AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON ________________, 2000
====================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POWER SAVE INTERNATIONAL, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 3629 88-0227424
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
5800 NW 64 Avenue
Building 26 #109
Tamarac, Florida 33319
(954) 722-1615
-----------
--------------------
Scott Balmer, Chairman
POWER SAVE INTERNATIONAL, INC.
5800 NW 64 Avenue
Building 26 #109
Tamarac, Florida 33319
(Name, Address and Telephone Number of Agent For Service)
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COPIES OF COMMUNICATIONS TO:
State Agent and Transfer Syndicate, Inc.
Attention: Jed Block, phone (775) 882-1013
318 North Carson Street, Suite 214
Carson City, NV 89701
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
====================================================================
Proposed Proposed
Amount to Maximum Maximum Registration
Title of Each Be Offering Price Aggregate Fee
Class of Securities Registered Per Security Offering Price
to be Registered
Common Stock, par
Value $.03 per share 1,000,000 $5.00 $5,000,000 $1,390
Includes no shares of Common Stock which the Underwriters have the option
to purchase from the Registrant to cover over-allotments, if any.
-------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The information in this preliminary 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 preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. Subject
to Completion dated _________
Power Save International, Inc.
1,000,000 shares of Common Stock at $5.00 per share
Power Save International, Inc., (the "Company") hereby offers up to 1,000,000
shares of the Company's Common Stock (the "Shares") at an offering price of
$5.00 per Share (the "Offering"). The offering price has been arbitrarily
determined solely by the Company. The Offering will begin on the date of this
Offering Circular and continue until the Company has sold all of the shares
offered hereby or such earlier date as the Company may close or terminate the
Offering, no later than ___________, 2001. A minimum of 100,000 shares totaling
$500,000 must be sold to release funds from escrow. The subscriber's funds will
be promptly returned with interest if the minimum is not achieved by the escrow
date of _________, 2001. No plans for exchange listing have been made. The
shares are offered only by the Underwriter and no officers, directors or
employees sell the shares. The Company intends to apply for listing on the
NASDAQ OTC Bulletin Board.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE
MERITS OF OR GIVE APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE
OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING
CIRCULAR OR ANY OTHER SELLING LITERATURE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM
REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN
INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREBY ARE EXEMPT FROM
REGISTRATION.
THIS OFFERING HAS BEEN REGISTERED UNDER THE SECURITIES LAWS OF A LIMITED NUMBER
OF STATES, AND THE SHARES OFFERED HEREBY MAY BE SOLD ONLY IN THOSE STATES. SUCH
REGISTRATIONS, HOWEVER, DO NOT CONSTITUTE AN ENDORSEMENT OR APPROVAL BY ANY
PARTICULAR STATE SECURITIES COMMISSION OF ANY SECURITIES OFFERED OR THE TERMS OF
THIS OFFERING. NO STATE SECURITIES COMMISSION HAS PASSED UPON THE ACCURACY OR
COMPLETENESS OF THIS OFFERING CIRCULAR OR ANY OTHER SELLING LITERATURE.
THIS OFFERING INVOLVES SUBSTANTIAL RISKS (SEE "RISK FACTORS" BEGINNING ON PAGE
3) AND SHOULD BE CONSIDERED ONLY BY PERSONS ABLE TO BEAR THE ECONOMIC RISK OF
THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Offering Underwriting Commissions Proceeds to the Company
Price
----------------------------------- --------------- ------------------------------ -------------------------------
Per share $0.25 $4.75
$5.00
----------------------------------- --------------- ------------------------------ -------------------------------
Total Minimum (escrow) $500,000 $ 25,000 $475,000
----------------------------------- --------------- ------------------------------ -------------------------------
Total Maximum $5,000,000 $250,000 $4,750,000 (1) (2)
[FN]
(1)Three Arrows Capital Corp. has also received a warrant to purchase up to
66,666 shares of Common Stock at the Offering Price. See "Plan of
Distribution."
</FN>
[FN]
(2)Before deduction of offering expenses previously paid by the Company of
$18,500 and a consulting fee paid to Three Arrows Capital Corp. of $9,950.
</FN>
THREE ARROWS CAPITAL CORP.
____________, 2000
A graphical representation of the Company's products and how they operate.
OFFERING CIRCULAR SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto and the Glossary
appearing elsewhere in this Offering Circular. Investors should carefully
consider the risk factors related to the purchase of Common Stock of the
Company. See "Risk Factors."
Our Business
PSI designs, manufactures, sells/leases and finances fossil-fueled
engine-driven air conditioning, heating, thermal heat recovery and electric
cogenerating plants for the more than 2 million U.S. small businesses that have
been excluded from the benefits of utility deregulation. We provide equipment
that can provide typical savings of 20% to 50% on annual utility bills for HVAC
(heating, ventilating, air conditioning) with no out of pocket costs on a
convenient rental or lease/purchase. With usual utility backup, our clients have
redundant and secure power supplies at less cost than their dependent neighbors.
Our natural gas-fired individual unit system sales range from $75,000 to
$125,000, with turnkey retrofits ranging between $125,000 and $500,000. Most
competition for cogeneration systems has focused on large-scale industrial
users, permitting PSI to concentrate on a huge and attractive model for small
business with enviable margins. The energy efficiency of cogeneration systems is
approximately twice that of conventional generation. The nitrogen oxide
emissions that result from cogeneration are often ten times less than
conventional electrical generation.
We have more than thirty years of development and installation
experience and intend to develop a national market for our proven technology.
Our original demonstration test site model (PSA-120) system was installed in
1995 in Mamaroneck, NY and continues to meet or exceed the customer's
expectations. Our latest PSI-70/50 Combo system is presently being completed in
a commercial office building in Rochester, New York. The PSI systems are built
in a proprietary manner, sold outright and/or operated on a turnkey basis as the
PSI Combo package of cogeneration technology. Our expansion will be created
through a combination of advertising in the national trade magazines for
outright sales, and direct sales representatives in selected areas for the
sale/lease of units. We also intend to acquire suitable HVAC companies that will
permit a rapid conversion of existing customer bases to our units, thought we
have no targeted acquisitions at the present time.
The Company
For a detailed description of our business strategy, see
"Business--Business Strategy." We were incorporated in Nevada on May 8, 1987.
Our principal executive offices are located at 5800 NW 64 Avenue, Bldg. 26,
#109, Tamarac, FL 33319. Our telephone number is (954) 722-1615 and the fax
number is (954) 722-6417. E-mail is addressed powersav@mediaone.net and the
Website is www.power-save.net.
The Offering
Shares offered by the Company ......................... 1,000,000
Shares outstanding after the Offering .................. 7,414,149
Use of proceeds ........................................ The Company intends to use the net proceeds from
the Offering for: (i) marketing and advertising, (ii)
development of new applications, and (iii) equipment and
inventory. See "Use of Proceeds."
Minimum/maximum......................................... The Company is offering a minimum of 100,000 shares
to break escrow and a maximum of 1,000,000 shares. If
the Company returns funds interest will be paid.
Potential investors should carefully consider the risk factors relating
to the Company described in the "Risk Factors" section of this Offering Circular
before making an investment decision with respect to the securities offered
hereby.
Summary Financial Data
(As of December 31, 1999)
Balance Sheet Data
1997 1998 December 31, 1999
---- ---- -----------------
Cash & Cash Equivalents, $1,041 $3,527 $53,227
Current Assets ................... 1,041 3,527 973,625
Total Assets ....................... 10,295,672 3,973 976,000
Current Liabilities .............. 155,506 144,250 220,809
Total Shareholders' Equity (deficit) $10,140,166 (140,277) $755,191
Income Statement
1997 1998 December 31, 1999
---- ---- -----------------
Revenue................................... $36,119 $5,041 $69,986
Cost of Sales.......................... 9,449 589 67,261
Operating Expenses .................... 68,547 63,895 62,163
Other Income (Expenses) ................ - (221,000) 11,701
Net Ordinary Income (Loss)............. $(41,877) $(280,443) $(47,737)
RISK FACTORS
You should carefully consider the following risks and all other
information contained in this prospectus before purchasing our common stock. If
any of the following risks occur, our business, prospects, results of operations
or financial condition could be harmed. In that case, the trading price of our
common stock could decline, and you could lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of specific factors, including the
risks described below and elsewhere in this prospectus.
We have a going concern issue
Our auditors have expressed reservations concerning our ability to
continue as a going concern. The auditors state: "As discussed in Notes 3 and 4
[financial statements], the Company is in the development stage and has
sustained significant losses from inception to date and there is no assurance
that the Company can realize sufficient revenues from its products and services
to attain profitable operations. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters is also discussed in Note 3 and 4. The financial statements do no
include any adjustments that might result from the outcome of this uncertainty.
(See "Financial Statements.")
We have incurred losses for the last several years
As of December 31, 1999, we had an accumulated deficit of ($1,052,108)
and we have incurred net losses of ($1,279,064) from inception of the Company
through December 31, 1999. We have not achieved profitability and expect to
continue to incur net losses until we can produce sufficient revenues to cover
our costs. Even if we achieve our objectives of significant sales and
profitability in the year 2000, we may be unable to sustain or increase our
profitability in the future. (See "Selected Historical Financial Data.")
We may be unable to raise additional capital to complete our product development
and commercialization plans
Our product distribution schedule could be delayed if we are unable to
fund our marketing capabilities. We expect that the net proceeds of this
offering, together with the proceeds from our issuance of shares and all other
existing sources of capital, will be sufficient to fund our activities through
the end of 2001. We do not know whether we will be able to secure additional
funding, or funding on terms acceptable to us, to pursue all of our marketing
plans through the mass-market stage. (See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".)
Our systems have not been extensively tested in the marketplace and investors
have limited information upon which to judge.
We have been a development stage company for some period of time and
our current product line has had very limited sales and commercial testing. We
have little relevant financial or market data associated with our company.
Accordingly, there is only a limited basis upon which you can evaluate our
business and prospects. An investor in our common stock should consider the
challenges, expenses and difficulties that we will face as a development stage
company seeking to manufacture and distribute a new product. (See "Business" and
"Financial Statements.")
A mass market for smaller cogeneration systems may never develop or may take
longer to develop than we anticipate
A mass market may never develop for our systems, or may develop more
slowly than we anticipate. Cogeneration systems for small business use represent
an emerging market, and we do not know whether our targeted distribution method
will be successful, if distributors will want to sell them or whether end-users
will want to use them. If a mass market fails to develop or develops more slowly
than we anticipate, we may be unable to recover the losses we will have incurred
to develop our product and may be unable to achieve profitability. (See
"Business.") The development of a mass market for our systems may be impacted by
many factors, some of which are out of our control, including:
o the cost competitiveness of cogeneration systems;
o the future costs of natural gas, propane and other fuels used by our systems;
o consumer reluctance to try a new product; o consumer perceptions of our
systems' safety; o regulatory requirements; and o the emergence of newer, more
competitive technologies and products.
We have limited experience manufacturing cogeneration systems on a commercial
basis
To date, we have focused primarily on research and development and have
little experience manufacturing cogeneration systems for the small business
market on a commercial basis. We are also relying on contractors to outsource
the production of our systems. Even if we are successful in developing effective
manufacturing capability and processes on an outsourced basis, we do not know
whether we will do so in time to meet our product commercialization schedule or
to satisfy the requirements of our distributors or customers. (See
"Business--Manufacturing".)
We are dependent on third party suppliers for the development and supply of key
components for our products
While we have recently entered into relationships with some suppliers,
we do not know when or whether such relationships will continue to be on terms
that will allow us to achieve our objectives. Failure to secure such
satisfactory relationships could harm our business, prospects, results of
operations, or financial condition. Once we establish relationships with third
party suppliers, we will rely on them to provide components for our systems. A
supplier's failure to develop and supply components in a timely manner, or to
supply components that meet our quality, quantity or cost requirements, or our
inability to obtain substitute sources of these components on a timely basis or
on terms acceptable to us, could harm our ability to outsource manufacture our
systems. In addition, to the extent the processes that our suppliers use to
manufacture components are proprietary, we may be unable to obtain comparable
components from alternative suppliers. (See "Business.")
We face intense competition and may be unable to compete successfully
The markets for electricity are intensely competitive. There are many
companies engaged in all areas of traditional and alternative electric power
generation in the United States, Canada and abroad, including, among others,
major electric, oil, chemical, natural gas, and specialized electronics firms,
as well as universities, research institutions and foreign government-sponsored
companies. Many of these entities have substantially greater financial, research
and development, manufacturing and marketing resources than we do. (See
"Business--Competition.")
Alternatives to our technology could render our systems obsolete
Our system is one of a number of alternative energy products being
developed today as supplements to the electric grid that have potential
residential applications, including fuel cells, solar power and wind power, and
other types of cogeneration technologies. Improvements are also being made to
the existing electric transmission system. Technological advances in alternative
energy products, improvements in the electric grid or other fuel cell
technologies may render our systems obsolete. (See "Business.")
Changes in government regulations and electric utility industry restructuring
may affect demand for our systems
The market for electricity generation products is heavily influenced by
federal and state governmental regulations and policies concerning the electric
utility industry. The loosening of current regulatory standards could deter
further investment in the research and development of alternative energy sources
and could result in a significant reduction in the potential market demand for
our products. We cannot predict how the deregulation and restructuring of the
industry will affect the market for small business cogeneration systems. (See
"Business".)
We may have difficulty managing the expansion of our operations
We expect to undergo rapid growth in the number of our employees, the
size of our physical plant and the scope of our operations. Such rapid expansion
is likely to place a significant strain on our senior management team and other
resources. Difficulties in effectively managing the budgeting, forecasting and
other process control issues presented by such a rapid expansion could harm our
business, prospects, results of operations or financial condition. (See
"Management.")
We may not be able to protect important intellectual property
Our ability to compete effectively against other cogeneration companies
will depend, in part, on our ability to protect our proprietary technology,
systems designs and manufacturing processes. Much of our products and processes
are in the public domain. We do not know in the case of any patents that may be
issued in the future, that the claims allowed are or will be sufficiently broad
to protect our technology or processes. Even if patents are issued and are
sufficiently broad, they may be challenged or invalidated. We could incur
substantial costs in prosecuting or defending patent infringement suits. While
we have attempted to safeguard and maintain our proprietary rights, we do not
know whether we have been or will be completely successful in doing so.
Further, our competitors may independently develop or patent
technologies or processes that are substantially equivalent or superior to ours.
If we are found to be infringing third party patents, we do not know whether we
will be able to obtain licenses to use such patents on acceptable terms, if at
all. Failure to obtain needed licenses could delay or prevent the sale of our
systems.
We rely, in part, on contractual provisions to protect our trade
secrets and proprietary knowledge. These agreements may be breached, and we may
not have adequate remedies for any breach. Our trade secrets may also be known
without breach of such agreements or may be independently developed by
competitors. Our inability to maintain the proprietary nature of our technology
and processes could harm our business, prospects, results of operations or
financial condition. (See "Business--Intellectual Property".)
Our existing stockholders will control all matters requiring a stockholder vote
Upon the completion of this offering, our principal stockholders will
retain approximately 87% of our outstanding stock. If all of these stockholders
were to vote together as a group, they would have the ability to exert
significant influence over our Board of Directors and its policies. For
instance, these stockholders would be able to control the outcome of all
stockholder votes, including votes concerning director elections, charter and
by-law amendments and possible mergers, corporate control contests and other
significant corporate transactions. (See "Principal Stockholders" and
"Description of Capital Stock".)
We may be unable to attract or retain key personnel
We have attracted a highly skilled management team, technical
specialists and marketing professionals. Based on our planned expansion, we will
require a significant increase in the number of our employees and outside
contractors. Our future success, therefore, will depend, in part, on attracting
and retaining additional qualified management and technical personnel. We do not
know whether we will be successful in hiring or retaining qualified personnel.
Our inability to hire qualified personnel on a timely basis, or the departure of
key employees, could harm our expansion plans. (See "Management.")
Our stock price is likely to be highly volatile
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
stock to decline, perhaps substantially, following this offering, including: (a)
failure to meet our marketing milestones; (b) demand for our common stock; (c)
revenues and operating results failing to meet expectations of investors; (d)
changes in general market conditions; (e) technological innovations by
competitors or in competing technologies; (f) investor perception of our
industry or our prospects; or (g) general technology or economic trends.
In the past, companies that have experienced volatility in the market
price of their stock have been the subject of securities class action
litigation. We may be involved in a securities class action litigation in the
future. Such litigation often results in substantial costs and a diversion of
management's attention and resources and could harm our business, prospects,
results of operations, or financial condition. (See "Financial Statements.")
Provisions of Nevada law and of our charter and by-laws may make a takeover
more difficult
Provisions in our certificate of incorporation and by-laws and in the
Nevada corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt, which is opposed
by our management and Board of Directors. Public stockholders who might desire
to participate in such a transaction may not have an opportunity to do so. We
also have a staggered Board of Directors, which makes it difficult for
stockholders to change the composition of the Board of Directors in any
one-year. These anti-takeover provisions could substantially impede the ability
of public stockholders to benefit from a change in control or change our
management and Board of Directors. (See "Description of Capital Stock".)
Future sales of our common stock could adversely affect our stock price
Substantial sales of our common stock in the public market
following this offering, or the perception by the market that such sales could
occur, could lower our stock price or make it difficult for us to raise
additional equity capital in the future. After this offering, we will have
7,414,149 shares of common stock outstanding. Of these shares, the 1,000,000
shares sold in this offering will be freely tradable. The remaining 6,414,149
shares are subject to one-year lock-up agreements. At the Company's discretion
6,414,149 shares will generally be available for sale in the public market
one-year after the date of this prospectus. We cannot predict if future sales of
our common stock, or the availability of our common stock for sale, will harm
the market price for our common stock or our ability to raise capital by
offering equity securities. (See "Underwriting" and "Shares Eligible for Future
Sale".)
We will have broad discretion as to the use of the net proceeds from this
offering
Our Board of Directors and our management will have broad discretion
over the use of the net proceeds of this offering. Investors will be relying on
the judgment of our Board of Directors and our management regarding the
application of the net proceeds of this offering. (See "Use of Proceeds".)
We do not intend to pay dividends
We have never declared or paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings, if any, for future
growth and, therefore, do not anticipate paying any dividends in the foreseeable
future. (See "Dividend Policy".)
Lack of significant trademark, patent and service mark protection.
To the extent that our business becomes associated with our trademarks
and service marks such that significant value is attached to such property, the
failure to protect such property could have a material adverse effect upon our
business, operating results and financial condition. There can be no assurance
that the steps taken by us to protect our proprietary rights will be adequate to
deter misappropriation or that we will be able, or will have the financial
capacity, to deter unauthorized use and take appropriate steps to enforce its
rights. Any such required action, regardless of the outcome, could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, operating results and financial condition. (See
"Business.")
Our security pricing has not been made on conventional valuation assumptions.
The Offering price of the Shares has been determined based on an
estimate by management of our earnings potential over the next five years.
Management makes no representations that we will generate such earnings and
there can be no assurance as to when we will generate revenues and earnings, if
ever. The Offering price does not reflect our asset value, net worth, present
earnings, cash flow or any other established criteria of value. The Offering
price of the Shares may or may not be an indication of their present value or
the value of us or their future value or the future value of us. The capital
requirements estimated by management are based on a series of internal
projections of revenues and expenses prepared by management and are subject to
the inherent limitations associated with making financial forecasts. (See
"Financial Statements.")
Illiquidity--Lack of Market for Company Securities.
At the present time, there is no public market for the Company's Common
Stock, nor can there be any guarantee that such a market will develop, or if
developed, will be sustained. Investors should consider the purchase of Shares
to be a long-term investment. (See "Plan of Distribution.")
Limits of Insiders' Liability to the Company and its Stockholders.
The Certificate of Incorporation and our Bylaws limit the liability of
the Board of Directors and Officers of the Company for errors in judgment and
other acts or omissions. Our Bylaws also provide for indemnification of the
Directors and Officers for certain liabilities they may incur. As a result,
stockholders will have limited rights of action against the Directors and
Officers.
(See "Limitations on Directors' Liability and Indemnification of Directors and
Officers.")
Immediate and Substantial Dilution.
The Offering price is substantially higher than the pro forma book
value per outstanding ordinary share. Based upon the Offering price of $5.00 per
share, investors purchasing Shares in the Offering will incur immediate and
substantial dilution of $4.81 per share on a minimum Offering and $4.26 on a
maximum Offering. This amounts to 96% on a minimum Offering and 85% on a maximum
Offering. (See "Capitalization.")
Risk of Uninsured Losses.
We will carry commercial, general liability insurance and comprehensive
insurance on our operations, including fire, liability, extended coverage, other
casualty insurance and workers compensation insurance if necessary and
available. There may be risks that are uninsurable or not insurable on terms
that the Company believes to be economic. In addition, losses may exceed amounts
of the policies. (See "Financial Statements.")
Our business may become subject to future government regulation
We do not believe that we will be subject to existing federal and state
regulatory commissions governing traditional electric utilities and other
regulated entities. We do believe that our product and its installation will be
subject to oversight and regulation at the local level in accordance with state
and local ordinances relating to building codes, safety, pipeline connections
and related matters. Such regulation may depend, in part, upon whether a system
is placed outside or inside a building. At this time, we do not know which
jurisdictions, if any, will impose regulations upon our product. We also do not
know the extent to which any existing or new regulations may impact our ability
to distribute, install and service our product. Once our product becomes more
widely distributed federal, state or local government entities or competitors
may seek to impose regulations. Any new government regulation of our product,
whether at the federal, state or local level, may harm our business, prospects,
results of operations, or financial condition.
The Company is subject to a variety of governmental jurisdictions and
numerous regulations that stem from normal commercial activities. The Company
cannot predict the extent to which its revenues and operations will be affected
by changes in specifications and safety codes for the industry or restrictions
on any of its products imposed by government agencies. (See "Business.")
Limited State Registration.
These securities are not registered in states other than those
indicated in this Offering Circular. Subsequent sale and transfer to residents
of various states may be required to be made only pursuant to registration or an
exemption from registration in the transferee's state. (See "Plan of
Distribution.")
Special Notice Regarding Forward-Looking Statements.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results of our future financial condition, or state other "forward-
looking" information. We believe it is important to communicate our expectations
to our investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed in this prospectus, as well as any other cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of any of the events described in these risks factors
and elsewhere in this prospectus could have a material and adverse effect on our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 Shares of
Common Stock offered by the Company hereby, after deducting commissions and
estimated Offering expenses payable by the Company, are estimated to be
approximately $4,722,500 if the maximum number of Shares are sold and $450,000
if the minimum number of Shares are sold.
The following table sets forth the Company's anticipated use of the
proceeds of this Offering.
- ------------------------------------------------------------------------------------------------------------
If Minimum Sold If Maximum Sold
Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total Proceeds: $500,000 100% $5,000,000 100%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Less Offering Expenses:
Commissions $25,000 5.0% $250,000 5.0%
Legal & Accounting Fees 4,500 .9% 4,500 .1%
Copying & Advertising 4,000 .8% 4,000 .1%
Filing Fees 16,000 3.2% 16,000 .3%
Postage 500 .1% 3,000 .1%
Net Proceeds of Offering $450,000 90.0% $4,722,500 94.4%
- --------------------------------------------------
----------------------------------------------------------
Use of Net Proceeds:
o Rent, Utilities, Leases $58,200 12.9% $116,400 2.4%
o Payroll:
o Administrative 160,000 35.6% 320,000 6.8%
o Professional 75,675 16.8% 351,350 7.4%
o Insurance 14,500 3.2% 29,000 .6%
o Equipment Purchase/Lease 14,600 3.2% 43,800 .9%
Inventory/Lease 31,025 6.9% 2,689,950 57.0%
Financing 46,000 10.3% 720,000 15.2%
o Advertising/Marketing 10,000 2.2% 10,000 .2%
o Corporate Website 40,000 8.9% 450,000 9.5%
o Working Capital $450,000 100.0% $4,722,500 100.0%
Total Use of Net Proceeds
NOTE: AFTER REVIEWING THE PORTION OF THE OFFERING ALLOCATED TO THE PAYMENT OF
OFFERING EXPENSES, AND TO THE IMMEDIATE PAYMENT TO MANAGEMENT AND PROMOTERS OF
ANY FEES, REIMBURSEMENTS, PAST SALARIES, OR SIMILAR PAYMENTS, A POTENTIAL
INVESTOR SHOULD CONSIDER WHETHER THE REMAINING PORTION OF HIS INVESTMENT, WHICH
WOULD BE THAT PART AVAILABLE FOR FUTURE DEVELOPMENT OF THE COMPANY'S BUSINESS
AND OPERATIONS, WOULD BE ADEQUATE.
If required, we will seek additional sources of funds to include
equipment leasing, equity financing, commercial bank loans and private
investors. There can be no assurances that we will be eligible for such loans or
that private financing will be available to us.
We currently have 1 full time employee (as of March 22, 2000), and
others serve on an as needed basis, and are currently uncompensated. We will
expand that number in response to the pace of our development and subject to the
availability of funds from the proceeds of this Offering and other sources. The
Company anticipates hiring added personnel as the Offering progresses. Payroll
taxes will be incurred by the Company and are included in the estimates for
payroll above. Except as detailed under "Material Agreements," all salaries,
bonuses and reimbursements are subject to Company earnings and finances.
Payroll is divided into administrative and professional personnel as a
function of the general nature of the duties performed. Administrative personnel
are categorized as staff (payroll, human resources, secretarial, clerical, etc.)
while professional personnel are categorized as engineers and managers.
If the Company successfully completes the sale of the Shares, even if
just the minimum is raised, management does not anticipate any cash flow or
liquidity problem for its planned operations. The Company is not in default or
in breach of any debenture indebtedness or financing arrangement. The Company
has no collective bargaining agreements. However, it may be confronted with such
issues as it develops its workforce.
With the exception of normal operating revenues, no material amounts of
funds from sources other than this Offering are expected to be used in
conjunction with the proceeds from this Offering. No portion of the proceeds
will be used to reimburse an officer, director and principal stockholder for
services already rendered, assets previously transferred, or moneys loaned or
advanced. The amount shown as advances from shareholders in the financial
statements at December 31, 1999 were paid in full in February 2000. The Company
does not anticipate any liquidity problems in the next 12 months and will not be
in default or in breach of any note, loan, lease or other indebtedness or
financing (See below and "Risk Factors").
Differences in estimated expenses for filing fees, legal and
accounting, etc., between the amounts required under a minimum offering and
those required under a maximum offering reflect the anticipated greater number
of state registrations that would be required for larger sales throughout the
offering period. Such registrations would only be secured as a function of the
Company's experience with the Offering.
If the Company realizes less than the maximum amount from this
offering the Company intends to prioritize its fund uses as follows:
1. Personnel
2. Advertising/Marketing
3. Equipment Purchase/Lease
4. Rent, Utilities, Leases
5. Training of Employees
6. Corporate Website
7. Working Capital
8. Insurance
The Company has no plans or intentions to acquire any assets from
officers, directors or principal stockholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1999 and as adjusted to give effect to the sale of 100,000 shares
of Common Stock (assuming the minimum number of Shares offered hereby are sold)
and the sale of 1,000,000 shares (assuming the maximum number of Shares offered
hereby are sold) and the application of the estimated net proceeds therefrom,
assuming an Offering price at $5.00 per share for the Common Stock. This table
should be considered together with our financial statements included elsewhere
in this prospectus. No stock splits, stock dividends, or other forms of
re-capitalization are planned at this time. See "Use of Proceeds."
Amount Outstanding
As of December 31, 1999
Prior to Offering Minimum Maximum
Debt: $220,809 $220,809 $220,809*
Stockholder's equity:
Preferred stock, par value of $.03 per share;
50,000,000 authorized; 296,300 shares
issued and outstanding. 8,889 8,889 8,889
Common stock, $.03 par value; 50,000,000
shares authorized; 6,414,149 shares issued
and outstanding. 192,425 195,425 222,425
Additional paid-in capital 1,493,581 1,954,581 6,195,081
Deficit accumulated during development (1,278,764) (1,278,764) (1,278,764)
Accumulated other comprehensive income 339,060 339,060 339,060
Total stockholders' equity 755,191 1,219,191 5,486,691
Total Liabilities & Stockholders' Equity $976,000 $1,440,000 $5,707,500
*This debt was paid in full in February 2000.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common
Stock since its inception. The Company currently anticipates that all of its
earnings will be retained in the immediate future for development and expansion
of the Company's business. No declaration or payment of any cash dividend is
anticipated in the foreseeable future.
DILUTION
Purchasers of the Common Stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value of their
Common Stock from the Offering price. The net tangible book value of the Company
as of December 31, 1999 was $1,219,191 or $0.12 per Share of Common Stock. Net
tangible book value per share represents the amount of the Company's tangible
net worth divided by the total number of shares of Common Stock outstanding as
of December 31, 1999. After giving effect to the sale of 1,000,000 shares of
Common Stock by the Company in the Offering and the application of the net
proceeds therefrom (assuming the maximum Offering is subscribed and after
deduction of underwriting discounts and commissions and estimated Offering
expenses payable by the Company), the pro forma net tangible book value of the
Company as of December 31, 1999 would have been $5,486,691 or $0.74 per Share of
Common Stock. This represents an immediate increase in net tangible book value
of $0.62 per Share to existing shareholders and an immediate dilution of $4.26
per Share to purchasers of Shares in this Offering on a maximum basis (85%) and
$4.81 on a minimum basis (96%). The following table illustrates the per Share
dilution:
Offering price: $5.00 Minimum Maximum
--------- ---------
Net tangible book value per common share before the Offering $0.12 $0.12
Increase attributable to new investors .07 .62
Pro forma net tangible book value per share after the Offering .19 .74
Dilution in net tangible book value per share to new investors $4.81 $4.26
The following table sets forth a comparison as of December 31, 1999 of
the number of shares of Common Stock acquired by current shareholders from the
Company, the total consideration paid for such shares of Common Stock and the
average price per share paid by such current shareholders and to be paid by the
prospective purchasers of the Shares (based upon an offering price of $5.00
Shares Purchased Consideration Avg. Cash Price
Number Percent Amount Percent Per Share
Existing shareholders 6,414,149 86.5% $297,348 5.6% $0.05
New investors 1,000,000 13.5% $5,000,000 94.4% $5.00
Total 7,414,149 100.0% $5,000,002 100.0%
The Offering price of the Shares has been determined based on an
estimate by management of the Company's earnings potential over the next five
years. Management makes no representations that the Company will generate such
earnings and there can be no assurance as to when the Company will generate
revenues and earnings, if ever. The Offering price is arbitrary and does not
reflect the Company's asset value, net worth, present earnings, cash flow or any
other established criteria of value. The Offering price of the Shares may or may
not be an indication of their present value or the value of the Company or their
future value or the future value of the Company.
PLAN OF OPERATION
The following plan of operation of the Company should be read in
conjunction with The Use of Proceeds included elsewhere in this Prospectus. This
plan of operation and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. The Company's actual results
could differ materially from those anticipated by such forward-looking
information as a result of certain factors including, but not limited to, those
set forth under Risk Factors and elsewhere in this prospectus.
The Company is a development stage Company, which intends to become a
leading (OEM) Original Equipment Manufacturer, owner and leaser of engine
driven, air conditioning, refrigeration, heat recovery and electric generating
systems for the commercial and industrial marketplace. Since its inception, the
Company's operations have been limited to developing the concepts, the marketing
program and the basic mechanical modules, and raising needed capital.
As shown in the Use of Proceeds section, a large percentage of the
funds raised will be for inventory of components, finished goods and systems
site lease financing.
The Company has determined that there are 20 states where the
difference between the cost of natural gas as opposed to the cost of electricity
create a favorable economic situation for the placement of the PSI systems.
The states are as follows: New York, Vermont, New Jersey, New
Hampshire, Massachusetts, Connecticut, Nevada, Missouri, Rhode Island,
Pennsylvania, Kansas, California, Ohio, Arizona, Missouri, New Mexico,
Mississippi, Illinois, Michigan, Louisiana.
Upon completion of the Offering, PSI will commence with a marketing
program, which encompasses, advertisements in the trade magazines backed up by
recruiting qualified Systems Sales Engineers for each of these marketing areas.
Additionally, in order to have the product available for placement at
sites and eliminate long lead times, PSI will order and stock sufficient
components to have 10 Basic System Modules on hand as finished goods.
The bulk of the systems as installed will be owned by PSI and leased to
the sites for a ten-year period of time on a guaranteed savings basis.
Placement of the systems on that basis will generate a continuous
stream of positive revenue for PSI from site energy reductions over that
ten-year period of time.
SELECTED HISTORICAL FINANCIAL DATA
The following tables present selected historical financial data for the
years ended December 31, 1999 and 1998 and the period from (date of inception)
through December 31, 1999. The balance sheet data as of December 31, 1999 and
1998 and the statement of operations data for the years ended December 31, 1999
and 1998 have been derived from financial statements (including those set forth
elsewhere in this prospectus) that have been audited by David T. Thomson, P.C.,
independent accountants. The historical data for the period from inception
through December 31, 1999 is derived from our unaudited financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of our results
of operations for that period.
Statements of Operations Data
Year Ended Inception Through
December 31, December 31,
------------
1999 1998 1999
---- ---- ----
Net Sales $ 69,986 $ 5,041 $ 587,581
Cost of Sales 67,261 589 352,207
Gross Profit(Loss) 2,725 4,452 235,374
Total Operating Expenses 62,163 63,895 1,305,139
(Loss) from Operations (59,438) (59,443) (1,069,765)
Net (Loss) (47,737) (280,443) (1,279,064)
Basic and Diluted (Loss) Per Share $ (.01) $ (.04)
Basic and Diluted Weighted Average
Number of Common Shares
Outstanding 6,414,149 6,414,149
Balance Sheet Data
December 31,
1999 1998
---- ----
Cash $ 53,227 $ 3,527
Current Assets 973,625 3,527
Total Assets 976,000 3,973
Current Liabilities 220,809 144,250
Stockholders' Equity (Deficiency) 755,191 (140,277)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company was formed on May 8, 1987 to design, manufacture,
sell/lease and finance fossil-fueled engine-driven air conditioning, heating,
thermal heat recovery and electric co-generation plants. Realizing that the
Company needed operating capital to effectively execute its proposed business
plan, the Company raised both cash and services through the issuance of the
Company's stock $1,090,750 through December 31, 1998. These funds allowed the
Company to stay in business and generate over $500,000 in gross sales. However,
the Company's operating losses exceeded its gross revenues and capital raised by
over $140,000 through December 31, 1998.
On July 22, 1999 the Company was re-incorporated, whereby, the
operations were transferred to the new corporation and the old parent company
was sold to a new investor group to seek a new operation. As part of this
reorganization, certain shareholders of the old corporation transferred their
common stock of the old corporation into the newly re-incorporated entity. As a
result of this reorganization, the Company now has working capital of over
$750,000 and a positive shareholders' equity over $755,000.
Even though the Company still has a going concern issue, the Company
believes with the successful completion of the offering and with the new working
capital it has obtained, it will be successful in generating sufficient revenues
in the future to sustain current operations.
The Company operates in a very competitive environment often competing
for the same customers where larger more established and well-capitalized
companies exist. Additionally, the Company prior to 1999 did not have the
personnel or finances to be competitive in its current market.
Typically, the systems the Company sells outright require a fifty
percent deposit up front, with forty percent upon shipment of the system. The
remaining ten percent is due upon the equipment functioning properly on startup.
Turnkey installations of the systems, at commercial and industrial sites, are
made on a long-term 10-year lease from PSI with full maintenance and service.
The system is owned by PSI and produces a continuous stream of positive
cash-flow to PSI for 10 years from the reduction in utility costs
In the past, the Company has not had the ability to finance, engineer,
or market its equipment properly. However, with the current funds and the
funding from the offering, the Company believes it will become competitive
within its market and generate sufficient revenues to allow the Company to
obtain profits from its operations.
Liquidity
During 1999, the Company, as discussed above, re-capitalized itself
with the issuance of preferred stock for certain marketable securities.
The Company has been selling a certain number of these securities on a
daily basis converting its investment to cash. Since December 31, 1999, the
stock has appreciated in value and the Company expects to generate sufficient
liquidity from the stock sales to maintain its current operations.
As reflected in the financial statements, the Company's working capital
increased by $893,539 from December 31, 1998 to December 31, 1999.
Capital Resources
As discussed above, the Company believes it has generated sufficient
capital in 1999 to sustain its current operations. During the year ended
December 31, 1999, the Company through an exchange of preferred stock for
marketable securities increased its capital by over $900,000. In fact, the
Company had a net stockholders' equity of $755,191 at December 31, 1999.
The Company lost $59,438 from operations in 1999 and expects to
continue to have a loss from operations through the end of the year 2000.
However, the Company believes it currently has sufficient working capital to
continue its operating plan until it will generate sufficient revenues from
operations to support its activities.
If the offering is successful, the Company will have the additional
capital required to accelerate its business plan via an expansion of its
operations, marketing activities and financing of its activities. Additionally,
the Company would seek certain alliances with manufacturers and marketing
agreements. The Company will also seek certain acquisitions to further expand
its planned operation. However, the Company will seek stock based acquisitions
to preserve its cash for the operating activities.
BUSINESS
PSI designs, manufactures, sells/leases and finances fossil-fueled
engine-driven air conditioning, heating, thermal heat recovery and electric
cogenerating plants for the more than 2 million U.S. small businesses that have
been excluded from the benefits of utility deregulation. We provide typical
savings of 20% to 50% on annual utility bills for HVAC (heating, ventilating,
air conditioning) with no out of pocket costs on a convenient rental or
lease/purchase. With usual utility backup, our clients have redundant and secure
power supplies at less cost than their dependent neighbors. Our natural
gas-fired individual unit sales range from $75,000 to $125,000, with retrofits
ranging between $125,000 and $500,000. Most competition for cogeneration has
focused on large-scale industrial users, permitting PSI to concentrate on an
attractive model for small business with enviable margins. The energy efficiency
of cogeneration systems is approximately twice that of conventional generation.
The nitrogen oxide emissions that result from cogeneration are often one-tenth
that of conventional electrical generation.
We have more than thirty years of development and installation
experience and intend to develop a national market for our proven technology.
Our original demonstration test site model (PSI-120) system was installed in
1995 in Mamaroneck, NY and continues to meet or exceed the customer's
expectations. Our latest PSI-70/50 Combo system is presently being completed in
a commercial office building in Rochester, New York. The PSI systems are built
in a proprietary manner, sold outright and/or operated on a turnkey basis as the
PSI Combo package of cogeneration technology. Our expansion will be created
through a combination of advertising in the national trade magazines for
outright sales, and direct sales representatives in selected areas for the
sale/lease of units. We also intend to acquire suitable HVAC companies that will
permit the more rapid conversion of existing customer bases to our units.
Our Risk Model
We have taken steps to lower the risks that we take and simultaneously
enhance our expectations of profitability during a period of rapid growth. We
have structured the following business profile:
o Outright sales are made for cash with a 50% deposit due upon the order, 40%
prior to shipment and the remaining 10% on startup.
o Since we contract out most manufacturing and distribute maintenance needs to
the field, the requirement for a parts inventory has been primarily shifted to
other concerns.
o Unless sold outright, the systems remain the property of PSI and are easily
recoverable, if necessary.
o Funds from this offering and borrowings are targeted principally for
production and installations with immediate income.
Marketing
We have examined various factors associated with our market including
small business electricity usage, ability to pay for our systems, power
availability and quality, fuel sources, electricity prices, penetration of
competing distributed generation technologies, new capacity requirements and the
cost of new capacity additions. Based on this evaluation, we intend to target
the following market segments for our systems
1.Business users with annual electricity costs between ($100,000 to $1,000,000);
2.Firms in remote areas with little available service competition.
3.Facilities in high electricity cost areas.
4.Business users where utilities are unable to efficiently satisfy power needs.
5.Strategic partnership possibilities where natural gas utilities can enhance
their sales with PSI installations.
We will employ numerous techniques to identify potential customers such
as:
o Advertisements in the trade publications.
o Web sites as a vertical industry, business-to-business (B2B), to develop a
next-generation sales organization. o Identify, acquire and support several
profitable and attractive HVAC companies as subsidiaries. o Secure motivated
sales engineers at each HVAC subsidiary site and provide evaluation, design and
marketing support. We are specifically looking for superior market and
technologically specific expertise.
o We will centrally manage the delivery and installation to allow field
personnel to concentrate on marketing activities.
Sales Strategy
We will implement our marketing plan with an emphasis on
differentiating PSI from competing packaged cogeneration manufacturers. Our
strategy is essentially to permanently upgrade and alter the way HVAC equipment
is used by the small end user market. We generate direct sales of CoGenAirHeat
units partially through industry advertising, largely in trade publications. We
will also depend upon contractor sales personnel who have already established
relationships with prime sales prospects. We will target owners, operators and
managers of the properties that are prime candidates for our systems and seek to
leverage our advertising. We will also supply a resident cogeneration sales
engineer and support him or her with operating systems, a defined marketing
program and facilities. The HVAC licensees/subsidiaries generate instant local
name recognition and credibility as well as a base client list. These firms will
be given in-house engineering, installation and maintenance capabilities at a
minor and incremental cost to PSI.
Our on-site sales engineer will develop working relationships with
local utilities and complete energy audits for prospective customers. Although
the sales cycle to initial system placement may take up to nine months from the
date of the energy audit, we expect to generate a sustaining backlog of
projected installations. We also anticipate that successful site-performance
histories will serve as valuable referrals and demonstrations for on-going
system sales and acquisitions as well.
Industry Background
The bulk of the cogeneration industry today primarily revolves around
large industrial installations and numerous systems are operating in the
marketplace today. Capital markets have developed attractive financing
mechanisms and regularly fund such projects. In addition, the leading
cogeneration manufacturers are centralized with a high overhead structure that
makes their ability to respond to small and geographically dispersed end-users
problematic. The National Energy Policy Act of 1992 brought about deregulation
in order to balance out the usage of natural gas and electricity and alleviate
the need to build new power plants. Incentive programs that encourage adherence
to the Act constitute an important impetus to our growth. The natural gas
utility in the market of each of our prospective HVAC licensees/subsidiaries is
an immediate beneficiary of our installations and should have an interest in
working closely with us.
PSI Strategy
Our approach has been to overcome the existing competitive barriers by
making cogeneration technology available to small users and we have developed:
(a) a standard line of affordable and easy to integrate, 100KW to 500 KW
cogeneration modules, with impressive energy efficiency savings; (b) a low risk
leasing vehicle whose repayment stream is closely matched to savings and is
compatible with customer needs; and (c) a decentralized overhead structure with
an added new focus on stable HVAC licensees for an operational format that is
fast, directed towards the customer and is hands-on.
The modular nature of our systems permits us to fully use HVAC
facilities and personnel with their technological expertise as well as plant and
equipment. Our corporate and site engineering staff will specify, design and
deliver the cogeneration components and/or modules to a HVAC facility for their
assembly, installation and continuing maintenance. The expected increase in site
placements and revenues accompanied by new technology is expected to
significantly improve the competitive position as well as the stability and
capabilities of HVAC organizations.
Products
The benefits and flexibility of our CoGenAirHeat System for commercial,
industrial and large residential equipment of all sizes and BTU capacities are
exclusive and unequaled in the industry. Technological developments in
efficiency, size and standardized manufacturing or sub-systems and components
have allowed us to introduce this competitive new line. We can outsource major
manufacturing components, while producing cost-effective solutions to an
underserved market niche of significant size.
Competitive Advantages
We have formulated our systems and marketing program to contain
multiple benefits to users, affiliates and partners alike:
o The customer receives a state of the art equipment upgrade at
no cost while the existing life of his present facility is
extended with efficiency and substantial cost savings.
o The HVAC licensee will receive enhanced technological
capacities and accelerated revenues. He experiences only
incremental costs and is given the possibility of shareholder
appreciation and liquidity.
o The subsystem and component manufacturer receives stable
demands with economies in production and resultant improved
profitability.
o The natural gas utility receives increased throughput, load
balancing and profits with the marketing goodwill associated
with environmental improvements.
o The electric utility is helped to achieve its mandated
deferral of electric power capital investments.
Competition
There are approximately 25 cogeneration system manufacturers in the
U.S., but none have successfully addressed the millions of small commercial
enterprise market, except for PSI. The significant barriers to this market
include: (a) long sales and installation cycles; (b) complicated due diligence
procedures for system financing, and (c) costly operational structure need to
expand quickly into new markets. We have solved these problems by: (a) building
standard and easily scalable modules available in weeks; (b) we have in place
financing packages that are paid for by system savings; and (c) by leveraging
the existing assets of HVAC companies through distribution or acquisition
alignments, we accelerate geographical penetration.
We will also compete with other distributed generation technologies
including fuel cells and reciprocating engines, available at prices competitive
with existing forms of power generation. We believe that our systems will have a
competitive advantage in that they can be easily scaled to various business
sizes and will be more efficient in handling the load profile of small business
customers. We also believe that our systems will be quiet, environmentally
clean, efficient and relatively inexpensive to install, service and maintain.
Our systems will also compete with solar and wind-powered systems.
Need for Cogeneration
Due to increasing competitive pressures to cut costs, owners and
operators of industrial and commercial facilities are actively looking for ways
to use energy more efficiently. One option is cogeneration. In this context,
cogeneration is the simultaneous production of air conditioning, or other shaft
power usage, electricity and useful heat from the same fuel source. Facilities
with cogeneration systems use them to produce their own electricity, and use the
waste heat for process steam, hot water heating, space heating, and other
thermal needs. They may also use excess process heat to produce steam for
electricity production. Cogeneration currently coexists with a regulated
industry that is going through major structural changes that may limit its
application.
Regulatory Issues
The concept of cogeneration is not new. Early in this century, before
there was an extensive network of power lines, many industries had cogeneration
plants. As utilities became established and grew, most states began to regulate
them in order to limit their pricing power. The Public Utilities Holding Act of
1935 (PUHCA), together with amendments to the Federal Power Act (also in 1935),
were the final steps in protecting utility companies from competition. These
laws created vertically integrated utilities with responsibility for the
production, transmission, and distribution of power. In exchange for their
exclusive franchises (territories) and guaranteed revenues, utilities agreed to
government regulation of rates and service. Under these rules, more investments
in infrastructure and more sales meant more profits. As the network of power
lines grew and electricity from utilities became more economical, industrial
facilities bought more of their electricity from utilities. However, many
industries still had to generate process heat on-site. The economies of scale
that the utilities were able to obtain at that time, as well as the availability
of low-priced process heat from cheap oil and gas, removed incentives to retain
cogeneration.
In the past three decades, however, the long-term trend of energy
prices generally moved upward. Building more and more large power plants no
longer provided economies of scale. This was a major factor in the increasing
use of cogeneration by commercial and industrial facilities. The Public
Utilities Regulatory Policies Act of 1978 (PURPA) provided further encouragement
for developers of cogeneration plants. Section 210 required utilities to
purchase excess electricity generated by "qualified facilities" (QFs) and to
provide backup power at a reasonable cost. QFs included plants that used
renewable resources and/or cogeneration technologies to produce electricity.
PURPA cogenerators must use at least 5% of their thermal output for process or
space heating (10% for facilities that burn oil or natural gas). In many cases,
this forced independent cogenerators to accept very low rates for their steam
production in order to become a qualified facility under PURPA. Another problem
is the rate at which utilities purchase a cogenerator's excess power production.
Most states set the price at "avoided cost," or the cost to the utility of
producing that extra power. Utilities with excess power generation capacity are
often allowed to have extremely low avoided costs. This practice has created
artificial barriers to cogeneration as well as to independent power generators.
The Energy Policy Act of 1992 (EPAct) tried to create a more
competitive marketplace for electricity generation. It created a new class of
power generators known as Exempt Wholesale Generators (EWGs). These are exempt
from PUHCA regulation and can sell power competitively to wholesale customers. A
cogeneration facility can be (but does not have to be) a QF under PURPA and an
EWG under EPAct. This happens when the facility is in the exclusive business of
wholesale power sales, and makes no retail power sales to its "steam host"
(customer).
Cogeneration Technology
A typical PSI cogeneration system consists of an engine, steam turbine,
or combustion turbine that uses shaft power to drive compressors, pumps, and/or
electrical generators. A waste heat exchanger recovers waste heat from the
engine and/or exhaust gas to produce hot water or steam. Cogeneration produces a
given amount of electric power and process heat with 10% to 30% less fuel than
it takes to produce the electricity and process heat separately.
There are two main types of cogeneration concepts: "Topping Cycle"
plants, and "Bottoming Cycle" plants. A topping cycle plant generates
electricity or mechanical power first. Facilities that generate electrical power
may produce the electricity for their own use, and then sell any excess power to
a utility. There are four types of topping cycle cogeneration systems. The first
type burns fuel in a gas turbine or diesel engine to produce electrical or
mechanical power. The exhaust provides process heat, or goes to a heat recovery
boiler to create steam to drive a secondary steam turbine. This is a
combined-cycle topping system. The second type of system burns fuel (any type)
to produce high-pressure steam that then passes through a steam turbine to
produce power. The exhaust provides low-pressure process steam. This is a
steam-turbine topping system. A third type (diesel-engine topping system) burns
natural gas or diesel fuel. Gasified coal and landfill gas can also be used. The
hot water from the engine jacket cooling system flows to a heat recovery boiler,
where it is converted to process steam and hot water for space heating. The
fourth type is a gas-turbine topping system. A natural gas turbine drives a
generator. The exhaust gas goes to a heat recovery boiler that makes process
steam and process heat. A topping cycle cogeneration plant always uses some
additional fuel, beyond what is needed for manufacturing, so there is an
operating cost associated with the power production. Bottoming cycle plants are
much less common than topping cycle plants. These plants exist in heavy
industries such as glass or metals manufacturing where very high temperature
furnaces are used. A waste heat recovery boiler recaptures waste heat from a
manufacturing heating process. This waste heat is then used to produce steam
that drives a steam turbine to produce electricity. Since fuel is burned first
in the production process, no extra fuel is required to produce electricity.
An emerging technology that may have cogeneration possibilities is the
fuel cell. A fuel cell is a device that directly converts fossil fuels to
electricity without combustion. The first commercial availability of fuel cell
technology was in the phosphoric acid fuel cell, which has been on the market
for a few years. There are about 40 installed and operating in the United
States. A portable, 200 kW, natural gas fired phosphoric acid fuel cell was
hooked up to the Springs Industries baby-clothing manufacturing plant in
Jackson, Georgia in 1996. The fuel cell will supply electricity to the textile
plant for one year while the engineers monitor its performance. Hot water
generated by the fuel cell is used in the manufacturer's dyeing and washing
processes. Other fuel cell technologies (molten carbonate and solid oxide) are
in early stages of development. Solid oxide fuel cells (SOFCs) may be potential
source for cogeneration due to the high temperature heat generated by their
operation.
Cogeneration Applications
Cogeneration systems have been designed and built for many different
applications. Large-scale systems can be built on-site at a plant, or off-site.
Off-site plants need to be close enough to a steam customer (or municipal steam
loop) to cover the cost of a steam pipeline. Industrial or commercial facility
owners can operate the plants, or a utility or a non-utility generator (NUG) may
own and operate them. Manufacturers use 90% of all cogeneration systems. Some
industries and waste incinerator operators who own their own equipment realize
sizable profits with cogeneration.
Another large-scale application of cogeneration is for district
heating. Many colleges and cities, which have extensive district heating and
cooling systems, have cogeneration facilities. The University of Florida has a
42 Megawatt (MW) gas turbine cogeneration plant ("Gator Power"), built in
partnership with the local utility. Pictures of the plant as well as
descriptions of the system and other technical references are currently
available on the Internet (see address below).
Some large cogeneration facilities were built primarily to produce
power. They produce only enough steam to meet the requirements for qualified
facilities under PURPA. If no steam host is nearby, one can be built. For
example, there are large (80 MW) plants operating under PURPA that have large
greenhouses as "steam hosts." The greenhouses operate without losing money only
because their steam heat is virtually free of charge. These types of plants are
candidates to become EWGs in the new regulatory environment.
Many utilities have formed subsidiaries to own and operate cogeneration
plants. These subsidiaries are successful due to the operation and maintenance
experience that the utilities bring to them. They also usually have a long-term
sales contract lined up before the plant is built. One example is a 300 MW plant
that is owned and operated by a subsidiary co-owned by a utility and an oil
company. The utility feeds the power directly into its grid. The oil company
uses the steam to increase production from its nearby oil wells.
Cogeneration systems are also available to small-scale users of
electricity. Small-scale packaged or "modular" systems are being manufactured
for commercial and light industrial applications. Modular cogeneration systems
are compact, and can be manufactured economically. These systems, ranging in
size from 20 kilowatts (kW) to 650 kW produce electricity and hot water from
engine waste heat. It is usually best to size the systems to meet the hot water
needs of a building. Thus, the best applications are for buildings such as
hospitals or restaurants that have a year-round need for hot water or steam.
They can be operated continuously or only during peak load hours to reduce peak
demand charges, although continuous operation usually has the quickest payback
period.
Cogeneration systems have also been developed for private residences.
These home-sized cogeneration packages have a capacity of up to 5 kW. Both
natural gas-fueled and oil-fueled systems exist. They are capable of providing
most of the heating and electrical needs for a home. Small-scale cogeneration
has not been widely used in the United States due to the initial cost of buying
and installing the system.
Environmental Issues
While cogeneration provides several environmental benefits by making
use of waste heat and waste products, air pollution is a concern any time fossil
fuels or biomass are burned. The major regulated pollutants include
particulates, sulfur dioxide (SO2), and nitrous oxides (NOX). Water quality,
while a lesser concern, can also be a problem. New cogeneration plants are
subject to an Environmental Protection Agency (EPA) permit process designed to
meet National Ambient Air Quality Standards (NAAQS). Many states have stricter
regulations than the EPA. This can add significantly to the initial cost of some
cogeneration facilities.
Some cogeneration systems, such as diesel engines, do not capture as
much waste heat as other systems. Others may not be able to use all the thermal
energy that they produce because of their location. They are therefore less
efficient, and the corresponding environmental benefits are less than they could
be. The environmental impacts of air and water pollution and waste disposal are
very site-specific for cogeneration. This is a problem for some cogeneration
plants because the special equipment (water treatment, air scrubbers, etc.)
required to meet environmental regulations adds to the cost of the project. If,
on the other hand, pollution control equipment is required for the primary
industrial or commercial process, cogeneration still can be economically
attractive.
Future Market Development
Although the number of cogeneration systems is growing at a steady
rate, certain factors have and will slow the acceleration of cogeneration
activities. Such factors include the initial cost of buying and bringing a
cogeneration system on-line, maintenance costs, and environmental control
requirements. Not all electric utilities need the additional electricity. They
may have excess generation capacity or a stable customer base. This leads to
lower "avoided cost" rates, which reduces the viability of cogeneration projects
that rely heavily on power sales to utilities. In addition, the deregulation, or
restructuring, of electric power generation makes it more attractive for
developers to become independent power producers and to build "electricity only"
power plants, instead of cogeneration plants. There has also been a great deal
of pressure from utility and industrial special interests to repeal or amend
PURPA. If they are successful, it could be difficult for new cogeneration
projects to get off the ground. Barring that development, improved technology
and cooperation among industries, businesses, utilities, and financiers should
provide impetus to the continued development of both cogeneration projects and
independent power production projects.
Government Regulation
We do not believe that we will be subject to exiting federal and state
regulatory commissions governing traditional electric utilities and other
regulated utilities. We do believe that our systems will be subject to oversight
and regulation at the local level in accordance with state and local ordinances
relating to building codes, safety, pipeline connections and related matters.
Such regulation may depend, in part, upon whether a system is placed inside or
outside of a facility. At this time, we do not know which jurisdictions, if any,
will impose regulations upon our system or installation. We also do not know the
extent to which any existing or new regulations may impact our ability to
distribute, install and service our systems. Once our product reaches extensive
national distribution, federal, state or local government entities or
competitors may seek to impose regulations. We intend to encourage the
standardization of industry codes to avoid having to comply with differing
regulations on a state-by-state or locality-by-locality basis.
Intellectual Property
We intend to trademark and otherwise brand our services. If successful,
our rights to such trademarks and service marks will last indefinitely so long
as we continue to use and police the marks and, with respect to registered
marks, to renew filings with the appropriate government agencies. We consider
that marks will become material to our business.
Web Site
As part of our program to secure added clients, we will provide a Web
site that features a variety of information for sales engineers and customers
alike. Our national Web site will feature valuable information for HVAC needs of
small business as well as a chat room to allow questions to be submitted to
Company personnel. Each HVAC licensee/subsidiary will also have a Web site that
relates to his particular territory and unique community dynamics. We believe
continued participation and promotion of such Web sites will provide the
important marketing advantages.
Employees
As of December 31, 1999, we had 5 employees who serve on as needed
basis only and are unsalaried. None of our employees is represented by a union
and our employee relations are satisfactory. We intend to augment our staff in
response to the proceeds of this offering and the success of our acquisition and
marketing strategies.
Properties
Our principal executive and administrative offices are located at 5800
NW 64th Avenue, Bldg 26 #109, Tamarac, FL. We currently occupy 1,000 square feet
of space at a monthly cost of $500, on a month-to-month basis. Upon completion
of this offering we intend to acquire approximately 2,500 square feet in a
nearby basis on comparable terms.
Legal Proceedings
We are not a party to any material litigation. However, claims and
litigation may arise in the normal course of business.
Additional Information
We have filed a registration statement on Form SB-2 under the
Securities Act with the Securities and Exchange Commission in Washington, D.C.
with respect to the securities offered hereby. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and the securities
offered hereby, reference is made to the registration statement and the exhibits
and schedules thereto filed as a part thereof. Statements contained in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. The registration statement, including all
amendments, exhibits and schedules thereto, may be inspected without charge at
the office of the Securities and Exchange Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Securities and
Exchange Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issues that file
electronically with the Commission. The address of site is http://www.sec.gov.
MANAGEMENT
Directors and Executive Officers
Name Age Position Director Since
Scott Emerson Balmer 74 Chairman of the Board of Directors 1988
Burton T. O'Donald 57 CEO
Raymond H. Buldcoc II 52 President, COO, CFO
Victor V. Vurpillat, PhD 58 Vice President, Acquisitions
Norman S. Haugen 65 Consultant, Electric Power Programs
Mary Jane Balmer, 69 Interim Secretary and Treasurer 1998
Note: Presently all executives are compensated on an as needed basis
only. They will join us permanently in the position indicated upon attaining
financing. An officer or director "expected to join the company" or "designate"
is one who will assume the office no later than upon completion of the offering.
Our directors are elected at the annual meeting of our shareholders.
Each director holds office until his successor is elected and qualified or until
his earlier death, resignation or removal. Our executive officers serve at the
discretion of the Board of Directors. None of the permanent executives or
directors has or will have any family relationship to any other. We expect to
obtain key life insurance on Scott Balmer, payable to us. Mary Jane Balmer, the
Interim Secretary and Treasurer, is the wife of Scott Balmer.
Scott Emerson Balmer is our founder and has directed the Company since
1988. He has had a lifetime in the HVAC industry and has designed equipment to
fill a variety of niches in the marketplace. Balmer & his associates have
concentrated on development of medium capacity combo system electric generating
plants, cogeneration, and research and development of natural gas fueled
systems. He is a creator of numerous unique designs in energy saving equipment
including solar and geothermal energy systems.
Burton D. O'Donald joined us as CEO in 1998 following three years at
the Oxford Acceptance Company and ten years at the DME Corporation. He
co-founded Oxford and implemented direct marketing and support systems for this
capital provider. At DME he was involved in product development, design
engineering and support of marketing. He holds two Bachelor's degrees from the
University of Pennsylvania and a Master's degree from the Wharton School.
Raymond H. Bolduc II has been our President, CFO and COO since December
1998. He has served as an advisor and participant in major corporate development
programs for Arthur D. Little Company and has held a variety of executive
positions with firms such as American Express, Latin America. From 199 to 1996
he served as a consultant to Renova Group, and from 1996 to 1997 as a consultant
to Tronco, South Africa. From 1997 he was a consultant to Hidden Eyes, Inc. and
from 1998 to present he has served as Manager of Administration and Projects of
Miami Millwrights. He holds a Bachelor's degree from Rutgers University and an
MBA from Northeastern University.
Victor V. Vurpillat has chaired our Executive Committee since 1995 and
presently serves as Vice President, Acquisitions. From 1999 to the present he
has served as a vice president of 21st Century Medicine. From 1996 to 1999 he
was with SpanWorks, a joint venture with Toshiba, as a founder and board member.
From 1992 to 1996 he was the chairman of a biotech engineering company, Incell.
From 1976 to 1990 he served as a founder and VP for R&D of Safeguard
Scientifics, Inc., a company that served as an incubator for many technology
firms. He is either the founder, officer or director of 13 early stage
companies including Novell, Telerate, LV Computer Systems, Compucom, InCell
and IDR-Reuters. He holds 7 U.S. patents and was granted a PhD from Newport
University.
Norman S. Haugen has served as a Consultant to the Company since 1988.
He has 40 years of experience in the power generation field with extensive
experience in the application of cogeneration systems. He also is experienced in
the manufacturing and servicing of cogeneration applications.
Mary Jane Balmer has served as our Interim Secretary and Treasurer
since 1988.
Director Compensation
None of the Company's directors received any compensation for their
services as a director during fiscal year 1997, 1998 or 1999. After completion
of the Offering, the Company will consider a small stipend for directors who are
not employees of the Company and/or participation in a stock option plan. The
Company reimburses all reasonable expenses incurred in connection with attending
meetings of the Board. Officers serve at the discretion of the Board and are
elected annually. No director is selected or serves pursuant to any special
arrangement or contract. (See "Description of Capital Stock.")
Executive Compensation
No executives received compensation from the Company in 1999.
Any bonuses would be awarded by the Board of Directors following a
review of our performance in the previous year and a judgment that such bonuses
were warranted. The Board may also choose additional forms of compensation if
the Company's and the individual's performance so warranted. The formula or
criteria for determining bonuses past 1999 has not yet been established.
Stock Option and Exercise Prices
The Company has no stock option plan at the present time and there are
no outstanding stock options that have been granted to anyone.
Employment Agreements.
We will enter into a new three-year employment agreement containing
confidentiality and non-compete provisions with all current officers and we
intend to negotiate similar agreements with new executive officers. We expect to
have these in place during the first quarter 2000. The employment agreements
will specify salary, other forms of compensation, termination and other
provisions to protect both our rights and those of the employee.
Each employment agreement also provides that the employee is entitled
to a bonus as determined by the board of directors, from time to time, and
options under the Company's Stock Option Plan. Each Employment Agreement
provides for a term of three years and is renewable upon mutual consent. The
employment agreements may be terminated for cause and, in the event of change in
control of the Company, each employee is entitled to a lump sum payment equal to
the greater of one year's salary or the baser salary and benefits that would
have been received by the employee if he/she had remained employed by us the
remainder of the three year term. The employment agreements also contain
confidentiality and non-competition provisions prohibiting the employee from
competing against us and disclosing trade secrets and other proprietary
information. Courts have often held that such non-compete agreements are
contrary to public policy and may easily not be enforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that all of the transactions set forth in this document were
made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. We intend that all future transactions, including
loans, between us and our officers, directors, principal shareholders and their
affiliates will be approved by a majority of the board of directors, including
outside directors, and be on terms no less favorable to us than could be
obtained from unaffiliated third parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of December 31, 1999 and as adjusted
to reflect the sale of the minimum and maximum amount of the Shares offered
hereby, by: (1) each person known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock; (2) each of the Company's directors;
(3) each of the Company's executive officers, (4) all directors and executive
officers of the Company as a group, and (5) all other stockholders as a group.
Shares Beneficially Owned
Number Percent (%)
Prior to After After
Name of Beneficial Owner Offering Minimum Maximum
-------- ------- -------
Scott Balmer 6,414,149 (100%) 6,414,149 (99%) 6,414,149 (87%)
Other Investors None
Total 1
Total shares sold in the Offering (Min) 100,000
Total shares sold in the Offering (Max) 1,000,000
Price per share and form of consideration:
CERTAIN ARTICLES AND BYLAWS
The Certificate of Incorporation and Bylaws of the Company contain
certain provisions regarding the rights and privileges of shareholders. The
provisions of the Certificate of Incorporation and Bylaws are summarized below.
Reference is made to the full text of the Certificate and Bylaws. The following
summary is qualified in its entirety by such reference.
Size of Board and Election of Directors. The Certificate of
Incorporation provides that the number of Directors shall be fixed from time to
time as provided in the Bylaws. The Articles of Incorporation and Bylaws
currently provide for not less than one person to serve on the Board, but the
number of Directors may be changed (to not less than one) by amendment to the
Bylaws, which requires the vote of a majority of the Board. The Certificate
of Incorporation further provides that the Board may amend the Bylaws by
action taken in accordance with such Bylaws, except to the extent that any
matters under the Certificate of Incorporation or applicable law are
specifically reserved to the shareholders.
OPTION FOR SHAREHOLDERS OWNING MORE THAN 10%
The only shareholders owning more than 10 % are the founders. They have
not been granted any options.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000
shares of common stock, par value $0.03. On December 31, 1999, 6,414,149 shares
of common stock were issued and outstanding and there is one holder of the
common stock. 50,000,000 preferred shares are authorized and 296,300 have been
issued and are outstanding.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and do not have cumulative voting
rights. The holders of a majority of the outstanding shares of Common Stock
represented at a meeting at which a quorum is present may elect all directors to
be elected at the meeting. Holders of the common stock may take action without a
meeting of stockholders if a consent in writing setting forth such action is
signed by the holders of the majority of all outstanding shares of Common Stock.
The holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of legally available funds. In the event of the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities.
There are no preemptive rights, redemption or sinking fund provisions applicable
to the Common Stock. All outstanding shares of Common Stock are, and the shares
of Common Stock to be outstanding upon completion of the Offering will be, fully
paid and non-assessable. The dividends and liquidation rights of holders of
common stock are subject to the rights and preferences of the holders of shares
of any series of preferred stock that the Company may issue in the future.
LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The Bylaws of the Company provide that directors of the Company will
not be personally liable for monetary damages to the Company or its shareholders
for breaches of their duties as directors except in instances involving
self-dealing, willful misconduct or recklessness, criminal violations or
liabilities involving the payment of taxes.
The Company has included provisions in its Bylaws providing for
indemnification of its directors and officers by the Company to the maximum
extent permitted under applicable law, including the advancement of expenses
incurred by a director or officer in any suit in which the director or officer
is involved. The Company believes that such actions will assist it in attracting
and retaining qualified individuals to serve as directors and officers.
Prospective investors should be aware, however, that the costs associated with
indemnifying a director or officer could be significant and, if not covered by
insurance, could adversely affect the Company's results of operations.
Furthermore, in situations where the Company has advanced litigation expenses to
a director or officer and the director or officer is required to repay the
expenses because it is ultimately determined that the director or officer is not
entitled to indemnification, the director or officer may not have sufficient
cash or assets to repay the expenses advanced.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will 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.
LIMITATIONS ON TRANSFER OF SHARES
There is currently no public market for the Company's Common Stock, and
there is little likelihood that an active trading market will develop in the
near future as a result of this Offering. The Offering Statement, of which this
Offering Circular is a part, has not yet been qualified with the Securities and
Exchange Commission pursuant to SB-2 under the Securities Act, and as such, the
Shares may not be freely traded under the federal securities laws until such
qualification has been made and shares properly registered in the states where
they are to be sold. The Shares, however, will have been registered in only a
limited number of states and may not be sold or otherwise transferred to persons
who are residents of any state in which the Shares have not yet been registered
unless they are subsequently registered or there exists an exemption from the
applicable state's registration requirements with respect to such sale or
transfer.
Following the Offering, the Company will be considered a "reporting"
issuer whose securities are not listed or subject to regulation under the 1934
Act. The Company has retained a broker-dealer to facilitate the sale of shares
under the Offering. Pursuant to Rule 15c2-11 of the 1934 Act, the Company will
provide continuing information about the Company to the broker-dealer during the
Offering period. However, in view of the relatively small size of the Offering
there is virtually no likelihood that a regular trading market will develop in
the near term if at all, or that if developed, it will be sustained. Accordingly
an investment in the Company's Common Stock should be considered highly
illiquid.
TRANSFER AGENT AND ANNUAL REPORT
The Company will act as its own transfer agent. Each year the Company
will prepare and distribute to shareholders an Annual Report that describes the
nature and scope of the Company's business and operations for the prior year and
contains a copy of the Company's financial statements for its most recent year.
VALIDITY OF COMMON STOCK
The validity of the issuance of Common Stock offered hereby has been
passed upon for the Company by John Tansey, Esq., of Washington, D.C.
ACCOUNTING
The Company's audited financial statements contained herein show
the Company's position as of December 31, 1999 and are audited by the firm of
David T. Thomson, P.C., of Murray, Utah..
QUALIFIED SMALL BUSINESS ISSUER CAPITAL GAINS TAX EXCLUSION
In 1993, IRS Section 1202 was enacted to provide a 50-percent exclusion
of any gain from the sale of qualified small business stock." For the Shares to
qualify for the exclusion, several tests must be met. For instance the Shares
must be purchased directly from the Company, not in a later trading market, and
the Shares must be held for at least five years. In addition, a "qualified small
business" must not have more than $50 million in assets at all times before the
issuance of the stock and immediately thereafter. Further, at least 80 percent
of the assets must be used in the "active conduct of one or more qualified
trades or businesses" throughout the holding period. There are also limitations
on the persons who may use the exclusion. Prospective investors should consult
their own tax advisers as to the availability of the exclusion.
PLAN OF DISTRIBUTION
The Company is offering to sell up to 1,000,000 shares of Common Stock
at an offering price of $5.00 per share. The Company has agreed to pay to a
broker-dealer, Three Arrows Capital Corporation, 10101 Grosvenor Place #2016,
Rockville, MD 20852 (301) 897 3889 (the "Selling Agent") a sales commission of 5
percent, or $0.25 per share. In addition, the Company has issued warrants to the
broker-dealer to purchase shares at the Offering price, within five years
following effectiveness of the Offering as declared by the Commission, at the
rate of one warrant for each fifteen shares sold up to a maximum of 66,666
shares, and paid a fee of $9,950 for due diligence and consultation. Warrants to
be received by Three Arrows Capital Corp. are restricted from sale, transfer,
assignment or hypothecation for a period of one year from the effective date of
the offering except to officers or partners (not directors) of the underwriter
and members of the selling group and/or their officers or partners. Three Arrows
Capital Corp. is a registered broker-dealer with the NASD and is registered with
the states of New York, Maryland, Virginia and numerous other jurisdictions. The
Company has also agreed to indemnify the Selling Agent for any material
misstatement in its filing. The Company has no plans, proposals, arrangements,
or understandings with the Selling Agent, other than the warrants shares of the
Company's common stock, with regard to future transactions. No other material
relationships exist between the Selling Agent and the Company or its management.
No officers, employees, or directors of the Company will be paid a
commission in connection with the sale of any Shares nor will any officer,
employee or director of the Company undertake the sale of the shares. Sale of
the shares will only be undertaken by the underwriter. None of the principal
shareholders nor management of the Company nor the Underwriter will buy shares
in the Offering to meet the escrow. The Shares will be offered by the Selling
Agent on behalf of the Company primarily through direct solicitations, media
coverage, and posting of announcements.
The Company reserves the right to reject any subscription in its
entirety or to allocate Shares among prospective investors. If any subscription
is rejected, funds received by the Company for such subscription will be
returned with interest and without deduction. The termination date of the
Offering is _______, 2001. Subscribers will be required to make certain
representations and warranties in the subscription agreement that should be
carefully read before signing.
Investors will have payment for stock deposited in an escrow account
in The Business Bank, 8399 Leesburg Pike, Vienna, VA 22101 by noon of the next
business day after receipt by the broker-dealer. If the minimum proceeds of
$500,000 are not raised, the Subscriber's funds will be promptly returned, with
interest, by the escrow date of _______, 2001. Escrowed funds will be invested
only in investments permissible under SEC Rule 15c2-4.
Within five days of its receipt of a subscription agreement from the
Selling Agent confirming that an accompanying check for the purchase price of
Shares has been received following escrow, the Company will send by first class
mail a written confirmation to notify the subscriber of the extent, if any, to
which subscription has been accepted by the Company. The Company reserves the
right to reject orders for the purchase of Shares in whole or in part. Not more
than thirty days following the mailing of its written confirmation, and upon
achieving the minimum number of total Shares to be sold, a subscriber's Common
Stock certificate will be mailed by first class mail. The Company shall not use
the proceeds paid by an investor until such time as escrow is broken.
Officers and directors of the Company are required to sign "lock-up"
agreements for any and all shares they own or have beneficial rights to own.
Such agreements specify that the holders will not sell or otherwise dispose of
any shares of common stock in any public market transaction including pursuant
to Rule 144 without the specific written approval of the underwriter, Three
Arrows Capital Corp. The agreements also specify that they may not exercise any
rights held by such holders to cause, for a period of twelve months following
the completion of this offering, without the specific written approval of the
underwriter.
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Equity 4-5
Statements of Cash Flows 6
Notes to Financial Statements 7-11
Independent Auditor's Report
Board of Directors and Stockholders
POWER SAVE INTERNATIONAL, INC.
I have audited the accompanying balance sheets of Power Save International,
Inc. (a development stage company) as of December 31, 1999 and 1998 and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on the
financial statements based on my audits. The financial statements of Power Save
International, Inc. for periods from inception (May 8, 1987) to December 31,
1997 were audited or compiled by other accountants and are not reported upon.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provided a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Power Save International, Inc.
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 3 and 4, the
Company is in the development stage and has sustain significant losses from
inception to date and there is no assurance that the Company can realize
sufficient revenues from its products and services to attain profitable
operations. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those
matters is also discussed in Note 3 and 4. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Salt Lake City, Utah
February 17, 2000
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Inception
Year Ended Through
-------------------------------------
December 31, December 31, December 31,
1999 1998 1999
----------------- ----------------- ----------------
SALES, Net of Returns, Allowances and Discounts $ 69,986 $ 5,041 $ 587,581
COST OF SALES 67,261 589 352,207
Gross margin 2,725 4,452 235,374
EXPENSES:
Research and development costs - - 119,554
Depreciation and amortization 571 50,186 548,146
General and administrative expenses 61,592 13,709 637,439
TOTAL OPERATING EXPENSES 62,163 63,895 1,305,139
Net (loss) before other items (59,438) (59,443) (1,069,765)
OTHER INCOME
Nonrefundable option income - 23,000 23,000
Gain on sale of marketable securities 11,474 - 11,474
Reserve against product rights - (244,000) (244,000)
Dividend income 227 - 227
TOTAL OTHER INCOME 11,701 (221,000) (209,299)
NET (LOSS) BEFORE TAXES (47,737) (280,443) (1,279,064)
PROVISIONS FOR INCOME TAXES - - -
NET (LOSS) $(47,737) $ (280,443) $ (1,279,064)
EARNINGS (LOSS) PER SHARE $ (0.01) $ (0.04)
WEIGHTED AVERAGE SHARES OUTSTANDING 6,414,149 6,414,149
================= =================
The accompanying notes are an integral part of these financial statements.
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
December 31, December 31,
1999 1998
---------------- ----------------
CURRENT ASSETS:
Cash $ 53,227 $ 3,527
Accounts receivable 3,788 -
Marketable securities-available-for-sale 904,160 -
Deferred offering costs 12,450 -
------- -
Total Current Assets 973,625 3,527
-------- -----
PROPERTY, PLANT AND EQUIPMENT, at cost
Equipment 4,112 1,612
------ -----
4,112 1,612
Less accumulated depreciation 1,737 1,166
------ -----
Net property, plant and equipment 2,375 446
------ ---
OTHER ASSETS
Product rights, development costs and other intangible assets
net of reserve of $244,000 at December 31, 1999 and 1998 - -
-- -
Total Other Assets - -
-- -
TOTAL ASSETS $ 976,000 $ 3,973
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,056 $ 9,256
Advances from shareholder 218,753 134,994
-------- -------
Total Current Liabilities 220,809 144,250
-------- -------
STOCKHOLDERS' EQUITY:
Preferred stock; 50,000,000 shares authorized; $.03 par value; 296,300
shares issued and outstanding at December 31, 1999 and
no shares issued and outstanding at December 31, 1998 8,889 -
Capital stock, $.03 par value; 50,000,000 shares authorized;
6,414,149 shares issued and outstanding at December 31, 1999
and 1998 192,425 192,425
Additional paid-in capital 1,493,581 898,325
Deficit accumulated during the development stage (1,278,764) (1,231,027)
Accumulated other comprehensive income 339,060 -
-------- -
Total Stockholders' Equity (Deficit) 755,191 (140,277)
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 976,000 $ 3,973
========== =======
The accompanying notes are an integral part of these financial statements.
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION (May 8, 1987) TO DECEMBER 31, 1999
Deficit
Accumulated Accumulated
Additional During the Other
Preferred Stock Capital Stock Paid-in Development Comprehensive
Shares Amount Shares Amount Capital Stage Income Total
--------------------------------------------------------------------------------------------------
Issuance of shares
for cash-May 1987 - $ - 100,000 $ 3,000 $ - $ - $ - $ 3,000
Issuance of shares
for cash-August 1987 - - 63,433 1,903 278,037 - - 279,940
Issuance of shares
for product rights
and other intangible assets - - 33 - - - - -
Sale of shares
to the public for $.30
per share-restated - - 74,334 2,230 20,070 - - 22,300
Deferred offering costs - - - - (7,892) - - (7,892)
Exchange of shares regarding
pooling of interest of subsidiaries:
Cancellation - - (63,467) (1,904) 1,904 - - -
Re-issuance - - 396,767 11,904 (11,904) - - -
Issuance of shares for services - - 30,500 915 - - - 915
Cancellation of shares-former officer - - (30,000) (900) (9,100) - - (10,000)
Issuance of shares to A.P.S.I.-merger - - 5,144,000 154,320 (109,320) - - 45,000
Issuance of shares for prepaid lease
and working capital - - 449,000 13,470 236,530 - - 250,000
Issuance of shares for services - - 95,000 2,850 - - - 2,850
Conversion of debt
to preferred stock 50,000 1,500 - - 498,500 - - 500,000
Exchange of preferred shares for
oil and gas properties 2,000,000 60,000 - - 9,940,000 - - 10,000,000
Issuance of shares for services - - 154,549 4,637 - - - 4,637
Net loss from inception through
December 31, 1996 - - - - - (908,706) - (908,706)
-- -- -- -- -- --------- -- ---------
Balance-December 31, 1996 2,050,000 61,500 6,414,149 192,425 10,836,825 (908,706) - 10,182,044
Net loss for the year ended
December 31, 1997 - - - - - (41,878) - (41,878)
-- -- -- -- -- -------- -- --------
Balance-December 31, 1997 2,050,000 61,500 6,414,149 192,425 10,836,825 (950,584) - 10,140,166
Cancellation of preferred shares
for oil and gas properties and
other outstanding preferred
shares (2,050,000) (61,500) - - (9,938,500) - - (10,000,000)
Net loss for the year ended
December 31, 1998 - - - - (280,443) - (280,443)
-- -- -- -- -- --------- ---------
Balance-December 31, 1998 - $ - 6,414,149 $192,425 $898,325 $(1,231,027) $ - $ (140,277)
Deficit
Accumulated Accumulated
Additional During the Other
Preferred Stock Capital Stock Paid-in Development Comprehensive
Shares Amount Shares Amount Capital Stage Income Total
-------------------------------------------------------------------------------------------------
Balance- December 31, 1998 - $ - 6,414,14 $ 192,425 $ 898,325 $(1,231,027) $ - $(140,277)
Additional contributed capital - - - - 11,545 - - 11,545
Issuance of preferred shares
for marketable securities 296,300 8,889 - - 583,711 - - 592,600
Comprehensive income:
Net loss for the year
ended December 31, 1999 - - - - - (47,737) - (47,737)
Other comprehensive
income (loss)
Unrealized gain
on securities - - - - - - 339,060 339,060
Comprehensive income - - - - - - - 291,323
-- -- -- -- -- -- -- -------
Balance-December 31, 1999 296,300 $ 8,889 6,414,149 $ 192,425 $1,493,581 $ (1,278,764) $ 339,060 $ 755,191
======== ======== ========== ========== ============ ============= ========== =========
The accompanying notes are an integral part of these financial statements.
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Inception
Year Ended Through
-------------------------------------
December 31, December 31, December 31,
1999 1998 1999
----------------- ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (47,737) $ (280,443) $ (1,279,064)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 571 50,186 548,146
Common stock issued for lease - - 225,000
Gain on sale of securities (11,474) - (11,474)
Reserve against assets and liabilities - 244,000 244,000
Changes in assets and liabilities:
(Increase) in accounts receivable (3,788) - (3,788)
(Increase) in deferred offering costs (12,450) - (12,450)
Increase in accounts payable (7,199) (6,303) 2,056
Increase in advances from shareholder 83,759 (4,954) 218,753
------- ------- -------
Net cash used in operating activities 1,682 2,486 (68,821)
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Product rights, development costs and intangibles - - (244,000)
Increase in organization costs - - (36,408)
Acquisition of fixed assets (2,500) - (14,112)
------- -- --------
Net cash used in investing activities (2,500) - (294,520)
------- -- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of marketable securities 38,974 38,974
Proceeds from issuance of common stock, net 11,544 - 377,594
------- -- -------
Net cash provided by financing activities 50,518 - 416,568
------- -- -------
Net Increase (decrease) in Cash 49,700 2,486 53,227
CASH AT BEGINNING PERIOD 3,527 1,041 -
------ ------ -
CASH AT END OF PERIOD $ 53,227 $ 3,527 $ 53,227
========= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Stock issued in exchange for goods and services $ - $ - $ 8,402
==== ==== =======
Cash paid for interest $ - $ - $ -
==== ==== ===
Cash paid for income taxes $ - $ - $ -
==== ==== ===
The accompanying notes are an integral part of these financial statements.
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Power Save International, Inc. (the Company), a Nevada corporation, was
re-incorporated on July 22, 1999. The original incorporation date of
the previous company was May 8, 1987 and the following financial
statements reflect activities from this date of inception. The company
is currently consulting, creating and providing commercial and
industrial energy efficient, engine driven or electrically driven
oxygen plants, air conditioning, refrigeration, compressed air and
electric generating plant designs and systems, for domestic and export
applications, from an inventory of energy technology related products,
developed over the years. The Company's products are being sold in the
eastern United States.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Power Save
International, Inc. (the Company) is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Accounting method - The Company's financial statements are prepared
using the accrual method of accounting.
Inventories - Inventories consist of components and finished goods and
are stated at the lower of cost or market. Cost is determined using the
first-in first-out method.
Equipment - Equipment is stated at cost. Maintenance and repairs are
expensed as incurred. Depreciation is determined using the
straight-line method over the estimated useful lives of the assets,
which is three to ten years.
Product Rights - Product rights will be amortized over revenue
generating operations based on management's expectations of the life of
such technology acquired. In 1998, the remaining cost of the product
rights were reserved in total leaving a zero balance at December 31,
1999 and 1998. (see note 5).
Earnings (Loss) Per Share - The Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings per
Share"("SFAS No. 128"), which is effective for annual periods ending
after December 15, 1997.
Earnings (loss) per share are computed based on the weighted average
number of shares actually outstanding as follows:
December 31, December 31,
1999 1998
---- ----
Weighted number
of common
Shares used
6,414,149 6,414,149
========= =========
No changes in the computations of diluted earnings per share amounts
are presented since there were no capital stock transactions that would
serve to dilute common shares.
7
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Income Taxes - The Company accounts for income taxes using the asset
and liability method. The differences between the financial statement
and tax bases of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those
differences that have future tax consequences using the currently
enacted tax laws and rates that apply to the period in which they are
expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce deferred tax asset accounts to the
amounts that will more likely than not be realized. Income tax expense
is the current tax payable or refundable for the period, plus or minus
the net change in the deferred tax asset and liability accounts.
Statement of Cash Flows - The Company considers (if and when they have
any) all highly liquid investments with maturities of three months or
less to be cash equivalents. The Company had no noncash investing and
financing transaction during 1999 and 1998.
Issuance of Shares for Services and Other Assets - Valuation of shares
for services and other acquired assets were based on the fair market
value of services received.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive Income - The Company adopted Statement of Financial
Accounting Standard No. 130, "Comprehensive Income"("SFAS No. 130"),
which is effective for annual periods ending after December 15, 1997.
As provided by SFAS No. 130, reclassification adjustments to prior year
amounts are reported in a separate statement of comprehensive income
along with current year components of comprehensive income.
Reclassifications - Certain prior year amounts have been
reclassified to conform with 1999 classifications.
Marketable Securities - Marketable securities consist of common stock.
Marketable securities are stated at market value as determined by the
most recently traded price of each security at the balance sheet date.
All marketable securities are defined as trading securities or
available-for-sale securities under the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments
in marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that are bought
and held principally for the purpose of selling them in the near term
are classified as trading securities and unrealized holding gains and
losses are included in earnings. Debt securities for which the company
does not have the intent or ability to hold to maturity and equity
securities are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and
losses, net of tax if applicable, reported as a separate component of
stockholders' equity in accumulated other comprehensive income. The
company at this time has no trading securities.
NOTE 3 - BASIS OF PRESENTATION AND CONSIDERATIONS RELATED TO CONTINUED
EXISTENCE
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company incurred net losses of $47,737 and $280,443 for
the years ended December 31, 1999 and 1998, respectively. Additionally,
the Company has incurred losses of $1,279,064 from inception through
December 31, 1999. These factors, among others, raise substantial doubt
as to the Company's ability to obtain debt and/or equity financing and
achieve profitable operations.
8
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - BASIS OF PRESENTATION AND CONSIDERATIONS RELATED TO CONTINUED
EXISTENCE - CONTINUED
The Company's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no
assurance management will be successful in its endeavors. Ultimately,
the Company will need to achieve profitable operations in order to
continue as a going concern.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
NOTE 4 - DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined in Financial
Accounting Standards Board Statement No. 7. It has yet to commence
full-scale operations. From inception through the date of these
financial statements, the Company did not have any net income from
operations. At the current time, the Company has $976,000 in assets and
$220,809 in liabilities.
The Company has not yet generated significant revenue and has begun to
fund its operations through the issuance of equity. Accordingly, the
Company's ability to accomplish its business strategy and to ultimately
achieve profitable operations is dependent upon its ability to obtain
additional financing and execute its business plan. There can be no
assurance that the Company will be able to obtain additional funding,
and, if available, that the funding will be obtained on terms favorable
to or affordable by the Company. The Company's management is exploring
several funding options and expects to raise additional capital through
private placements to continue to develop the Company's operations
around its business plan. Ultimately, however, the Company will need to
achieve profitable operations in order to continue as a going concern.
NOTE 5 - PRODUCT RIGHTS
The company acquired certain product rights, development costs and
other intangible assets for $244,000 from H.C. Technology, Inc. (a then
related corporation). These assets were appraised on September 15, 1987
for $1,480,000 and such assets include product technology, employee
replacement costs, marketing programs, trade names, and other assets
with determinable value. Since the acquisition of these assets was a
number of years ago, the valuation carried on the books was reserved to
a zero value at December 31, 1999 and 1998. However, the management of
the company still believes that the assets acquired are of a value of
$244,000 as originally recorded on the books.
NOTE 6 - LICENSE FEE
The company had a license for a design of a thermal compression
hemispheric jet chiller to utilize a source of heat to provide chilled
water for use in refrigeration and air-conditioning systems to reduce
the energy consumption of systems in which they were to be
incorporated.
This license fee has expired and all related costs were fully amortized
at the end of 1998.
NOTE 7 - INCOME TAXES
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified as current
or non-current, depending on the classification of the assets and
liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are
classified as current or non-current depending on the periods in which
the temporary differences are expected to reverse.
9
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES - CONTINUED
Amounts for deferred tax liabilities and assets are as follows:
December 31, December 31,
1999 1998
Deferred tax liability - unrealized gain $ 115,280 $ -
Use of NOL against deferred tax liability $ (115,280) $ -
Deferred tax asset, net of valuation allowances
as per below $ - $ -
The following temporary differences gave rise to the deferred tax asset
at December 31, 1999 and December 31, 1998.
December 31, December 31,
1999 1998
Tax benefit of reserve against product rights $ 82,960 $ 82,960
Tax liability of option income $ 7,820 (7,820)
--------------- -------------------
Valuation allowance for judgment of
realizability of net deferred tax benefit
in future years $ ( 90,780) $ (75,140)
Because the Company has not generated taxable income since its
inception, no provision for income taxes has been made. For tax
purposes, the Company had available at December 31, 1999, net operating
loss ("NOL") carryforwards for regular Federal income tax purposes of
$1,029,423. The balance of NOL carryforwards of $1,029,423 will expire
as shown below. A valuation allowance of $350,004 has been established
for those tax credits which are not expected to be realized. The change
in the allowance during 1999 was $8,411.
Year Ended
December 31,
2002 $ 8
2003 13,546
2004 156,871
2005 162,877
2006 130,190
2007 113,298
2008 108,239
2009 95,943
2010 46,043
2011 76,349
2012 41,877
2013 59,445
2018 24,737
-------------
$1,029,423
NOTE 8 - RELATED PARTY TRANSACTION
The Company currently utilizes office and manufacturing space on a rent
free basis from a major stockholder of the Company until revenue
generating operations commence. Management has deem the free rent to be
of nominal value to date. The same stockholder, director and
shareholder has made certain advances to the company on an interest
free basis, payable upon demand.
10
POWER SAVE INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - NON-CASH TRANSACTIONS
The following noncash investing and financing activities occurred
during the period from inception through December 31, 1999:
The Company exchanged 50,000 shares of its preferred stock for certain
license fees valued at $500,000.
The Company issued certain shares of its common stock for a prepaid
lease valued at $225,000.
The Company exchanged 2,000,000 shares of preferred stock for oil and
gas properties valued at $10,000,000. This transaction was rescinded.
For financial statement purposes the transaction was treated as being
rescinded in 1997.
The Company exchanged 296,300 shares of preferred stock for marketable
securities valued at the time of exchange at $592,600.
NOTE 10 - STOCKHOLDERS' EQUITY
The Company and its assets were spun off from the previously owned
parent company when a majority interest of the common stock in the old
company was sold to a consulting group. The assets and liabilities were
transferred to the current corporation and all the activities from
inception through October 31, 1999 have remained with the current
company.
The Board of Directors has authorized a stock issuance totaling
1,000,000 shares of its common stock at $5.00 per share. The offering
will be filed under the Securities Act of 1933 or an exemption under
the Act.
The Company has paid certain deferred offering costs related to the
above mentioned offering totaling $12,450. It is expected that
additional legal and accounting costs will be incurred in relation to
the offering. If the current offering is successful, the costs will be
offset against any gross proceeds received. Otherwise, the costs will
be written off to expense in the year the offering is unsuccessful or
terminated.
The company has adopted SFAS 130, which requires presentation of
comprehensive income(net income plus all other changes in net assets
from non-owner sources) and its components in the financial statements.
The company has changed the format of its statements of stockholders'
equity to present comprehensive income. Accumulated other comprehensive
income or loss shown in the statements of stockholders' equity at
December 31, 1999, is solely comprised of the accumulated change in
unrealized gains and losses on marketable securities. There was no
other comprehensive income prior to 1999.
NOTE 12 - MARKETABLE SECURITIES
Marketable securities are carried on the balance sheet at their fair
value. As of December 31, 1999, the following applies to the company's
available-for-sale securities.
Cost $565,100
========
Unrealized gain $339,060
========
Market value $904,160
========
As of the date of the audit report the market value of the
available-for-sale securities was $651,348.
PART II
Information Not Required in prospectus
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses of this offering, all of which will be paid by
Registrant, are as follows:
SEC Registration Fee $2,640
National Association of Securities Dealers, Inc. Fee 1,500
Nasdaq Listing Fee 6,000
Accounting Fees and Expenses 3,000
Registrant's Legal Fees and Expenses 1,500
Blue Sky Expenses and Counsel Fees 7,000
Printing and Engraving Fees 4,000
Transfer Agent and Registrar's Fees and Expenses 1,000
Document Preparation 9,950
Miscellaneous Expenses *
Total *
________
* To be completed by amendment.
Item 14 Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of Registrant pursuant to the provisions of its Restated
Articles of Incorporation, Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant for expenses incurred or paid by a director, officer or
controlling person of 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, 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 Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, to
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Registrant under Rule 424(b)(1), or (4), or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Item 15. Recent Sales of Unregistered Securities
There has been no recent sale of securities.
Item 16. Exhibits.
(a) Exhibits:
1 Underwriting Agreement [Form].
3.1 Articles of Incorporation of Power Save International, Inc., Amendment
dated October 8, 1999.
3.2 By-Laws of Power Save International, Inc.
3.3 Specimen of Security.
3.4 Form of Subscription Agreement.
5.1 Opinion of Counsel.
10.1 Employment Contract between the Company and Balmer.* [Form]
10.6 Lock-Up Agreement between the Company and Balmer.* [Form]
10.11 Escrow Agreement between the Company, The Business Bank and Three Arrows.
23.1 Consent of the auditor, David T. Thomason, P.C.
23.2 Consent of John Tansey, Esq, (included in his opinion set forth in
Exhibit 5.1)
24 Power of Attorney (Signature Page).
* To be filed by amendment.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415 under the Securities Act, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in the total dollar value of securities offered, if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange
Commission (the "Commission") pursuant to Rule 424(b) 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; (iii) To include any additional
or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, to 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.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Registrant hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
SIGNATURE PAGE
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2, and has duly caused this
registration statement to be signed on its behalf by the undersigned in the
State of Florida on March 22, 2000.
Registrant: Power Save International, Inc.
/s/ Scott Balmer
Scott Balmer
Chairman and Director
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint Scott Balmer with full power to
act without the other, his true and lawful attorney-in-fact and agent for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same, as fully, for all intents and purposes, as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ Burton D. O'Donald Director and CEO March 16, 2000
Burton D. O'Donald
/s/ Raymond H. Bolduc II President, COO, CFO March 16, 2000
Raymond H. Bolduc II
/s/ Victor V. Vurpillat VP, Aquisitions March 16, 2000
Victor V. Vurpillat
/s/ Mary Jane Balmer Director, Interim March 16, 2000
Mary Jane Balmer Secretary and Treasurer