Chapeau 10QSB/A 2005 Q2 Quarterly report (small business) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 033-01289-D

Chapeau, Inc.

(Exact name of small business issuer as specified in its charter)

Utah 87-0431831

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

10 Greg Street, Sparks, Nevada 89431

(Address of principal executive offices) (Zip Code)

(916) 941-6319

(Issuer's telephone number, including area code)

(Former name, former address, and former fiscal

year, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

As of November 17, 2004, the Issuer had 24,172,040 shares of its common stock, par value $0.001 per share, issued and outstanding.

Transitional Small Business Disclosure Format (check one):

Yes No X

CHAPEAU, INC.

FORM 10-QSB

Table of Contents

Page

PART I – FINANCIAL INFORMATION

Item 1

Financial Statements

Item 2.

Management’s Discussion and Analysis or Plan of Operation

Item 3.

Controls and Procedures

PART II- OTHER INFORMATION

Item 1.

Legal Proceedings

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults upon Senior Securities

Item 4.

Submission of Matters to a Vote of Security Holders

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Chapeau, Inc., or Chapeau, has included its unaudited condensed consolidated balance sheets as of September 30, 2004 and June 30, 2004 (the end of our most recently completed fiscal year), and unaudited condensed consolidated statements of operations and cash flows for the three months ended September 30, 2004 and 2003 and for the period from February 3, 2000 (date of inception of the development stage) through September 30, 2004, together with unaudited condensed notes thereto. In the opinion of management of Chapeau, the financial statements reflect all adjustments, all of which are normal recurring adjustments, necessary to fairly present the consolidated financial condition, results of operations, and cash flows of Chapeau for the interim periods presented. The financial statements included in this report on Form 10-QSB should be read in conjunction with the audited financial s tatements of Chapeau and the notes thereto for the year ended June 30, 2004, included in our annual report on Form 10-KSB.

CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY, INC.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(Unaudited)

	September 30,	June 30,
	2004	2004
ASSETS

Current Assets
Cash	$ 97,877	$ 6,352
Inventories and related deposits	1,227,924	1,224,246
Other current assets	26,022	31,201
Total Current Assets	�� 1,351,823	1,261,799

Property and Equipment, net of accumulated depreciation	48,200	51,953

Other Assets	171,887	173,064

Total Assets	$ 1,571,910	$ 1,486,816

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts payable	$ 1,101,151	$ 1,111,690
Accrued liabilities	1,119,956	1,029,472
Customer deposits	994,280	931,280
Promissory notes	361,000	43,300
Current maturities of capitalized lease obligations	8,477	8,206
Total Current Liabilities	3,584,864	3,123,948

Long- Term Liabilities
Convertible bonds, less unamortized discount	2,249,043	2,002,720
Capitalized lease obligations, less current maturities	20,650	22,874

Total Liabilities	5,854,557	5,149,542

Stockholders' Deficit
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; none issued and outstanding	-	-
Common stock, $0.001 par value; 325,000,000 shares authorized;
24,172,040 shares issued and outstanding	24,172	24,172
Additional paid-in capital	6,435,872	6,304,842
Deferred compensation	(67,033)	(43,074)
Deficit accumulated prior to date of inception of the
development stage	(259,373)	(259,373)
Deficit accumulated from date of inception of the
development stage	(10,416,285)	(9,689,293)
Total Stockholders' Deficit	(4,282,647)	(3,662,726)

Total Liabilities and Stockholders' Deficit	$ 1,571,910	$ 1,486,816

The accompanying notes are an integral part of these condensed consolidated financial statements

CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
			For the period from
			February 3, 2000
	For the Three Months		(date of inception
	Ended		of the development
	September 30,		stage) through
	2004	2003	September 30, 2004

Sales	$ -	$ -		$ 170,500
Cost of sales	-	-		134,823

Gross margin	-	-		35,677

Selling, general and administrative expense	504,621	387,988		5,507,462
Research and development expense	100,113	84,126		1,709,956
Stock issued for compensation	-	-		355,000
Amortization of deferred compensation
from issuance of stock options	7,652	5,093		76,668
Write off of intangible assets	-	-		318,531
Write off of note receivable	-	-		57,330
In-process research and development acquired	-	-		776,624

Loss from operations	(612,386)	(477,207)		(8,765,894)

Interest income	-	-		73,126
Interest expense	(88,935)	(28,632)		(502,851)
Interest expense from amortization of discount on
Convertible debt and debt issues costs	(25,671)	-		(1,220,666)

Net Loss	$ (726,992)	$ (505,839)		$ (10,416,285)

Basic and Diluted Loss Per Common Share	$ (0.03)	$ (0.02)

Basic and Diluted Weighted-Average
Common Shares Outstanding	24,172,040	21,922,040

The accompanying notes are an integral part of these condensed consolidated financial statements

CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
			For the period from
			February 3, 2000
	For the Three Months		(date of inception
	Ended		of the development
	September 30,		stage) through
	2004	2003	September 30, 2004
Cash Flows From Operating Activities
Net loss	$ (726,992)	$ (505,839)		$ (10,416,285)
Adjustments to reconcile net loss to net cash used in
operating activities
Write-off of in-process research and development acquired	-	-		776,624
�� Impairment of property and equipment	-	-		50,000
Write-off of intangible assets	-	-		318,531
Interest paid with common stock	-	-		23,430
Compensation and rent paid with common stock	-	-		386,000
Amortization of discount on convertible promissory notes
and debt issue costs	25,671	-		1,220,666
Amortization of deferred compensation from issuance
of stock options	7,652	5,092		76,668
Depreciation and amortization	3,753	5,195		216,413
Write-off of note receivable	-	-		57,330
Interest income accrued on advances to Specialized	-	-		(5,348)
Changes in assets and liabilities:
Inventories and related deposits	(3,678)	(10,408)		(1,227,924)
Other current assets	5,177	(4,699)		(22,856)
Other assets	(2,750)	43		(99,010)
Accounts payable	(10,539)	71,926		1,169,171
Accrued liabilities	90,484	87,911		1,254,729
Customer deposits	63,000	97,250		994,280
Net Cash Used In Operating Activities	(548,222)	(253,529)		(5,227,581)

Cash Flows From Investing Activities
Issuance of note receivable	-	-		(200,000)
Collection of note receivable	-	-		142,670
Advances paid to Specialized prior to acquisition	-	-		(397,464)
Cash acquired in acquisition of Specialized,
net of acquisition costs paid	-	-		97,018
Purchase of property and equipment	-	(19,523)		(116,675)
Net Cash Used In Investing Activities	-	(19,523)		(474,451)

Cash Flows From Financing Activities
Proceeds from issuance of common stock and warrants,
net of offering costs	-	-		2,187,285
Proceeds from issuance of promissory notes and convertible
bonds, and related beneficial conversion features	645,000	275,000		3,418,501
Proceeds from issuance of warrants and common
stock related to convertible promissory notes	-	-		391,499
Payment of promissory note	(3,300)	-		(3,300)
Principal payments under capitalized lease obligations	(1,953)	-		(13,071)
Debt issue costs	-	-		(181,005)
Net Cash Provided By Investing Activities	639,747	275,000		5,799,909
Net Increase In Cash	91,525	1,948		97,877
Cash At Beginning of Period	6,352	8,735		-
Cash At End of Period	$ 97,877	$ 10,683		$ 97,877

The accompanying notes are an integral part of these condensed consolidated financial statements

CHAPEAU, INC. AND SUBSIDIARY

dba BLUEPOINT ENERGY PRODUCTS, INC.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

(A) Organization and Nature of Operations, Basis of Presentation, and Significant Accounting Policies

Organization and Nature of Operations — Chapeau, Inc. (the “Company”) was organized under the laws of the State of Utah on September 19, 1985. The Company’s prior operations were discontinued in May 1989. The Company was dormant from May 1989 until February 3, 2000 when the Company was reorganized and began activities to develop an electrical power generation system for sale to and use by individual businesses and organizations. From February 3, 2000 through December 31, 2003, the Company had no sales of its power generation systems. Although the Company sold its initial commercial power generation system during the year ended June 30, 2004, the Company continues to be a development stage company due to the lack of significant sales. Since inception of the development stage, the major activities of the Company have included raising capital and research, development and mark eting of its power generation system.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of Chapeau, Inc. and its subsidiary have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, these financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the Company’s annual financial statements and the notes thereto for the year ended June 30, 2004 and for the period from February 3, 2000 (date of inception of the development stage) through June 30, 2004, included in the Company’s annual report on Form 10-KSB, especially the information included in Note 1 to those financial statemen ts, “Nature of Operations and Summary of Significant Accounting Policies.” In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to fairly present the Company’s consolidated financial position as of September 30, 2004, and its consolidated results of operations and cash flows for the three months ended September 30, 2004 and 2003, and for the period from February 3, 2000 (date of inception of the development stage), through September 30, 2004.

The results of operations for the three months ended September 30, 2004, may not be indicative of the results that may be expected for the year ending June 30, 2005.

Business Condition – The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company is considered to be in the development stage. The Company incurred losses of $726,992 and $505,839 during the three-month periods ended September 30, 2004 and 2003, respectively, and used $548,222 and $253,529 of cash in its operating activities during the three-month periods ended September 30, 2004 and 2003, respectively. Through September 30, 2004, the Company has accumulated a deficit during the development stage of $10,416,285 and at September 30, 2004, the Company has a shareholders’ deficit of $4,282,647 and a working capital deficit of $2,233,041. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CHAPEAU, INC. AND SUBSIDIARY

dba BLUEPOINT ENERGY PRODUCTS, INC.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to obtain financing, and ultimately to attain profitable operations. The Company’s success is dependent upon the successful development of its packaged co-generation and power generation system for sale to the electrical power market. Although the Company has secured purchase orders for its product, it has not yet had significant sales of any products, and has not yet secured sufficient means of financing its operations in the future. To date, the Company has met its short-term cash needs by issuing promissory notes and convertible bonds, and by selling its common stock. However, there can be no assurance that such financing will continue to be available or that it will be available on terms favorable to the Company.

Stock-Based Compensation– At September 30, 2004, the Company had outstanding stock options issued to management, employees, consultants and members of the board of directors. During the quarter ended September 30, 2004, the Company granted options to an employee and to a consultant to purchase 105,000 shares of common stock, exercisable prices ranging from $0.32 to $0.60 per share. These options vest over a period of three years.

The Company accounts for options under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. Stock-based compensation expense of $7,652 and $5,093 is reflected in net loss for the three months ended September 30, 2004 and 2003. The following table illustrates the effect on net loss and on basic and diluted loss per common share if the Company had applied the fair value recognition provisions of FASB Statement No. 123,Accounting for Stock-Based Compensation, to stock-based employee compensation:

	Three Months Ended September 30,
	2004	2003
Net loss:
As reported	$ (726,992)	$ (505,839)
Add: Total stock-based compensation expense
included in reported net loss	7,652	5,093
Less: Total stock-based compensation expense
determined under fair value based method	(73,651)	(60,810)
Pro forma net loss	$ (792,991)	$ (561,556)
Basic and diluted loss per share:
As reported	$ (0.03)	$ (0.02)
Pro forma	$ (0.03)	$ (0.03)

(B)

Basic and Diluted Loss Per Share

Basic loss per share amounts are computed by dividing net loss by the weighted-average number of common shares outstanding during each period. Diluted loss per share amounts are computed assuming the issuance of common stock for potentially dilutive common stock equivalents. All outstanding stock options, warrants, convertible promissory notes and bonds, and contingently issuable common stock are currently antidilutive and have been excluded from the diluted loss per share calculations. None of the 33,318,882 shares of common stock issuable upon conversion of debt, exercise of options or warrants, or otherwise contingently issuable were included in the computation of diluted loss per share at September 30, 2004. None of the 22,313,882 shares of common stock issuable upon conversion of debt, exercise of options of warrants, or otherwise contingently issuable were included in the computation of diluted loss per sha re at September 30, 2003.

CHAPEAU, INC. AND SUBSIDIARY

dba BLUEPOINT ENERGY PRODUCTS, INC.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

(C)

Financing

2004 Convertible Debt and Equity Financing – In April 2004, the Company entered into a Bond Purchase Agreement with Calim Bridge Partners I, LLC, or Calim BP. Under the terms of this agreement, the Company is authorized to issue up to $2,000,000 of five-year 12% Series A Convertible Bonds. The Company issued bonds in the amount of $1,676,000 prior to June 30, 2004 and issued the remaining bonds in the amount of $324,000 during the quarter ended September 30, 2004. The terms of the convertible bonds include 1) the bonds are due May 1, 2009; 2) interest on the bonds accrues at 12% per annum, payable on a semiannual basis; 3) the bonds may be prepaid by the Company at any time subsequent to May 1, 2006; 4) the bonds are convertible into units, each unit comprised of one share of common stock and one warrant, with the initial conversion price of $0.40 per unit; 5) the conversion price of bond s will be subject to periodic adjustment upon the occurrence of certain events, including, but not limited to, the sale of common stock at less than the conversion price and the issuance of convertible securities with a lower conversion price; and 6) customary registration rights. The warrants to be received in the event of conversion are exercisable at $1.00 per share and have a term of two years after the date of conversion.

The proceeds from the bonds were allocated between the bonds and the valuation of the beneficial conversion option associated with the bonds. The total amount allocated to the beneficial conversion option was $613,702, has been recorded as a discount on the convertible bonds, and is being amortized using the effective yield method as a non-cash charge to interest expense over the period from when the bond proceeds were received through May 1, 2009, the due date of the bonds. The placement fee paid to Calim BP in the amount of $80,000 is being amortized as interest expense over the term of the bonds. Total interest expense from the amortization of discount on convertible debt and debt issue costs was $25,671 for the three months ended September June 30, 2004 (none for the three months ended September 30, 2003).

Note Payable to Calim BP– In August 2004, the Company executed a promissory note in favor of Calim BP that allows for principal borrowings in the maximum amount of $500,000. During the three months ended September 30, 2004, the Company has received $321,000 in proceeds under the note. The note bears interest at a rate of 12% per annum with principal and accrued interest due November 27, 2004. Subsequent to September 30, 2004, the Company received the remaining $179,000 in proceeds available under the note (see Note E).

Note Payable to Landlord– During the quarter ended September 30, 2004, the Company executed Amendment Number 1 (the Amendment) to that certain deferred payment and settlement agreement (the Agreement) with its landlord in Sparks, Nevada. Under the terms of the Amendment, the Company paid the landlord $3,300 in principal against the promissory note issued in connection with the Agreement, after which said promissory note was cancelled and a promissory note in the principal amount of $40,000 was issued in favor of the landlord. The new note is due April 1, 2005, is unsecured, and bears interest at 10%. Also under the note, minimum monthly payments in the amount of $2,500 are due the first business day of each month commencing in November 2004.

CHAPEAU, INC. AND SUBSIDIARY

dba BLUEPOINT ENERGY PRODUCTS, INC.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

Summary information regarding notes payable and bonds payable for the three months ended September 30, 2004 is as follows:

		Promissory Notes and Bonds Payable	Unamortized Discount on Promissory Notes and Bonds	Promissory Notes and Bonds, Less Unamortized Discount
Balance at June 30, 2004		$ 2,540,300	$ (494,280)	$ 2,046,020
	Issuance of bonds	324,000	(99,420)	224,580
	Amortization of discount	-	21,743	21,743
	Proceeds from promissory note	321,000	-	321,000
	Payment on note to landlord	(3,300)	-	(3,300)
Balance at September 30, 2004		$ 3,182,000	$ (571,957)	$ 2,610,043

Notes and bonds payable at September 30 and June 30, 2004 are summarized as follows:

		September 30,	June 30,
		2004	2004
12% $2,000,000 convertible bonds, due May 2009,
	secured by all assets of the Company, less
	unamortized discount based on imputed
	interest rate of 21.6% of $571,957 and
	$494,280, respectively	$ 1,428,043	$ 1,181,720
12% convertible bonds, due February 2008,
	secured by all assets of the Company	821,000	821,000
12% note payable, unsecured		321,000	-
10% note payable, unsecured		40,000	43,300
Total Notes and Bonds Payable, less
	Unamortized Discount	2,610,043	2,046,020
Less current portion		361,000	43,300
Long-Term Bonds Payable		$ 2,249,043	$ 2,002,720

Calim Financing Agreement –In August 2003, the Company entered into a financing agreement with Calim Private Equity, LLC, or Calim PE, with respect to energy purchase agreements generated by the Company. The purpose of the agreement is to fund, through a Calim related entity, Calim-BPEP I, power generation systems at users’ sites required by energy purchase agreements, including production of the Company’s Lean-One® Cogeneration Systems, site development and construction, installation and operating and maintenance costs.

Under the terms of the financing agreement, Calim-BPEP I will be responsible for site development and construction, purchase and installation of the Company’s systems and operating and maintenance costs at the users’ sites. The Company will receive a management fee for operation and maintenance of the systems and for billing and collection of revenues. The financing agreement further provides for revenue sharing between Calim-BPEP I and the Company after payout of 100% of Calim-BPEP I’s investment in each site.

The financing agreement gives Calim PE the right to transfer its interest in Calim-BPEP I to the Company in exchange for common stock at a per share exchange price of $3.00 for a period of ten years from the date of the financing agreement; provided, however, that at any time after the fifth year the Company can demand that Calim PE transfer its interests or forego its right to exchange those interests for common stock.

CHAPEAU, INC. AND SUBSIDIARY

dba BLUEPOINT ENERGY PRODUCTS, INC.

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements

(D)

Contingent Liability

In June 2003, the Company was named as a defendant inU.S. Power Corp. v. Chapeau, Inc. d/b/a BluePoint Energy, Inc. filed in the United States District Court for the Southern District of New York. This matter involved an alleged breach of contract by the Company in the approximate amount of $295,780, which amount represents U.S. Power Corporation’s deposit paid to the Company to purchase equipment and is recorded as a current liability in customer deposits at September 30, 2004. U.S. Power Corporation also claimed other damages in an undetermined amount. In November 2003, the court denied the Company’s motion that the case be dismissed on the grounds of improper venue and transferred the case to U.S. District Court for the District of Connecticut, where the case is currently pending. The Company continues to assess its alternatives with respect to this action and no accrual h as been made for any additional amounts for which it may become liable under this claim as the anticipated outcome is not currently determinable.

(E)

Subsequent Events

Subsequent to September 30, 2004, the Company received the remaining $179,000 in available borrowings under the $500,000 promissory note executed in favor of Calim BP (see Note C). In addition, the Company has also received from Calim BP subsequent to September 30, 2004 $85,000 in unsecured advances, the repayment terms of which have not yet been established.

In May 2003, the Company entered into an arrangement with Independent Energy Services, Inc., or IES, with respect to installation, maintenance and operation of a Lean-One® CHP Module. In connection therewith, IES advanced to the Company the amount of approximately $228,500 for the purchase of a Lean-One® CHP Module and certain other project costs, which amount the Company has recorded on its balance sheet as a current liability in customer deposits at September 30, 2004. In October 2004, IES notified the Company that it would no longer provide services in connection with this project and has demanded the return of the advance noted above. The Company is assessing alternatives available to it with respect to completing this project. This may result in additional cost to the Company and possible delays in completing the project.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OR PLAN OF OPERATION

Forward Looking Statements

This discussion and analysis is designed to be read in conjunction with the Management’s Discussion and Analysis and Risk Factors set forth in Chapeau’s Form 10-KSB for the fiscal year ended June 30, 2004. As used herein, “we,” “our,” “us” and the like refer to Chapeau, Inc.

This report and other information made publicly available by Chapeau from time to time may contain certain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other information relating to Chapeau and its business that are based on the beliefs of our management and assumptions made concerning information then currently available to management. Such statements reflect the views of our management at the time they are made and may not be accurate descriptions of the future. The discussion of future events, including the business prospects of Chapeau, is subject to the material risks listed below and based on assumptions made by management. These risks include the viability of our marketing strategy for the sale of our cogeneration products, our ability to identify and negotiate transactions that provide the potential for future shareholder value, our ability to attract the necessary additional capital to permit us to take advantage of opportunities with which we are presented, and our ability to generate sufficient revenue such that we can support our current cost structure and planned future operations, as well as to pay prior liabilities incurred. Should one or more of these or other risks materialize or if the underlying assumptions of management prove incorrect, actual results of Chapeau may vary materially from those described in the forward looking statements. We do not intend to update these forward looking statements, except as may occur in the regular course of our periodic reporting obligations.

Risk factors

The material risks that we believe are faced by Chapeau as of the date of this report are set forth below. This discussion of risks is not intended to be exhaustive. The risks set forth below and other risks not currently anticipated or fully appreciated by the management could adversely affect the business and prospects of Chapeau.

If we do not receive sufficient purchase orders for our cogeneration products from customers and associated cash deposits, we will need additional financing and failure to obtain such financing would jeopardize our ability to continue as a going concern.While we have secured initial orders from customers, commenced commercial product delivery and recognized initial revenue during the year ended June 30, 2004, we have not reported net income and we expect to operate at a loss at least for the immediate term. We expect our expenses to continue to grow as we attempt to sell a significant number of systems. Although we have recently received some funding, absent our receipt of sufficient purchase orders from customers and associated cash deposits we will need substantial additional funding from outside sources to continue to grow our business. We cannot be sure that we will be able to obtain that financing, if needed, or, if we are able to obtain such financing, that it will be on terms acceptable to us. If we cannot obtain such financing, we will not be able to continue as a going concern. As a result of these circumstances, the opinion of our independent accountants with respect to the consolidated financial statements included in our Annual Report on Form 10-KSB for the year ended June 30, 2004 includes an explanatory paragraph indicating that these matters raise substantial doubts about Chapeau’s ability to continue as a going concern.

We have a history of operating losses and may continue to see losses in the future. During this past fiscal quarter, Chapeau sustained a loss of approximately $727,000 and, as of September 30, 2004 had an accumulated deficit of approximately $10.7 million. Without significant product sales and/or additional funding, we will not be able to continue business operations.

We face competition from a number of companies and may not be able to compete against more established companies with greater resources. We face substantial competition in the sale of co-generation and power generation systems. Most of our competitors have substantially greater resources than we do.

Many of our potential customers require third party financing in connection with the purchase of our product and inability to obtain such financing may jeopardize our product sales. A number of our potential customers have indicated that the their ability to submit a purchase order for our products will be contingent upon their obtaining third party financing to finance the purchase of equipment from us. We can provide no assurance that such financing will be available to our customers. If such financing is not generally available, our sales efforts and financial results will be adversely affected.

We depend on a few key employees and the loss of any of those employees may harm our business. We are dependent upon the skill and ability of our management, which currently consists of only three persons. We currently lack depth of management and there is no assurance that we can hire additional qualified personnel, even if our order flow increases and requires additional personnel to conduct our business.

Potential intellectual property claims and litigation could subject us to significant liability for damages and invalidation of our proprietary rights. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. We rely on a combination of patent, copyright, trademark and trade secret laws, nondisclosure and other contractual provisions and technical measures to protect our intellectual property rights. Despite efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise use aspects of processes and devices that we regard as proprietary. Others may develop technologies that are similar or superior to our technologies, duplicate our technologies or design around our technologies. Effective intelle ctual property protection may be unavailable or limited in some foreign countries. Further, our intellectual property rights may be challenged and invalidated or circumvented. Litigation could harm our business and result in substantial settlement or related costs, divert our management and technical resources, and/or require us to discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to infringed technology.

The current market for capital expenditures, including our product, is weak and may jeopardize our product sales. Many companies, including potential customers for our product, have substantially decreased their purchases of capital assets as a result of the weak economy. A continuation of this trend would undoubtedly adversely affect our sales efforts and financial results.

Our product has not been tested in the field and failure of the product to satisfactorily perform in real world applications would harm our business. While our principal product has been thoroughly tested in the laboratory, our product does not have a history of operations in the field. Any failure of our product in field performance would adversely affect our ability to sell the product and our financial results.

We depend on a few key suppliers and the loss of any one supplier could harm our business. We currently rely on one sole source supplier for the engine that is the core of our product and a very small number of suppliers for other components, including digital controls and absorption chiller technology. Any problems with these suppliers would adversely affect our business and financial results.

We do not have access to credit necessary to finance the manufacture of our products. While we believe that we have good relationships with our suppliers, credit from these suppliers is not easily obtained. Failure to be able to purchase materials on credit in the future would adversely affect our business and financial results.

There is a limited public market for Chapeau’s shares. Although our common stock has been traded on the OTC Bulletin Board, trading has been sporadic and without significant volume. There can be no assurance that an active public market for our common stock will ever develop or be sustained.

The market price of our common stock has been volatile and may continue to experience volatility. The market price of our common stock has been, and in the future could be, significantly affected by actual or anticipated fluctuations in our operating results, announcements of technical innovations, new products or new contracts, competitors or their customers, developments with respect to patents or proprietary rights and general market conditions.

The conversion or exercise of currently outstanding convertible securities, options and warrants would result in significant dilution to holders of our common stock. As a result of various transactions previously entered by us, as of September 30, 2004, there were outstanding convertible securities and private warrants and options for the conversion and purchase of up to approximately 33 million shares of common stock. This represents significant additional potential dilution for our existing shareholders. The shares of common stock issuable upon conversion of convertible securities or exercise of warrants are not included in currently outstanding shares.

Use of estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that affect the reported amounts in the financial statements and the related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Estimated amounts may differ under different assumptions or conditions, and actual results could differ from the estimates.

Overview

Chapeau was formed in 1985 and completed a public offering of its common stock in March of 1986. The Company was originally engaged in the operation of sport clothing stores but was not successful and these operations were discontinued in May 1989. The Company had no business operations from May 1989 until February 3, 2000 when it was reorganized and began development stage activities, principally raising capital and seeking investment or merger opportunities.

Managerial control of Chapeau was transferred to a new board of directors in February 2001. In April 2001, we acquired Specialized Energy Products, Inc., or Specialized, making Specialized a wholly owned subsidiary of Chapeau. Specialized developed customized engines and control panels used by developers and manufacturers of packaged cogeneration and power generation systems supplied to the electrical power market and, subsequent to the acquisition of Specialized, we have focused the Company’s resources on the development of a prototype power generation system.

Operations

From February 3, 2000 through December 31, 2003, the Company did not recognize revenue from the sales of its power generation systems. During the quarter ended December 31, 2003, the Company shipped its initial commercial power generation system. Revenue from this initial shipment was deferred to and recognized in the quarter ended March 31, 2004 upon completion of required installation and start-up procedures. The Company continues to be a development stage company due to lack of significant sales.

Prior to the change in managerial control, the expenses of Chapeau were not significant and were composed of general and administrative expenses principally for travel and professional fees. Chapeau has incurred selling, general and administrative expenses in the amount of $5,507,462, and research and development costs of $1,709,956 for the period from February 3, 2000 (date of inception of the development stage) to September 30, 2004, principally since February 2001. Selling, general and administrative expenses principally consist of compensation to management, employees, and the board of directors, legal fees, and consulting services. Research and development expenses principally consist of employee compensation, prototype materials, and outside service costs.

At September 30, 2004, Chapeau had current assets of $1,351,823 and current liabilities of $3,584,864, resulting in a working capital deficit of $2,233,041. Current assets principally consist of inventories. Inventories principally represent the cost of engines and related components for systems being assembled. Current liabilities are principally composed of accounts payable, accrued wages and related payroll tax liabilities, customer deposits, and notes payable.

Plans for Research and Development

We delivered our initial commercial combined heat and power (CHP) cogeneration system during the year ended June 30, 2004. This system utilizes an industry-recognized, well-established natural gas reciprocating engine, employs state-of-the-art emission control technology, is fully functional and, most recently, has received final approval from Underwriters Laboratories Inc., or UL, for UL listing for “Engine Generator for Co-Generation Use”, #46XT; Standard 2200. The UL listing applies to the United States and Canada.

Our cogeneration system, referred to as “Lean-One® CHP Module” for its lean burn configuration and characteristics, employs a proprietary emission process utilizing our super-cooled exhaust gas recirculation, or SC-EGR™, system. Initial independent emissions testing have yielded very favorable results. We developed our SC-EGR™ system and emission process to enable our products to meet and exceed the most stringent air quality management district standards in the U.S. market while maintaining the characteristics of lean burn engine technology, thereby producing high engine efficiencies and longer engine life. To that end, independent testing of the Lean-One® CHP Module was performed by Best Environmental, a California Air Resources Board certified laboratory, at our facility in Sparks, Nevada during the fourth quarter of fiscal 2002 and again in the first quarter o f fiscal 2003. Best Environmental reconfirmed in the latter test that the Lean-One® CHP Module exceeded the requirements of the South Coast Air Quality Management District, one of the most restrictive air containment zones in the United States.

Proprietary protection for our products, processes and know-how is important to our business. We also rely upon trade secrets, know-how and continuing technological innovation to develop and maintain our competitive position. We have filed patent, trademark and related applications to protect our technology, inventions and improvements. Certain of such applications have been allowed and several are currently pending. When advisable, we intend to continue to file such applications to protect our technology, inventions and other intellectual properties.

Contingent upon our ability to generate sufficient cash flow from operations and/or obtain additional financing, if necessary, we anticipate developing CHP cogeneration and power generation systems complimentary to the Lean-One® CHP Module in additional power configurations over the next twelve months. In that connection, we will continue to work toward securing exclusive supply arrangements with certain vendors, including our engine supplier and a developer of certain digital control systems incorporated in the Lean-One® CHP Module.

Liquidity and Sources of Financing

We are currently negotiating for sales of our CHP cogeneration and power generation systems with several public utilities and other energy service companies, with significant interest for applications in high demand areas throughout the United States. As discussed in further detail herein, we have secured our initial orders from customers for the purchase of our Lean-One® CHP Modules and made our initial commercial product delivery during the fiscal year ended June 30, 2004. While collection of pending accounts receivable in connection with these sales will enable us to meet certain of our cash needs, additional capital will be required for us to continue as an on-going concern over the next 12 months, absent our receipt of sufficient purchase orders from customers and associated cash deposits.

In that connection and as further discussed in Note C and Note E of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-QSB, in August, 2004 we executed in favor of Calim BP a promissory note that allows for principal borrowings in the maximum amount of $500,000. The note bears interest at a rate of 12% per annum with principal and accrued interest due November 27, 2004. Chapeau has received the maximum amount of proceeds available under the note. As also further discussed in Note E of the Notes to Condensed Consolidated Financial Statements, the Company has recently received from Calim BP $85,000 in unsecured advances, the repayment terms of which have not yet been established

In addition, as further discussed in Item 3 of Part II of this Quarterly Report on Form 10-QSB, the Company is currently in default with respect to certain interest and other obligations currently owing to Calim PE. While Calim PE has not delivered a notice of default in that connection, there can be no assurance that it will not issue a notice of default in the future. If Calim PE delivers a notice of default, then the Company would need to secure alternative sources of capital to satisfy its obligations.

Concurrent with the foregoing, we will continue to seek alternative sources of capital to meet our cash requirements, including other debt financing, issuing equity securities and entering into other financing arrangements. There can be no assurance, however, that any of these potential financing arrangements will be available and, if available, can be obtained on terms favorable to us or in amounts sufficient to meet our cash flow requirements. If we are unable to secure sufficient purchase orders from customers with corresponding cash deposits and/or secure additional working capital as indicated herein, we may not be able to meet our near-term cash requirements to continue business operations as an ongoing concern.

Plan of Operations

We continue to focus sales and marketing efforts of our CHP systems nationally, with particular emphasis initially in California, New York, and New Jersey, with plans to subsequently expand distribution worldwide. We are seeking to form strategic partnerships and other alliances with certain companies engaged in the distribution of power generation products to achieve both domestic and international marketing and sales objectives. In that connection as discussed in further detail below, we have entered into business arrangements with several such companies. In addition, we are currently in discussions with several other companies in connection with sales and marketing of our initial product. While we are optimistic that the business arrangements discussed below and these other discussions will result in positive outcomes for us, there can be no assurance that any other strategic part nerships or other alliances will be formed or, if formed, will be on terms favorable to us or will result in significant sales, if any, of our products.

We are currently negotiating for the sale of our CHP cogeneration and power generation systems, with significant interest for applications in high demand areas throughout the United States. In addition, during the quarter ended December 31, 2002 we entered into a Joint Strategic Agreement with Southern California Gas Company, or SoCal, whereby SoCal will provide internal funding to certain of its commercial customers sponsoring showcase centers within SoCal’s service territory of central and southern California with the goal of demonstrating the capabilities of distributed power generation and cogeneration utilizing the Lean-One® CHP Module. The initial showcase center was announced during the fourth quarter of fiscal 2003 and we are currently working to complete that installation. During the quarter ended March 31, 2003, we entered into a Strategic Alliance Agreement with URS Corporat ion, or URS, whereby Chapeau and URS will jointly market our Lean-One® CHP Modules. In August 2003, we entered into a Teaming Agreement with Sempra Energy Solutions in connection with the solicitation of and response to certain project proposals. Also in August 2003, we entered into a Financing Agreement with Calim Private Equity, LLC, or Calim PE, for funding energy purchase agreements generated by us. A number of potential customers have indicated that their ability to procure our product is predicated on their obtaining third party financing. The Financing Agreement with Calim PE will allow us to provide potential customers with the ability to utilize our Lean-One® CHP Module through energy purchase agreements as opposed to purchasing the system, thereby alleviating the financial and commodity risks inherent with capital equipment purchases, including development, installation, operation and maintenance costs (see Note C of Notes to Condensed Consolidated Financial Statements i n Item 1 of Part I of this Quarterly Report on Form 10-QSB).

Our management anticipates that we should be able to significantly finance our operations from the proceeds from sales resulting from the Joint Strategic Agreement, Strategic Alliance Agreement, Teaming Agreement and Calim Financing Agreement, if and when realized. However, while we believe that these agreements will help endorse our other selling efforts, we have not yet booked any sales as a result of these agreements and there can be no assurance that we will realize additional sales, if any, as a consequence of any such agreement.

During fiscal 2004, we hired two executive management personnel as well as senior sales professionals to promote Chapeau’s Lean-One® CHP Module product line to the energy industry’s significant West Coast distributed generation market. If we achieve the financing necessary to pursue our plan of operations for the next twelve months, we would anticipate adding a significant number of staff and management personnel during that period.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In accordance with Section 302 of the Sarbanes-Oxley Act of 2002 and the Securities Exchange Act of 1934 Section 13(a) or Section 15(d), we maintain disclosure controls and procedures pursuant to which management under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out, as of the end of the quarter ended September 30, 2004, a review and evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by Chapeau in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported with the time periods specified by the SEC’s rules and forms.

Changes in Internal Controls

There were no significant changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In June 2003, Chapeau was named as a defendant inU.S. Power Corp. v. Chapeau, Inc. d/b/a BluePoint Energy, Inc. filed in the United States District Court for the Southern District of New York. This matter involved an alleged breach of contract by Chapeau in the approximate amount of $295,780, which amount represents U.S. Power Corporation’s deposit paid to us to purchase equipment and is recorded as a current liability in customer deposits at June 30, 2004. U.S. Power Corporation also claimed other damages in an undetermined amount. In November 2003 the court denied Chapeau’s motion that the case be dismissed on the grounds of improper venue and transferred the case to U.S. District Court for the District of Connecticut, where the case is currently pending. The Company continues to assess its alternatives with respect to this action and no accrual has been made for any ad ditional amounts for which Chapeau may become liable under this claim as the anticipated outcome is not currently determinable.

We are presently involved in certain minor legal matters incidental to our business which, if adversely decided, would not have a material adverse affect upon our business or financial condition.

To the best of our knowledge, there are no proceedings pending or threatened against any executive officer or director of Chapeau, whose position in such proceeding would be adverse to that of Chapeau.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During July and August 2004, Chapeau issued $324,000 in 12% Series A convertible bonds pursuant to a Bond Purchase Agreement entered into in April 2004 with Calim Bridge Partners I, LLC as described in further detail in Note C of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-QSB. The bonds mature in May 2009 and are convertible at a conversion price of $0.40 per unit into units consisting of one share of common stock and one warrant to purchase common stock. In addition, during the three months ended September 30, 2004, Chapeau granted options for an aggregate of 105,000 shares of common stock to an employee and to a consultant with exercise prices ranging from $0.32 to $0.60 per share and expiration dates ranging from five to ten years. All such securities were issued pursuant to the exemption from regi stration under Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Chapeau has not made any interest payments or paid the loan placement fee due under a loan agreement entered into by Chapeau in August 2002 with Calim PE, as amended in December 2002. Calim has not delivered a notice of default in connection with the referenced payments, however, and in January 2003 Calim delivered to Chapeau its notice to convert the aggregate amount of outstanding

principal and interest under the loan agreement and related note into convertible bonds, subject to certain other note holders also converting their respective notes into equity, which occurred in Feburary 2003. During the third quarter of fiscal 2003, the aggregate amount of approximately $821,000, representing the outstanding principal and substantially all of the accrued interest due under the Calim loan agreement, was converted into convertible bonds. The convertible bonds accrue interest at a rate of 12% per annum payable on a semi-annual basis. Chapeau has not made any interest payments due under the convertible bonds. Unpaid loan placement fees and accrued interest in connection with the Calim loan agreement and the convertible bonds in the aggregate amount of approximately $263,000 are included in current liabilities at September 30, 2004.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

In May 2003, the Company entered into an arrangement with Independent Energy Services, Inc., or IES, with respect to installation, maintenance and operation of a Lean-One® CHP Module. In connection therewith, IES advanced to the Company approximately $228,500 for purchase of a Lean-One® CHP Module and certain other project costs, which amount the Company has recorded on its balance sheet as a current liability in customer deposits at September 30, 2004. In October 2004, IES notified the Company that it would no longer provide servies in connection with this project and has demanded the return of the advance noted above. The Company is assessing alternatives available to it with respect to completing this project. This may result in additional cost to us and possible delays in completing the project.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibit Number	SEC Reference Number	Title of Document	Location

1	(31)	Rule 13(a) – 14(a)/15(d) – 14(a) Certification	This filing

2	(32)	Section 1350 Certification	This filing

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHAPEAU, INC.

Dated: November 22, 2004

By/s/ Guy A. Archbold

Guy A. Archbold, Chief Executive Officer

and Chief Financial Officer

(Principal Executive Officer)

Chapeau (CPEU) Inactive 10QSB/A2005 Q2 Quarterly report (small business) (amended)