;
-Is
in
the possession of the receiving party prior to the disclosure, as evidenced
by
the receiving party’s business records;
-Has
been
disclosed to the receiving party by a third party having no obligation of
confidence to the disclosing party; or
-Is
developed independently by employees of the receiving party, as evidenced by
the
receiving party’s business records; or
|
(iv)
|
Where
disclosure of the Confidential Information is required by law or
governmental request, where the parties have reviewed such governmental
request in advance of disclosure and where the requirement of such
disclosure can not be ameliorated by the reasonable efforts of the
disclosing party.
|
The
parties agree that Confidential is not within, and does not come within, the
public domain merely because features of the Confidential Information may be
found separately within the public domain.
|
d.
|
Remedies
for Disclosure
|
Each
ECC
and Custom Fuel agree that a breach of its respective obligations under this
Section 5 shall cause irreparable injury to the non-disclosing party, and that
the non-disclosing party shall have the right to immediate injunctive relief
restraining the disclosing party from further breaches of this Section 5.
|
e.
|
Return
of Confidential
Information
|
Upon
the
termination of this Agreement, all Confidential Information shall be returned
to
the disclosing party. The provisions of this Section 5 shall survive termination
of the Agreement.
Other
than any existing agreements or alliances that Custom Fuel, or its affiliates,
has in place as of the date hereof, Custom Fuel agrees that it shall (a) not
furnish services substantially similar to or that competes with the services
being provided by Custom Fuel to EnerTeck pursuant to this agreement to any
third party in competition with EnerTeck, and (b) not directly engage in, nor
enter into a joint venture which engages in, the
particular
business activities offered by EnerTeck in the territory. The restrictions
placed on Custom Fuel under this Section 6 shall be limited to activities and
competitors related solely to fuel additives.
EnerTeck
agrees to protect, defend, indemnify and hold harmless and release Custom Fuel,
its parent, subsidiary and affiliated companies, its officers, directors and
employees, from and against any manner of loss, liability, claim, damage,
penalty or cost, including but not limited to, reasonable attorneys’ fees
arising in connection with this Agreement or the design, specifications, design
or manufacture of EnerTeck’s products.
Custom
Fuel agrees to protect, defend, indemnify and hold harmless and release
EnerTeck, its parent, subsidiary and affiliated companies, its officers,
directors and employees, from and against any manner of loss, liability, claim,
damage, penalty or cost, including but not limited to, reasonable attorneys’
fees arising in connection with this Agreement or that is asserted by any third
party to the extent that such loss is caused by any grossly negligent or willful
misconduct of Custom Fuel.
|
a.
|
Governing
Law.
THE
INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED
BY THE
INTERNAL LAWS OF THE STATE OF
TEXAS.
|
|
b.
|
Amendment.
This
Agreement shall not be amended except in a writing signed by both
parties
hereto.
|
|
c.
|
Assignment.
This Agreement and the rights and obligations of the parties hereunder
shall not be assigned to any person except upon the written consent
of the
non-assigning party.
|
|
d.
|
Relationship
of the Parties.
This
Agreement shall not operate to create a relationship of partnership,
joint
venture or agency between the parties.
|
[Signature
Page to Follow]
SIGNED
to be effective the 11th day of July, 2005.
ENERTECK
CHEMICAL CORPORATION
By:
/s/ Dwaine Reese
Name:
Dwaine Reese
Title:
Chairman and CEO
CUSTOM
FUEL SERVICES INC.
By:
/s/ Brian Rafferty
Name:
Brian Rafferty
Title:
Vice President and General Manager
Confidential
treatment has been requested for portions of this exhibit. The copy filed
herewith omits the information subject to a confidentiality request. Omissions
are designated [*****]. A complete version of this exhibit has been filed
separately with the Securities and Exchange Commission with the confidentiality
request.
EXCLUSIVE
RESELLER AND
MARKET
DEVELOPMENT ALLIANCE
This
Exclusive Reseller and Market Development Agreement (“Agreement”) is entered
into between Enerteck Chemical Corporation (“ECC”), and Tanner Fuel Services LLC
(“Tanner Fuel”) as reseller, to be effective as of the date set forth on the
signature page hereof (the “Effective Date”). ECC and Tanner Fuel agree as
follows:
RECITALS:
WHEREAS,
ECC has certain proprietary knowledge of the product EnerBurn and expertise
relating to the commercial application of the product in diesel engines to
improve fuel economy, increase engine life, and increase engine performance
(the
“Technology”).
WHEREAS,
ECC desires to make Tanner Fuel the exclusive reseller on the Intracoastal
Waterway from; Houston, TX including the Bay to the Port of Houston to Houma,
LA.
NOW,
THEREFORE, ECC and Tanner Fuel hereby agree as follows:
For
purposes of this Agreement, the term “Market” shall mean Intracoastal Waterway
from Houston, TX including the Bay to the Port of Houston Houma,
LA.
2.
|
Appointment
of Reseller
|
In
consideration of Tanner Fuel’s activities promoting ECC’s Product and investment
in marketing programs to develop substantial sales in the Market for the
TECHNOLOGY, ECC hereby appoints Tanner Fuel to serve as the exclusive reseller
in the Market of the TECHNOLOGY and the Product, subject to the terms and
conditions set forth herein.
The
initial term of this Agreement shall be three years (“Initial Term”). If this
Agreement has not been terminated earlier, on the third anniversary of the
Effective Date (such third anniversary, together with each successive
anniversary of the Effective Date in which the Agreement remains in effect,
collectively referred to as the “Renewal Date”) it shall renew automatically for
successive one year terms. (The Initial Term and each successive one year term
hereafter referred to collectively as the “Term”).
|
(i)
|
ECC
shall have the right to terminate this Agreement at any time if Tanner
Fuel has defaulted under the terms hereof and such default remains
outstanding and uncured on and after the thirtieth day following
Tanner
Fuel’s receipt of written notice of such
default.
|
|
(ii)
|
Tanner
Fuel shall have the right to terminate this Agreement at any time
if ECC
has defaulted under the terms hereof and such default remains outstanding
and uncured on and after the thirtieth day following ECC’s receipt of
written notice of such default.
|
|
(iii)
|
This
Agreement is terminable by either party upon sixty (60) days prior
written
notice to the other party.
|
|
(iv)
|
Tanner
Fuel Company will not use this agreement to retain exclusive use
of solely
EnerBurn for its own fleet.
|
ECC
agrees that, throughout the term of this Agreement, Tanner Fuel shall be the
exclusive authorized reseller of the Products and the TECHNOLOGY in the Market.
The foregoing notwithstanding, ECC shall not be in breach of this Agreement
if,
unknown to ECC, a purchaser of the TECHNOLOGY or the Products for use or resale
outside the Market also uses the TECHNOLOGY in part for diesel performance
enhancement.
|
(i)
|
ECC
will actively enforce the exclusive market rights granted
hereunder.
|
|
(ii)
|
ECC
will not attempt to circumvent Tanner Fuel and sell the Products
or the
TECHNOLOGY directly to any end user in the Market. ECC additionally
will
not compete against Tanner Fuel within the Market during the Term
of this
Agreement.
|
|
(iii)
|
However
if there is a potential customer who refuses to purchase through
Tanner
Fuel, and wishes to purchase directly from
ECC.
|
-ECC
shall with Tanner Fuel’s knowledge and approval effect the sale at a wholesale
price of $
[*****]
per
gallon of product to other reseller’s in the market. Other end user’s will be
charged the retail price of $
[*****]
.
-If
the
product is sold through Tanner Fuel, Tanner Fuel retains all profit over and
above $
[*****]
.
-If
ECC
sells product at $
[*****]
per
gallon ECC will pay Tanner Fuel $
[*****]
per
gallon sold.
-
If ECC
sells product at $
[*****]
per
gallon ECC will pay Tanner Fuel $
[*****]
per
gallon sold.
|
(iv)
|
ECC
shall provide 100% of the EnerBurn Products required by Tanner Fuel
for
resale in the Market.
|
|
b.
|
Support
for Market Development
|
ECC
agrees that it shall provide Tanner Fuel with support to develop the commercial
demand for the Technology and product within the Market. In furtherance of
this
commitment, ECC agrees that it shall, without limitation:
|
(i)
|
Provide
consulting statistician services to Tanner
Fuel;
|
|
(ii)
|
Assist
Tanner Fuel in marketing meetings and presentations at times and
places
agreed upon by ECC and Tanner Fuel;
|
|
(iii)
|
Provide
Tanner Fuel with performance assessment
methodology.
|
During
the Initial Term, Tanner Fuel agrees to pay ECC the price of $
[*****]
per
gallon FOB manufacturing point for the Product. The parties agree that the
price
can be adjusted at the end of the first year from the date of this agreement.
The price per gallon shall be adjusted no more than
[*****]%
,
based
upon ECC’s demonstrated costs. Any such increase in the price per gallon shall
also adjust the pricing for the Products sold by ECC under the terms of Section
3 hereof so as to also incrementally increase the payment to Tanner Fuel from
ECC under Section 3.
ECC
agrees that it shall manufacture the Product to it’s proprietary specifications
and warranty the quality of it’s product.
|
a.
|
Confidential
Information Defined
|
Both
parties shall maintain as confidential all information
relating
to their respective products, personnel, customers, business operations,
financial condition,
supplied
by either party separately and/or developed jointly by the parties. Both parties
further agree to safeguard as confidential all price books, customers’ lists,
quotations, discount schedules, product formulations and engineering data,
in
any form, and will not permit their use in any way which would be detrimental
to
either party. Both parties also agree to surrender all confidential data to
other party on request or on cancellation or termination of this agreement,
and
will not retain copies or memoranda of said information in any form whatsoever.
This clause shall remain effective even after the cancellation or termination
of
this agreement for any reason
.
|
b.
|
Use
of Confidential Information in Marketing
Activities
|
ECC
agrees and consents to the use of Confidential Information by Tanner Fuel for
purposes of marketing the Product and the TECHNOLOGY within the Market, subject
to the following terms and conditions:
|
(i)
|
ECC
shall be provided with copies, in advance, of all written advertising
and
marketing materials that characterize the specifications, or assess
the
performance qualities, of the Products or otherwise disclose Confidential
Information;
|
|
(ii)
|
ECC
shall be entitled to utilize any Confidential Information relating
to its
own proprietary products, business operations or financial condition
for
all marketing and other purposes; except that ECC shall not disclose
any
Confidential Information for the purpose of competing with, or assisting
any other person to compete with, Tanner Fuel within the Market;
and
|
|
(iii)
|
Tanner
Fuel shall be entitled to utilize any Confidential Information relating
to
its own proprietary products, business operations or financial condition
for all marketing and other purposes. All of Tanner Fuel’s customer
information and data shall remain its property and Tanner Fuel has
the
exclusive right, title, and interest to its proprietary information.
No
right or license, by implication or otherwise, is granted to ECC
as a
result of disclosure of proprietary information under the Agreement.
Each
Party reserves the right at any time in its sole discretion, for
any
reason or no reason, to refuse to provide any further access to and
to
demand the return of the proprietary
information.
|
|
c.
|
Non-Disclosure
of Confidential
Information
|
Throughout
the term of this Agreement, and for twenty-four (24) months thereafter, neither
ECC nor Tanner Fuel shall disclose any Confidential Information to any person,
and shall limit access to the Confidential Information to only those persons
having need during the normal course of their employment, except:
|
(i)
|
As
permitted in Section 5(c) above;
|
|
(ii)
|
Upon
the written consent of the non-disclosing
party;
|
|
(iii)
|
Where
the disclosing party can demonstrate, by written evidence, that such
Confidential Information:
|
-Is
or
becomes part of the public domain through no act or omission of the disclosing
party;
-Is
in
the possession of the receiving party prior to the disclosure, as evidenced
by
the receiving party’s business records;
-Has
been
disclosed to the receiving party by a third party having no obligation of
confidence to the disclosing party; or
-Is
developed independently by employees of the receiving party, as evidenced by
the
receiving party’s business records; or
|
(iv)
|
Where
disclosure of the Confidential Information is required by law or
governmental request, where the parties have reviewed such governmental
request in advance of disclosure and where the requirement of such
disclosure can not be ameliorated by the reasonable efforts of the
disclosing party.
|
The
parties agree that Confidential is not within, and does not come within, the
public domain merely because features of the Confidential Information may be
found separately within the public domain.
|
d.
|
Remedies
for Disclosure
|
ECC
and
Tanner Fuel each agree that a breach of its respective obligations under this
Section 5 shall cause irreparable injury to the non-disclosing party, and that
the non-disclosing party shall have the right to immediate injunctive relief
restraining the disclosing party from further breaches of this Section 5.
|
e.
|
Return
of Confidential
Information
|
Upon
the
termination of this Agreement, all Confidential Information shall be returned
to
the disclosing party. The provisions of this Section 5 shall survive termination
of the Agreement.
Other
than any existing agreements or alliances that Tanner Fuel, or its affiliates,
has in place as of the date hereof, Tanner Fuel agrees that it shall (a) not
furnish services substantially similar to or that competes with the services
being provided by Tanner Fuel to EnerTeck pursuant to this agreement to any
third party in competition with EnerTeck, and (b) not directly engage in, nor
enter into a joint venture which engages in, the particular business activities
offered by EnerTeck in the territory. The restrictions placed on Tanner Fuel
under this Section 6 shall be limited to activities and competitors related
solely to fuel additives.
EnerTeck
agrees to protect, defend, indemnify and hold harmless and release Tanner Fuel,
its parent, subsidiary and affiliated companies, its officers, directors and
employees, from and against any manner of loss, liability, claim, damage,
penalty or cost, including but not limited to, reasonable attorneys’ fees
arising in connection with this Agreement or the design, specifications, design
or manufacture of EnerTeck’s products.
Tanner
Fuel agrees to protect, defend, indemnify and hold harmless and release
EnerTeck, its parent, subsidiary and affiliated companies, its officers,
directors and employees, from and against any manner of loss, liability, claim,
damage, penalty or cost, including but not limited to, reasonable attorneys’
fees arising in connection with this Agreement or that is asserted by any third
party to the extent that such loss is caused by any grossly negligent or willful
misconduct of Tanner Fuel.
|
a.
|
Governing
Law.
THE
INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED
BY THE
INTERNAL LAWS OF THE STATE OF
TEXAS.
|
|
b.
|
Amendment.
This
Agreement shall not be amended except in a writing signed by both
parties
hereto.
|
|
c.
|
Assignment.
This Agreement and the rights and obligations of the parties hereunder
shall not be assigned to any person except upon the written consent
of the
non-assigning party.
|
|
d.
|
Relationship
of the Parties.
This
Agreement shall not operate to create a relationship of partnership,
joint
venture or agency between the parties.
|
SIGNED
to be effective the 7th day of May, 2007.
ENERTECK
CHEMICAL CORPORATION
By:
/s/ Dwaine Reese
Name:
Dwaine Reese
Title:
Chairman and CEO
TANNER
FUEL SERVICES LLC
By:
/s/ Elton Richard
Name:
Elton “Joey” Richard
Title:
Mgr.