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 March 31, 2002
OR
[ ] 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.
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(Exact name of small business issuer as specified in 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) 780-6764
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(Issuer's Telephone number, including area code)
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(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 May 6, 2002, the Issuer had 12,420,950 shares of its common
stock, par value $0.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
1
PART I
FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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Chapeau, Inc. (the "Company"), has included the unaudited condensed
consolidated balance sheets of the Company as of March 31, 2002, and June 30,
2001 (the end of the Company's most recently completed fiscal year), and
unaudited condensed consolidated statements of operations for the three and nine
months ended March 31, 2002 and 2001 and for the period from February 3, 2000
(date of inception of the development stage) to March 31, 2002, and unaudited
condensed consolidated statements of cash flows for the nine months ended March
31, 2002 and 2001, and for the period from February 3, 2000 (date of inception
of the development stage) through March 31, 2002, together with unaudited
condensed notes thereto. In the opinion of management of the Company, the
financial statements reflect all adjustments, all of which are normal recurring
adjustments, necessary to fairly present the consolidated financial position,
results of operations, and cash flows of the Company for the interim periods
presented. The financial statements included in this report on Form 10-QSB
should be read in conjunction with the annual financial statements of the
Company and the notes thereto for the year ended June 30, 2001, included in the
annual report of the Company on Form 10-KSB.
CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY PRODUCTS, INC.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
2002 2001
----------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents.......................................... $ 39,001 $ 108,610
Note receivable.................................................... - 108,301
Inventories and related deposits................................... 276,445 233,010
Other current assets............................................... 7,219 28,159
------------ ------------
Total Current Assets............................................ 322,665 478,080
Property and Equipment, net of accumulated depreciation
of $8,245 and $461................................................... 48,934 8,008
Intangible Assets, net of accumulated amortization of
$119,751 and $24,654................................................. 350,230 445,327
Other Assets........................................................... 15,086 21,567
------------ ------------
Total Assets........................................................... $ 736,915 $ 952,982
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable................................................... $ 243,174 121,680
Accrued liabilities................................................ 340,677 65,852
Convertible promissory notes, less unamortized discount............ 707,749 51,635
------------ ------------
Total Current Liabilities....................................... 1,291,600 239,167
------------ ------------
Stockholders' Equity (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;
12,420,950 and 12,000,000 shares issued and outstanding at
March 31, 2002 and June 30, 2001, respectively................... 12,421 12,000
Additional paid-in capital......................................... 2,335,732 1,959,658
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................................................ (2,643,465) (998,470)
------------ -------------
Total Stockholders' Equity (Deficit)............................. (554,685) 713,815
------------- ------------
Total Liabilities and Stockholders' Equity (Deficit)............... $ 736,915 $ 952,982
============ ============
2
CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY PRODUCTS, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
For the period from
February 3, 2000
For the Three Months For the Nine Months (date of
Ended Ended inception of the
March 31, March 31, development
---------------------------- ------------------------------- stage) through
2002 2001 2002 2001 March 31, 2002
------------- ----------- --------------- ------------ -------------------
General and administrative expense. $ 230,611 $ 67,719 $ 832,834 $ 106,879 $ 1,259,413
Research and development expense 75,742 - 303,400 - 516,403
In-process research and
development acquired............. - - - - 376,624
------------ ---------- -------------- ----------- --------------
Loss From Operations............... (306,353) (67,719) (1,136,234) (106,879) (2,152,440)
Interest income.................... 1,234 14,105 4,434 44,386 73,805
Write off of note receivable....... (57,330) - (57,330) - (57,330)
Interest expense................... (48,543) - (56,686) - (56,696)
Interest expense from amortization
of discount on convertible
promissory notes................. (143,420) - (399,179) - (450,014)
------------ ---------- -------------- ----------- --------------
Net Loss $ (554,412) $ (53,614) $ (1,644,995) $ (62,493) $ (2,643,465)
============ ========== ============== =========== ==============
Basic and Diluted Loss
Per Common Share................. $ (0.04) $ (0.01) $ (0.13) $ (0.01)
============ ========== ============== ===========
Basic and Diluted Weighted-
Average Common Shares
Outstanding...................... 12,375,265 8,500,000 12,192,612 8,500,000
============ ========== ============== ===========
3
CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY PRODUCTS, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the period from
February 3, 2000
For the Nine Months (date of
Ended inception of the
March 31, development
---------------------------------- stage) through
2002 2001 March 31, 2002
---------------------------------- -------------------
Cash Flows From Operating Activities Net loss.............. $ (1,644,995) $ (62,493) $ (2,643,465)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-off of in-process research and
development acquired................................. - - 376,624
Interest paid with common stock 23,430 - 23,430
Amortization of discount on convertible
promissory notes..................................... 399,179 - 450,814
Depreciation and amortization.......................... 102,746 - 127,861
Write off of note receivable........................... 57,330 - 57,330
Interest income accrued on advances to Specialized..... - - (5,348)
Changes in assets and liabilities:
Inventories and related deposits..................... (43,435) - (276,445)
Other current assets................................. 20,940 (42,318) (4,052)
Other assets......................................... 6,481 - (15,086)
Accounts payable..................................... 121,494 1,659 227,423
Accrued liabilities.................................. 274,825 23,942 333,160
------------ ------------- ------------
Net Cash Used In Operating Activities.................... (682,005) (79,210) (1,347,754)
------------ ------------- ------------
Cash Flows From Investing Activities
Issuance of note receivable.............................. - (200,000) (200,000)
Collection of note receivable............................ 50,971 - 142,670
Advances paid to Specialized prior to acquisition........ - (317,464) (397,464)
Cash acquired in acquisition of Specialized,
net of acquisition costs paid.......................... - (23,152) 97,018
Purchase of property and equipment....................... (48,575) - (52,754)
------------ ------------- ------------
Net Cash Provided By (Used In) Investing Activities...... 2,396 (540,616) (410,530)
------------ ------------- ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock,
net of offering costs.................................. - - 987,285
Proceeds from issuance of convertible
promissory notes and related beneficial
conversion feature..................................... 472,111 - 542,611
Proceeds from issuance of warrants and common stock
related to convertible promissory notes................ 137,889 - 267,389
------------ ------------- ------------
Net Cash Provided By Investing Activities.................. 610,000 - 1,797,285
------------ ------------- ------------
Net Increase (Decrease) In Cash And Cash Equivalents (69,609) (619,826) 39,001
Cash And Cash Equivalents At Beginning Of Period......... 108,610 989,555 -
------------ ------------- ------------
Cash And Cash Equivalents At End Of Period................. $ 39,001 $ 369,729 $ 39,001
============ ============= ============
4
CHAPEAU, INC. AND SUBSIDIARY
dba BLUEPOINT ENERGY PRODUCTS, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
Note (A) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Chapeau, Inc. and subsidiary (the "Company"), 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 accounting principles generally accepted in the
United States of America for complete financial statements. These financial
statements should be read in conjunction with the annual financial statements
and the notes thereto for the year ended June 30, 2001 and for the period from
February 3, 2000 (date of inception of the development stage) through June 30,
2001, included in the Company's annual report on Form 10-KSB. In the opinion of
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 March 31, 2002, its consolidated results of operations for the
three months ended March 31, 2002 and 2001, and its consolidated results of
operations and cash flows for the nine months ended March 31, 2002 and 2001, and
for the period from February 3, 2000 (date of inception of the development
stage), through March 31, 2002. The results of operations for the three months
and nine months ended March 31, 2002, may not be indicative of the results that
may be expected for the year ending June 30, 2002.
Note (B) Organization and Nature of Operations
Chapeau was organized under the laws of the State of Utah on September 19, 1985.
The Company was engaged in the operation of sports clothing stores but was
unsuccessful and closed its final store in May 1989. The Company was dormant
from May 1989 until February 3, 2000 when two principal shareholders of the
Company (the "Selling Shareholders") and the Company entered into a Stock
Purchase Agreement with a group of investors (the "Purchasers").
Under the terms of the Stock Purchase Agreement, the Selling Shareholders
converted notes payable and accrued interest totaling $16,602 into capital of
the Company with no additional shares being issued, the Purchasers acquired
5,000,000 shares of common stock from the Selling Shareholders by a cash payment
of $300,000, or $0.06 per share, and the Selling Shareholders and one of the
Purchasers returned 7,820,049 shares of common stock to the Company for
cancellation for no consideration. No stated or unstated rights were given in
exchange for the cancellation of the common stock. No gain or loss was
recognized in connection with the conversion of the notes payable and accrued
interest to capital. The former board of directors and officers resigned and a
new board of directors and new officers were appointed by the Purchasers.
As a result of the reorganization, the Company was reactivated on February 3,
2000 as a development stage company. The development stage activities of the
Company have included raising capital, acquisition of Specialized Energy
Products, Inc. ("Specialized"), and research, development and marketing
activities relating to Specialized's packaged co-generation and power generation
system for sale to the electrical power market.
Note (C) 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. Antidilutive outstanding stock
options, warrants and convertible promissory notes have been excluded from the
diluted loss per share calculations. None of the total options or warrants to
acquire 5,140,000 shares of common stock outstanding at March 31, 2002, or the
common shares issuable upon conversion of $810,000 of promissory notes were
included in the computations of diluted loss per share.
5
Note (D) Convertible Promissory Notes and Warrants
During the quarter ended September 30, 2001, the Company issued $135,000 of 0%
convertible promissory notes and warrants to purchase 540,000 shares of common
stock for net proceeds of $135,000. The promissory notes may be converted at the
option of the holders at any time from the date issued into common stock at
$0.25 per share. The promissory notes were secured by all of the assets of the
Company and matured 120 days after issuance.
The warrants to purchase common stock were exercisable at the lesser of $0.25
per share or 85% of the average of the closing prices of the common stock for
the 30 trading days immediately preceding the date of exercise. The warrants
expired 120 days from the date of issuance. The fair value of the warrants was
$52,990 ($0.098 per share) on the dates issued, which was determined using the
Black-Scholes Option-Pricing model with the following weighted-average
assumptions: risk-free interest rate of 3.4%, expected dividend yield of 0%,
expected volatility of 186%, and expected lives of 120 days.
The proceeds from the notes and warrants were allocated to the financial
instruments issued based upon their relative fair values and resulted in
allocating $97,691 to the convertible promissory notes and $37,309 to the
warrants. The market value of the Company's stock on the days the promissory
notes were issued ranged from $0.22 to $0.39 per share. In accordance with the
Emerging Issues Task Force ("EITF") Issue No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," and EITF Issue No. 00-27, "Application of Issue No. 98-5 to
Certain Convertible Instruments," the Company determined that the convertible
note holders had received a beneficial conversion feature on the dates the notes
were issued. The intrinsic value of the beneficial conversion feature was
$14,464. The allocation of the proceeds to the beneficial conversion feature and
to the warrants resulted in the Company recognizing a discount of $51,773 on the
promissory notes. The discount was amortized as interest expense over the term
of the promissory notes.
During the quarter ended December 31, 2001, the Company issued $325,000 of 10%
convertible promissory notes, of which $75,000 is with the Chairman of the Board
of Directors of the Company, and warrants to purchase 1,300,000 shares of common
stock for net proceeds of $325,000. In connection with these notes, the Company
also agreed to issue 107,250 shares of common stock of the Company to the note
holders as additional consideration in the form of a "success fee" for these new
notes. The promissory notes may be converted at the option of the holders at any
time from the date issued into common stock at $0.25 per share. As an
alternative to conversion, the principal balance was payable at maturity and the
note holders were entitled to receive one share of common stock for each $3 of
principal outstanding at that date.The promissory notes are secured by all of
the assets of the Company and mature 180 days after issuance. The warrants to
purchase common stock are exercisable at the lesser of $0.25 per share or 85% of
the average of the closing prices of the common stock for the 30 trading days
immediately preceding the date of exercise. The market value of the Company's
stock on the days the promissory notes were issued ranged from $0.13 to $0.25
per share.
During the quarter ended December 31, 2001, four promissory notes (totalling
$210,000) that were issued during May, June and July 2001 matured. In accordance
with the provision of the notes, the Company issued 70,000 shares of common
stock to the note holders pursuant to the alternative conversion rights in the
notes, which were valued at $14,267 or $0.20 per share. These notes were neither
paid by the Company in accordance with the terms of the notes nor were the notes
converted into common stock by the note holders. In February 2002, the Company
entered into forebearance agreements with each of these note holders, to be
effective as of the original due dates (in October 2001) of the notes, whereby
a) the due dates of notes were extended to May 13, 2002, b) the notes commenced
bearing interest at 10% per annum from the original due dates of the notes, c)
the expiration dates of the associated warrants to acquire 840,000 shares of
common stock were extended to May 2002, and d) the Company agreed to issue
111,300 shares of common stock as additional consideration to the note holders.
In connection with the forbearance agreements, the Company paid accrued interest
on the related notes through December 31, 2001, but has failed to make the
required monthly interest payments subsequent thereto. The Company accounted for
these transactions under the forebearance agreements as a troubled debt
restructuring with no gain or loss recognized from these transactions.
6
The total fair value of the new and extended warrants was $174,392 ($0.081 per
share) on the dates the warrants were issued or extended. The fair value of the
warrants was determined using the Black-Scholes Option-Pricing model with the
following weighted-average assumptions: risk-free interest rate of 2.0%,
expected dividend yield of 0%, expected volatility of 179%, and expected lives
of 194 days.
The proceeds from the new notes and related warrants and stock were allocated to
the financial instruments issued based upon their relative fair values and
resulted in allocating $254,387 to the convertible promissory notes and $70,613
to the warrants and stock. The effective conversion price based on the amount
allocated to the convertible promissory notes resulted in a beneficial
conversion option of $19,249. Furthermore, an additional discount of $118,538,
equal to the fair value on the dates of the forbearance agreements of the
additional stock to be issued and warrants to be extended, was recorded against
the extended promissory notes. The total discount of $208,400 for the quarter
ended December 31, 2001 is being amortized as interest expense over the term of
the new promissory notes or over the extended term of the notes subject to the
forebearance agreements, which ever applies.
During the quarter ended March 31, 2002, the Company issued $150,000 of 10%
convertible promissory notes and warrants to purchase 600,000 shares of common
stock for net proceeds of $150,000. In connection with these notes, the Company
also agreed to issue 49,500 shares of common stock of the Company to the note
holders as additional consideration in the form of a "success fee" for these new
notes. The promissory notes may be converted at the option of the holders at any
time from the date issued into common stock at $0.25 per share. As an
alternative to conversion, the principal balance was payable at maturity and the
note holders were entitled to receive one share of common stock for each $3 of
principal outstanding at that date.The promissory notes are secured by all of
the assets of the Company and mature 180 days after issuance. The warrants to
purchase common stock are exercisable at the lesser of $0.25 per share or 85% of
the average of the closing prices of the common stock for the 30 trading days
immediately preceding the date of exercise. The market value of the Company's
stock on the days the promissory notes were issued was $0.10 per share.
Consequently, there was no intrinsic value related to the beneficial conversion
feature of the notes.
During the quarter ended March 31, 2002, two promissory notes (totalling
$125,000) that were issued during September 2001 matured. In accordance with the
provision of the notes, the Company has issued 41,650 shares of common stock to
the note holders pursuant to the alternative conversion rights in the notes,
which were valued at $9,163 or $0.22 per share. These notes were neither paid by
the Company in accordance with the terms of the notes nor were the notes
converted into common stock by the note holders. In February 2002, the Company
entered into forebearance agreements with each of these note holders, to be
effective as of the original due dates (in January 2002) of the notes, whereby
a) the due dates of notes were extended to May 13, 2002, b) the notes commenced
bearing interest at 10% per annum from the original due dates of the notes, c)
the expiration dates of the associated warrants to acquire 500,000 shares of
common stock were extended to May 2002, and d) the Company agreed to issue
41,250 shares of common stock as additional consideration to the note holders.
In connection with the forbearance agreements, the Company paid accrued interest
on the related notes through December 31, 2001, but has failed to make the
required monthly interest payments subsequent thereto. The Company accounted for
these transactions under the forebearance agreements as a troubled debt
restructuring with no gain or loss recognized from these transactions.
The total fair value of the new and extended warrants was $86,350 ($0.079 per
share) on the dates the warrants were issued or extended. The fair value of the
warrants was determined using the Black-Scholes Option-Pricing model with the
following weighted-average assumptions: risk-free interest rate of 1.8%,
expected dividend yield of 0%, expected volatility of 200%, and expected lives
of 155 days.
The proceeds from the new notes and related warrants and stock were allocated to
the financial instruments issued based upon their relative fair values and
resulted in allocating $120,033 to the convertible promissory notes and $29,967
to the warrants and stock. Furthermore, an additional discount of $62,925, equal
to the fair value on the dates of the forbearance agreements of the additional
stock to be issued and warrants to be extended, was recorded against the
extended promissory notes. The total discount of $92,892 for the quarter ended
March 31, 2002 is amortized as interest expense over the term of the new
promissory notes or over the extended term of the notes subject to the
forebearance agreements, which ever applies.
7
Information regarding notes payable for the nine months ended March 31, 2002 is
as follows:
Unamortized Promissory
Discount on Notes, Less
Promissory Promissory Unamortized
Notes, Gross Notes Discount
------------ -------------- ------------
Balance at June 30, 2001............ $ 200,000 $(148,365) $ 51,635
Issuance of new notes............. 610,000 (171,602) 438,398
Extension of existing notes....... - (181,463) (181,463)
Amortization of discount.......... 399,179 399,179
--------- --------- ----------
Balance at March 31, 2002........... $ 810,000 $(102,251) $ 707,749
========= ========== ==========
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
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Forward Looking Statements
This report and other information made publicly available by the
Company from time to time may contain certain forward looking statements and
other information relating to the Company and its business that are based on the
beliefs of management of the Company and assumptions made concerning information
then currently available to management. Such statements reflect the views of
management of the Company 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 the Company, is subject to the material risks listed below
and based on assumptions made by management. These risks include the viability
of the planned market penetration that the Company intends to make as a result
of the Specialized merger, the ability of the Company to identify and negotiate
transactions that provide the potential for future shareholder value, the
ability of the Company to attract the necessary additional capital to permit it
to take advantage of opportunities with which it is presented, and the ability
of the Company to generate sufficient revenue such that it can support its
current cost structure and planned future operations. Should one or more of
these or other risks materialize or if the underlying assumptions of management
prove incorrect, actual results of the Company may vary materially from those
described in the forward looking statements. The Company does not intend to
update these forward looking statements, except as may occur in the regular
course of its periodic reporting obligations.
Overview
Managerial control of the Company was transferred to a new board of
directors in February 2001. Prior to that time, former management had maintained
the Company in good standing and had been seeking an investment or merger
opportunity. After the managerial change, the Company acquired Specialized
Energy Products, Inc. (Specialized) on April 11, 2001. Prior to its acquisition,
the Company had advanced Specialized $397,464 and Specialized had commenced the
development of a prototype power generation system. Subsequent to its
acquisition of Specialized, the Company has continued the development of this
power generation system.
Operations
The Company has been in the development stage since February 3, 2000
and has had no sales through March 31, 2002, or subsequent thereto. Prior to the
change in managerial control, the expenses of the Company were not significant
and were composed of general and administrative expenses principally for travel
and professional fees. The Company has incurred general and administrative
expenses in the amount of $1,259,413, and research and development costs of
$516,403 for the period from February 3, 2000 (date of inception of the
development stage) to March 31, 2002, principally since February 2001. General
and administrative expenses principally consist of compensation to management
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 March 31, 2002, the Company had current assets of $322,665 and
current liabilities of $1,287,991, resulting in a working capital deficit of
$965,326. Current assets principally consist of inventories and deposits toward
the purchase of inventories. Inventories and related deposits principally
represent amounts paid towards engines and related generators for the first ten
systems to be assembled. The Company also has a note receivable from another
corporation which was originally issued in the amount of $200,000 and was
originally due April 4, 2001, but is currently in default. The note bears
interest at the rate of 8% per annum and is guaranteed by an individual. The
debtor has made principal payments of $142,670 through March 31, 2002, leaving a
balance of $57,330. At March 31, 2002, management of the Company concluded that
the balance of the note will not be collected without significant legal costs.
Accordingly, the Company has written off the balance of the note.
9
Plans for Research and Development
The Company has finalized development of a prototype of its principal
Combined Heat and Power ("CHP") generation system. The CHP generation system
utilizes a Deutz Model 1015 natural gas reciprocating engine, is fully
functional and is in process of receiving UL Listing. The Company has developed
and finalized it's proprietary emission process utilizing the Company's
exclusive EGR (Exhaust Gas Recirculation) system. The system, currently under
examination for trademark or patent application is being termed, "Lean-One" as
the Deutz 1015 still maintains all characteristics of it's original "lean burn
configuration" with this newly developed technology. The Company believes this
emission process shall allow the BluePoint product line the ability to meet and
exceed the most stringent AQMD (Air Quality Management District) standards in
the domestic market while maintaining the characteristics of "lean burn engine
technology", thus producting high engine efficiencies and longer engine life. To
that end, the Company has received testing results that occurred on April 5,
2002, at our facility in Reno Nevada from Best Environmental, a Livermore,
California based California Air Resources Board (CARB) certified laboratory
stating that the new BluePoint Co-Generation system utilizing it's proprietary
"Lean-One" emission technology has dramatically exceeded the requirements of the
South Coast Air Quality Manangement District (SCAQMD), one of the most
restrictive air containment zones in the U.S. BluePoints results registered
0.038 grams Nox per brake-horsepower hour, nearly 60% below the SCAQMD
requirement. In anticipation of the Company'snext order to Deutz, the Company is
in the process of finalizing an exclusive supply agreement between the Company
and Deutz AG. The Company is working with Encorp Corporation for the development
of various digital control systems to be incorporated into the CHP generation
system.
Dependent on its ability to obtain additional financing, the Company
anticipates the development of several different CHP generation systems over the
next twelve months, including a Deutz 300kW system and a 325kW system utilizing
a Cummins natural gas engine.
Liquidity and Sources of Financing
As a consequence of the Company receiving CARB certified testing
results on it's emission system allowing the BluePoint product to operate in
Califorinia and more importantly in the restrictive SCAQMD district, the Company
is currently negotiating for the sale of its CHP generation systems to several
public utilities and other energy service companies, particularly in the high
demand area of California, both the southern and northern portions of the State.
Management anticipates that the Company will be able to significantly finance
its operations from the proceeds from these sales, if realized. The Company is
also currently attempting to arrange additional bridge financing to increase
working capital. In addition, the Company is seeking to obtain financing from a
private placement of its common stock or other equity equivalent vehicles. To
that end, the company signed a non-binding financial advisory agreement in
December 2001 with Bank of Oklahoma Securities Corp., Corporate Finance Group,
which is a wholly owned subsidiary of Bank of Oklahoma Financial Corp. The
Company is reliant upon the success of its efforts to obtain additional
financing in order to satisfy its cash requirements pursuant to its plan of
operations. There is no assurance that sales or additional financing will be
realized.
Plan of Operations
The Company plans to focus sales and marketing of its CHP generation
systems in California initially, with plans to expand distribution to the
domestic United States and worldwide. The Company shall seek to form strategic
partnerships with certain companies engaged in the distribution of power
generation products utilizing a number of technologies for both domestic and
international marketing and sales. The Company is currently in discussion with
such companies engaged in the distribution of power generation products for
distribution and purchase of the companies initial product, the Deutz 1015 260kW
"Lean-One" system.
If the Company achieves the financing necessary to pursue its plan of
operations for the next 12 months, it is anticipated that the Company shall need
to add approximately fifty additional employees during the onset of that period.
10
PART II - OTHER INFORMATION
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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All of the promissory notes (totalling $810,000) that have been issued
by the Company currently bear interest at 10% either under the terms of the
original notes or under the terms of subsequent forebearance agreements. The
Company has paid accrued interest of these notes, as applicable, through
December 31, 2001. But the Company has failed to pay the required monthly
interest payments for the quarter ended March 31, 2002 totalling approximately
$13,000.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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Exhibits
None.
Reports on Form 8-K
During the quarter ended March 31, 2002, the Company did not file a
report on Form 8-K.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHAPEAU, INC.
Dated: May 10, 2002 By /s/ Guy A. Archbold
---------------------------
Guy A. Archbold, Director
(Chief Executive Officer)
(Chief Financial Officer)
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