AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
VIA EDGAR ON JANUARY 5, 2004
REGISTRATION NO. 333-108872
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NUMBER 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
ENERTECK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5169 47-0929885
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S.Employer
of Incorporation ) Classification Code Number) I.D. Number)
ENERTECK CORPORATION
10701 Corporate Drive, Suite 150
Stafford, Texas 77477
(281) 240-1787
--------------------------------------------------------------
(ADDRESS, WITH ZIP CODE, AND TELEPHONE NUMBER, WITH AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICE AND PRINCIPAL PLACE OF BUSINESS)
MR. DWAINE REESE
ENERTECK CORPORATION
10701 Corporate Drive, Suite 150
Stafford, Texas 77477
(281) 240-1787
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
with a copy to:
DAVID M. KAYE, ESQ.
Danzig Kaye Cooper Fiore & Kay, LLP
P.O. Box 333, 30A Vreeland Road
Florham Park, New Jersey 07932
(973) 443-0600
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
FOLLOWING EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
----------------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: |X|
If 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 in 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
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
Title of Each Maximum Maximum Amount of
Class of Securities Amount to be Offering Price Aggregate Registration
To be Registered Registered(1) Per Share(2) Offering Price(2) Fee(2)
- -------------------------------------------------------------------------------------------------
Common Stock, 7,175,650(3) $2.90 $20,809,385 $1,683.48(4)
$.001 par value
Common Stock, 500,000(3) $3.00 $ 1,500,000 $ 121.35(4)
$.001 par value
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$ 1804.83
- ----------
(1) Represents shares of the Company's common stock that may be offered by
certain selling security holders. 4,025,650 represent shares that are issuable
upon the exercise of warrants that are currently outstanding.
(2) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee. Based on the average of the high and low sale prices per share
of the Company's common stock as reported on the OTC Bulletin Board on September
12, 2003 with respect to 7,175,650 shares and on December 30, 2003 with respect
to 500,000 shares.
(3) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also includes additional shares of common stock issuable
upon stock splits, stock dividends or similar transactions.
(4) $168.35 was previously paid. The balance of $1,636.48 is paid herewith.
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, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine. The information in this prospectus is not complete
and may be changed. The selling security holders may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
ii
THE INFORMATION CONTAINED 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 DECLARED EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT
SOLCITING AN OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED __________ ___, 2004
PRELIMINARY PROSPECTUS
ENERTECK CORPORATION
7,675,650 shares of common stock
The selling security holders identified in this prospectus on pages 37-38
are offering the 7,675,650 shares of common stock. We issued 3,650,000 of these
shares in private transactions, and we will issue 4,025,650 of the shares upon
the exercise of warrants that we also issued in private transactions. The
selling security holders may sell all or a portion of their shares through
public or private transactions at prevailing market prices or at privately
negotiated prices.
We will not receive any part of the proceeds from sales of these shares by
the selling security holders. However, we will receive the proceeds from any
warrants that are exercised. We will use these proceeds, if any, for working
capital.
Our common stock is traded on the OTC Bulletin Board under the symbol
"ETCK". The last reported per share bid and asked prices of our common stock on
December 12, 2003 on the OTC Bulletin Board were $3.10 and $3.50, respectively.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this preliminary prospectus is _____ __, 2004.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY 3
RISK FACTORS 4
USE OF PROCEEDS 11
MARKET FOR OUR COMMON STOCK AND 11
RELATED STOCKHOLDER MATTERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION 12
AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR BUSINESS 16
MANAGEMENT 29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 34
OWNERS AND MANAGEMENT
DESCRIPTION OF SECURITIES 35
THE OFFERING 36
SELLING SECURITY HOLDERS 37
PLAN OF DISTRIBUTION 39
INDEMNIFICATION OF DIRECTORS AND OFFICERS 41
LEGAL MATTERS 41
EXPERTS 41
ABOUT THIS PROSPECTUS 42
WHERE YOU CAN FIND MORE INFORMATION ABOUT US 42
FINANCIAL STATEMENTS F-1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
2
PROSPECTUS SUMMARY
ABOUT US
EnerTeck Chemical Corp. ("EnerTeck Sub") was incorporated in Texas on
November 29, 2000. We are in the specialty chemical business marketing a fuel
borne catalytic diesel engine treatment known as EnerBurn(TM). This product was
introduced to the market and commercialized by Nalco/Exxon Energy Chemicals,
L.P. ("Nalco/Exxon") during 1998. Nalco/Exxon was a joint venture between Nalco
Chemical Corporation and Exxon Corporation. On January 9, 2003, EnerTeck Sub was
acquired by Gold Bond Resources, Inc. ("EnerTeck Parent"), an inactive U.S.
public company. Although EnerTeck Sub became a wholly owned subsidiary of
EnerTeck Parent, for accounting purposes, this transaction is treated as if it
were an acquisition of the parent by its own subsidiary.
Subsequent to this transaction, on November 24, 2003 we changed EnerTeck
Parent's domicile from the State of Washington to the State of Delaware, changed
its name from Gold Bond Resources, Inc. to EnerTeck Corporation and effected a
one for 10 reverse common stock split. Unless we indicate otherwise, all our
references herein to our common shares outstanding and common shares issued, our
name or our state of domicile, give effect to these changes as if they had
previously occurred. Hereinafter, unless we indicate otherwise such as by use of
the terms "EnerTeck Sub" and "EnerTeck Parent", when we use the words "we",
"us", "our" or other similar words or terms, or the "Company", we are referring
to both EnerTeck Corporation (the parent) and EnerTeck Chemical Corp. (the
subsidiary), collectively.
Today, there is worldwide concern over oil and fuel consumption and a
movement is in place to try and reduce this consumption. Environmental, energy
conservation and economic reasons drive this concern. The diesel engine
partially addresses this issue because it is as much as 40% more fuel-efficient
than gasoline engines. Thus, the increased use of diesel engines over gasoline
engines is one way of reducing overall fuel consumption and thus reducing toxic
CO2 emissions (carbon dioxide) caused by gasoline engines. However, diesel
engines emit higher levels of two other toxic pollutants, i.e. particulates
(microscopic airborne solid matter) and NOx (nitrogen oxide).
We market and distribute the EnerBurn product line of diesel fuel
additives. The results of tests conducted by Southwest Research Institute in San
Antonio, Texas ("SWRI") and actual customer usage has indicated that the use of
EnerBurn has demonstrated the following advantages:
o increased fuel economy of 8-15%,
o between a 10-20% reduction in NOx emissions,
o between a 25-70% reduction in smoke,
o between a 30-50% reduction in engine wear, and
o up to a 4% increase in brake horsepower.
A third party, RubyCat Technology ("RubyCat") supplies this product line
to us on an exclusive basis. RubyCat owns the technology, computer software and
the Environmental Protection Agency ("EPA") registration for on-road-use in the
United States in connection with EnerBurn. Pursuant to a memorandum of
understanding with RubyCat, we were granted exclusive marketing rights to sell
EnerBurn, and have to meet certain minimum sales volumes in order to maintain
this exclusivity. In addition, the memorandum grants us a unilateral one-year
option to purchase certain of the EnerBurn technology. With regard to this
option arrangement, the memorandum calls for the subsequent execution of a
definitive purchase option agreement.
3
The diesel fuel engine treatment and fuel additive business that we
commenced with the acquisition of the EnerTeck Sub is new to us. For the nine
months ended September 30, 2003, we had sales of only $559,500 and substantial
losses of $2,156,578. Furthermore, as of September 30, 2003, we had only
$559,852 in cash. Currently, we are in need of approximately three to five
million dollars of additional capital to execute our business plan and sustain
it over the next 12 months.
Our principal executive offices are located at 10701 Corporate Drive,
Suite 150, Stafford, Texas 77477 and our telephone number is (281) 240-1787.
ABOUT THE OFFERING
This prospectus covers the public sale of up to 7,675,650 shares of common
stock to be sold by the selling stockholders identified in this prospectus. Of
this number, 4,025,650 shares are issuable upon the exercise of warrants we
issued to various parties in 2003 including employees, consultants and our
investment banker. The warrant exercise prices range from $.01 to $1.20 per
share. These conversion rates are subject to antidilution adjustments resulting
from stock splits, stock dividends or similar transactions. As of the date of
this prospectus, the public trading price of our shares is above any of the
aforementioned warrant exercise prices. This increases the likelihood that the
warrants will be exercised. However, we cannot assure you that the public
trading prices will remain above any or all of the warrant exercise prices. If
all of these warrants are exercised, we will receive approximately $3,206,280 of
additional funding which we intend to use for working capital. Of the remaining
3,650,000 shares covered by this prospectus, 1,000,000 were issued as a result
of a December 20, 2002 private placement of common stock from which we raised
$500,000, and 2,150,000 were issued as a result of a May 28, 2003 private
placement of common stock from which were raised an additional $1,075,000. The
balance of 500,000 shares covered by this prospectus was issued on January 9,
2003 in lieu of payment for business, financial and marketing services rendered
by Parrish Brian & Co., Inc. to EnerTeck Sub prior to its acquisition. These
shares were valued by the parties at par value at the time of issuance (i.e.
$5,000). The proceeds from the private placements have been and will be used for
working capital, as will the proceeds from the exercise of the aforementioned
warrants.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT CERTAIN OF THE RISKS
OF INVESTING IN OUR COMMON STOCK, TOGETHER WITH OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, BEFORE YOU DECIDE TO PURCHASE OUR COMMON STOCK.
FORWARD LOOKING STATEMENTS
The words "may," "will," "expect," "anticipate," "believe," "continue,"
"estimate," "project," "intend," and similar expressions used in this prospectus
are intended to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
made. We undertake no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances after the
date they are made or to reflect the occurrence of unanticipated events. You
should also know that such statements are not guarantees of future performance
and are subject to risks, uncertainties and assumptions. Many of these risks and
uncertainties are set forth in the "RISK FACTORS" section of this prospectus.
Should any of these risks or uncertainties materialize, or should any of our
assumptions prove incorrect, actual
4
results may differ materially from those included within the forward-looking
statements.
BUSINESS AND FINANCIAL RISKS
WE HAVE LIMITED WORKING CAPITAL, MINIMAL NET WORTH AND SUBSTANTIAL CURRENT
LOSSES WHICH INHIBITS OR ABILITY TO IMPLEMENT OUR BUSINESS PLAN.
We have met our working capital requirements through financing
transactions involving the private placement of our securities. We do not expect
our current working capital to support our operations beyond January 2004 and we
are in need of approximately three to seven million dollars of additional
capital to fund operations over the next 12 months. Since our acquisition of
EnerTeck Sub, which was formed in 2000, we have not generated any significant
revenue and have experienced substantial losses, including a loss of $757,955
during 2002. We also have limited working capital and, as at September 30, 2003
recorded a net worth of only $745,597. For the immediate years preceding the
acquisition, we were an inactive public shell corporation with no significant
revenue and only losses. For the years ended December 31, 2002 and 2001,
EnerTeck Sub, our recently acquired, wholly owned subsidiary, reported a
substantial loss of $757,955 versus a gain of $333,236, respectively.
OUR CHANCES FOR SUCCESS ARE REDUCED BECAUSE WE ARE AN EARLY STAGE COMPANY
WITH REGARD TO OUR NEW BUSINESS OPERATION.
In recent years we have been inactive and had not generated revenues until
we acquired EnerTeck Sub on January 9, 2003. Furthermore, EnerTeck Sub was only
formed in November 2000 and has a limited operating history. Accordingly, we are
subject to all the risks and challenges associated with the operation of a new
enterprise, including inexperience, lack of a track record, difficulty in
entering the targeted market place, competition from more established businesses
with greater financial resources and experience, an inablity to attract and
retain qualified personnel (including, most importantly, sales and marketing
personnel) and a need for additional capital to finance our marketing efforts
and intended growth.We cannot assure you that we will be successful in
overcoming these and other risks and challenges that we face as a new business
enterprise.
WE NEED SUBSTANTIAL ADDITIONAL FINANCING TO EXECUTE OUR BUSINESS PLAN
WHICH MAY NOT BE AVAILABLE. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, WE MAY
NOT BE ABLE TO CONTINUE OPERATIONS.
We need substantial additional capital to expand our marketing and sales
efforts. Our current resources are insufficient to fund operations beyond
January 2004. We believe that we will need an additional $3,000,000 to
$7,000,000 to execute our business plan and support operations over the next 12
months. Although we expect current warrant holders to provide approximately $
3,206,280 of additional funding through the exercise of the Warrants, this is
conditioned upon events outside of our control, including the trading price of
our common stock exceeding the various warrant exercise prices. After giving
effect to our November 24, 2003 one for 10 reverse common stock split, the
warrant exercise prices range from $.01 per share to $1.20 per share. For these
reasons, we intend to obtain additional financing through the issuance of debt
or equity securities. We have not and cannot assure you that we will ever be
able to secure any such financing on terms acceptable to us. If we cannot obtain
such financing, we will not be able to execute our business plan or continue
operations.
THE EXERCISE OF THE WARRANTS WILL CAUSE A DILUTION TO OUR SHAREHOLDERS AND
A SIGNIFICANT NEGATIVE EFFECT ON THE TRADING PRICE OF
5
OUR COMMON STOCK.
If the Warrants are exercised, we can expect that they will be exercised
when the public trading prices of our securities are significantly higher than
the exercise price, causing a dilution to those of our shareholders who may have
purchased our shares at prices above the exercise price. In addition, the sale
of up to 4,025,650 shares acquired through the exercise of the Warrants could
have a significant negative effect on the public trading price of our common
shares.
THE ENERBURN TECHNOLOGY HAS NOT GAINED MARKET ACCEPTANCE, NOR DO WE KNOW
WHETHER A MARKET WILL DEVELOP FOR IT IN THE FORESEEABLE FUTURE TO GENERATE ANY
MEANINGFUL REVENUES.
The EnerBurn technology has received only limited market acceptance. This
technology is a relatively new product to the market place and we have not
generated any significant sales. Although ever growing concerns and regulation
regarding the environment and pollution has increased interest in
environmentally friendly products generally, the engine treatment and fuel
additive market remains an evolving market. The EnerBurn technology competes
with more established companies such as Lubrizol Corporation, Chevron Oronite
Company (a subsidiary of Chevron Corporation), Octel Corp., Clean Diesel
Technologies, Inc. and Ethyl Corporation, as well as other companies whose
products or services alter, modify or adapt diesel engines to increase their
fuel efficiency and reduce pollutants. Acceptance of EnerBurn as an alternative
to such traditional products and/or services depend upon a number of factors
including:
o favorable pricing vis a vis projected savings from increased fuel
efficiency
o the ability to establish the reliability of EnerBurn products
relative to available fleet data
o public perception of the product
For these reasons, we are uncertain whether our technology will gain
acceptance in any commercial markets or that demand will be sufficient to create
a market large enough to produce any meaningful revenue or earnings. Our future
success depends upon customers' demand for our products in sufficient amounts.
OUR TECHNOLOGY MAY BE ADVERSELY AFFECTED BY FUTURE TECHNOLOGICAL CHANGES
AND ENVIRONMENTAL REGULATORY REQUIREMENTS
Although diesel engines are now being manufactured that have reduced
dangerous emissions, this has not satisfied governmental regulators and
legislators. We believe that diesel engines themselves may soon be required to
adhere to stringent guidelines that produce nearly zero tailpipe emissions.
Research in this area is currently being sponsored by governmental agencies,
major engine companies, truck manufacturers, automobile makers, catalyst
producers, oil refining companies and their technology suppliers.
If such research is successful, it could eventually reduce the need for
diesel fuel additives such as EnerBurn as they relate to pollution control.
SINCE WE MARKET A RANGE OF PRODUCTS WITHIN ONLY ONE PRODUCT LINE, WE ARE
ENTIRELY DEPENDENT UPON THE ACCEPTANCE OF ENERBURN IN THE MARKET PLACE FOR OUR
SUCCESS
Our business operations are not diversified. If we do not generate
sufficient sales of the
6
EnerBurn product, we will not be successful, and unlikely to be able to continue
in business. We cannot assure you that we will be able to develop other product
lines to hedge against our dependency on EnerBurn, or if our EnerBurn sales will
be sufficient for us to generate revenue or be profitable.
WE HAVE NOT DEVELOPED ANY EFFECTIVE DISTRIBUTION CHANNELS FOR OUR PRODUCT
WHICH ARE NECESSARY TO GENERATE REVENUE
We market our product through in house sales personnel, independent sales
consultants and through exclusive and non-exclusive arrangements known as agency
agreements. In most instances, we utilize proof of performance demonstrations as
part of our sales process. This process is the gathering of historical fleet
data during a trial period when EnerBurn was not used and comparing it with data
over a similar period when EnerBurn was used.
In addition, our future marketing plans include:
o establishing of product brand recognition through customers with
large trucking, railroad and maritime fleets
o active participation in industry trade shows
o extensive public relations efforts directed at target market trade
press
Our success will depend upon our marketing efforts effectively generating
sales. While we have commenced this marketing effort, we have not developed any
effective distribution channels and may not have the resources or ability to
sustain these efforts or generate any meaningful sales.
OUR SALES PROCESS IS COSTLY AND TIME CONSUMING WHICH DECREASES OUR ABILITY
TO EFFECT SALES.
In order to effect EnerBurn sales, we must prove to a potential customer
that the use of our product is specifically beneficial to and cost effective for
that potential customer. We accomplish this by conducting proof of performance
demonstrations that are two to six month trial periods. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operation -
Overview". Our supplier, our sales agent and/or we bear the cost to provide the
personnel to do the monitoring and analyzing of compiled data. However, the
potential customer must bear the cost of the EnerBurn and equipment used during
the trial period. We cannot assure you that we will be able to convince
potential customers to undertake this expense and effect a significant number of
sales. Furthermore, we cannot assure you that the results of a specific proof of
performance demonstration will prove that the use of EnerBurn will be beneficial
to that specific potential customer, or if beneficial, that the potential
customer will purchase EnerBurn. If, after conducting the proof of performance
demonstration, the potential customer does not purchase our product, we will
have wasted the time and the cost of providing personnel to the proof of
performance demonstration.
WE FACE INTENSE COMPETITION AND MAY NOT HAVE THE FINANCIAL AND HUMAN
RESOURCES NECESSARY TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES WHICH MAY RESULT
IN OUR TECHNOLOGY BECOMING OBSOLETE.
The diesel fuel additive business and related anti-pollutant businesses
are subject to rapid technological change, especially due to environmental
protection regulations, and subject to intense competition. We compete with both
established companies and a significant number of startup enterprises. We face
competition from producers and/or distributors of other diesel fuel additives
(such as Lubrizol Corporation, Chevron Oronite Company, Octel Corp., Clean
Diesel Technologies, Inc. and
7
Ethyl Corporation), from producers of alternative mechanical technologies (such
as Algae-X International, Dieselcraft, Emission Controls Corp. and JAMS Turbo,
Inc.) and from alternative fuels (such as bio-diesel fuel and liquefied natural
gas) all targeting the same markets and claiming increased fuel economy, and/or
a decrease in toxic emissions and/or a reduction in engine wear. Most of our
competitors have substantially greater financial and marketing resources than we
do and may independently develop superior technologies which may result in our
technology becoming less competitive or obsolete. We may not be able to keep
pace with this change. If we cannot keep up with these advances in a timely
manner, we will be unable to compete in our chosen markets.
OUR SUPPLIER NEEDS TO MAINTAIN ENERBURN'S EPA REGISTRATION.
In accordance with the regulations promulgated under the US Clean Air Act,
manufacturers (including importers) of gasoline, diesel fuel and additives for
gasoline or diesel fuel, are required to have their products registered with the
EPA prior to their introduction into the market place. Currently, EnerBurn has
such a registration (EPA # 5805A). However, unforeseen future changes to the
registration requirements may be made, and EnerBurn may not be able to qualify
for registration under such new requirements. The loss of EnerBurn's EPA
registration or restrictions on its current registration could have an adverse
affect on our business and plan of operation.
The blender, formulator and supplier of EnerBurn, RubyCat, has registered
this product with the US Environmental Protection Agency. This registration
permits us, pursuant to the aforementioned memorandum of understanding, to sell
EnerBurn for domestic on-road use. However, there are provisions in the
Environmental Protection Act that could require further testing. In addition, we
currently sell our product outside of the United States and intend to further
expand our sales efforts internationally. Accordingly, EnerBurn is registered in
the United States only, and we are considering its registration in other
countries. Further testing could be needed in these or other countries. We
cannot assure you that EnerBurn will pass any future testing that may be
required. The failure of EnerBurn to maintain or obtain registration in
countries or areas where we would like to market it would have a materially
adverse effect on our business and plan of operation.
Our business is favorably effected by stricter air quality regulations and
regulations regarding emission controls. If these regulations are withdrawn or
determined to be invalid, our prospects would be adversely affected.
WE DEPEND ON OUR EXECUTIVE OFFICERS AND NEED ADDITIONAL MARKETING AND
TECHNICAL PERSONNEL TO SUCCESSFULLY MARKET OUR PRODUCT. WE CAN NOT ASSURE YOU
THAT WE WILL BE ABLE TO RETAIN OR ATTRACT SUCH PERSONS.
Since we are a small company, a loss of one or more of our current
officers and/or significant employees could severely and negatively impact our
operations. Except for our interim president, Parrish Ketchmark, we have
employment contracts with all of our current officers and significant employees.
Although these employment contracts do not prevent such persons from
resigning, they do contain non-compete clauses that are intended to prevent
these persons from working for a competitor within two years after leaving our
Company. The market for such persons remains competitive and our limited
financial resources may make it more difficult for us to recruit and retain
qualified persons.
As mentioned above, we do not have an employment agreement with our
interim president, Parrish Ketchmark. He is providing his services to us
pursuant to an amendment to our consulting
8
agreement with Parrish Brian Partners, Inc. ("Partners"). Mr. Ketchmark is a
principal of Partners. Although he has indicated that he will remain as
president until a qualified replacement has been retained, he may resign at any
time with reasonable notice. If he were to resign before a replacement is hired,
it may have a materially adverse effect upon our business.
WE HAVE ONLY ONE SUPPLIER AND WE ARE DEPENDENT UPON IT TO PROVIDE US WITH
THE ENERBURN PRODUCT THAT WE MARKET ON AN EXCLUSIVE BASIS.
Presently, one supplier, RubyCat, provides us our entire EnerBurn product
line. If it were not able to provide us with sufficient quantities of the
product, or not provide us the product at all (for any reason), our business
could be adversely effected. Although we have identified alternate suppliers of
the product, we cannot assure you that the replacement products will be
comparable in quality, or that we will be able to contract with these alternate
suppliers on terms acceptable to us.
In addition, we are dependent upon RubyCat for statistical analysis of
fleet data gathered from customers and potential customers in on-road use
applications in the United States. This data is important in that it serves to
demonstrate our products' proof of performance to customers and potential
customers. If this service were not supplied to us, our sales efforts and
ability to maintain existing customers could be negatively effected. Although we
believe that we can find a replacement provider of such services to adequately
analyze the data, we cannot assure you that we can be successful in retaining
such a provider on reasonably acceptable terms to us.
Our arrangement with RubyCat requires us to meet certain annual minimum
purchase levels in order to maintain our global exclusivity as follows:
Year One ending December 31, 2003 .................... 180,000 gallons
Year Two ending December 31, 2004 .................... 270,000 gallons
Year Three ending December 31, 2005 .................. 400,000 gallons
And Each Year Thereafter ............................. 500,000 gallons
Based upon our sales volume to date, we have not achieved these required
minimum levels. However, we are presently in discussions with RubyCat to waive
the requirements necessary for us to maintain this exclusivity. No assurance can
be given that we can reach an agreement acceptable to both parties. If we were
to lose this exclusivity, it may have a material adverse effect on our business
and planned operations.
CURRENTLY, OUR SALES ARE CONCENTRATED AMONG JUST FIVE CUSTOMERS TO WHOM WE
ARE DEPENDENT
For the nine months ended September 30, 2003, 95% of our sales revenues
were concentrated among five of our customers of which one provided 50% of those
sales. Although we were able to replace a former customer that we lost to
bankruptcy in 2002 (one who had provided 80% of our sales at the time), if we
were to loss any of the aforementioned five customers, especially, the biggest
one, our business would be adversely effected. We cannot assure you that we
could adequately replace the loss of any of these customers.
RISKS RELATED TO OUR COMMON STOCK
WE HAVE ISSUED A SUBSTANTIAL NUMBER OF WARRANTS TO PURCHASE OUR COMMON
STOCK WHICH WILL RESULT IN SUBSTANTIAL DILUTION TO THE
9
OWNERSHIP INTERESTS OF OUR EXISTING SHAREHOLDERS.
As of the date of this prospectus, we have 9,791,999 shares of common
stock outstanding. Up to an additional 4,025,650 shares are issuable upon the
exercise of the warrants held by certain of Selling Security Holders described
herein, all of which are covered by this prospectus. The exercise of all of
these warrants will increase our shares outstanding to 13,817,649 and
substantially dilute the ownership interests of our existing shareholders.
THE TRADING PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL
FINANCING MAY BE ADVERSELY EFFECTED BY THE INFLUX INTO THE MARKET OF THE
SUBSTANTIAL NUMBER OF SHARES COVERED BY THIS PROSPECTUS.
This prospectus covers the public sale of 7,675,650 shares of our common
stock. This significant increase in the number of shares available for public
sale may have a negative impact on the trading price of our shares. The number
of shares covered by this prospectus represents approximately 55.56% of our
outstanding shares assuming all of the Warrants are exercised. The exercise of
the Warrants will provide us with up to approximately $3,206,280 in additional
working capital. The Warrants are exercisable at varying prices per share. To
the extent that this influx of shares into the public market or other factors
reduce the trading price of our common stock to below the exercise prices, it is
unlikely that the Warrants would be exercised. In such event, we would not be
receiving the aforementioned approximate up to $3,206,280 for our working
capital needs. We cannot assure you that we will be able to secure alternate
financing on satisfactory terms, or at all.
APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMITS THE
TRADING AND LIQUIDITY OF OUR COMMON STOCK THAT MAY ADVERSELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK.
Our common stock currently trades on the OTC Bulletin Board. Since our
common stock continues to trade below $5.00 per share, our common stock is
considered a "penny stock" and is subject to SEC rules and regulations that
impose limitations upon the manner in which our shares can be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
associated risks. Under these regulations, certain brokers who recommend such
securities to persons other than established customers or certain accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. These regulations have the effect of limiting the trading activity of
our common stock and reducing the liquidity of an investment in our common
stock.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid a dividend on our common stock. We intend
to retain earnings, if any, for use in the operation and expansion of our
business and, therefore, do not anticipate paying any dividends in the
foreseeable future.
THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The trading price of our shares has, from time to time, fluctuated widely
and in the future may be subject to similar fluctuations. The trading price may
be affected by a number of factors including the risk factors set forth in this
prospectus as well as our operating results, financial condition, announcements
of innovations or new products by us or our competitors, general conditions in
the
10
market place, and other events or factors. Although we believe that
approximately 10 registered broker dealers currently make a market in our common
stock, we cannot assure you that any of these firms will continue to serve as
market makers or have the financial capability to stabilize or support our
common stock. A reduction in the number of market makers or the financial
capability of any of these market makers could also result in a decrease in the
trading volume of and price of our shares. In recent years, broad stock market
indices, in general, and the securities of technology companies, in particular,
have experienced substantial price fluctuations. Such broad market fluctuations
may adversely affect the future trading price of our common stock.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling security holders. We will receive the exercise price of the Warrants
held by certain of the selling security holders on those Warrants that are
exercised. We expect to use the proceeds of any such sales for general working
capital purposes in our day-to-day operations. While we regularly evaluate
possibilities for the use of funds which may be raised as a part of our
long-term business strategy, we do not at the present time have any specific
arrangements, agreements or understandings with respect to any such funds in the
event any or all of the Warrants are exercised.
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock currently trades on the OTC Bulletin Board under the
symbol "ETCK". The following table sets forth the range of high and low bid
prices per share of our common stock for each of the calendar quarters
identified below as reported by the OTC Bulletin Board. These quotations
represent inter-dealer prices, without retail mark-up, markdown or commission,
and may not represent actual transactions. These prices give effect to the 1 for
10 reverse stock split which occurred on November 24, 2003.
Year Ended December 31, 2001
High Low
First Quarter $0.70 $0.20
Second Quarter 2.50 0.70
Third Quarter 3.00 1.70
Fourth Quarter 3.50 2.10
Year ended December 31, 2002
First Quarter $8.40 $1.60
Second Quarter 2.00 1.60
Third Quarter 2.10 1.30
Fourth Quarter 3.60 1.20
Year ended December 31, 2003
First Quarter $4.30 $3.30
Second Quarter 4.00 3.10
Third Quarter 4.30 2.10
11
On December 12, 2003, which is subsequent to our November 24, 2003 1 to 10
reverse stock split, the closing bid and asked prices of our common stock as
reported on the OTC Bulletin Board were $3.10 and $3.50 per share, respectively.
HOLDERS
As of December 12, 2003, there were 924 holders of record of the Company's
Common Stock.
DIVIDENDS
We have not paid any cash dividends to date, and we have no intention of
paying any cash dividends on our common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of our Board
of Directors and to certain limitations imposed under the Delaware corporation
law. The timing, amount and form of dividends, if any, will depend on, among
other things, our results of operations, financial condition, cash requirements
and other factors deemed relevant by our Board of Directors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATION
This Management's Discussion and Analysis of Financial Condition and Plan
of Operation and other parts of this prospectus contain forward-looking
statements that involve risks and uncertainties. All forward-looking statements
included in this prospectus are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
those set forth in "RISK FACTORS" and elsewhere in this prospectus. The
following should be read in conjunction with the audited consolidated financial
statements of the Company included elsewhere herein.
OVERVIEW
We were incorporated in the State of Washington on July 30, 1935 under the
name of Gold Bond Mining Company for the purpose of acquiring, exploring, and
developing and, if warranted, the mining of precious metals. We subsequently
changed our name to Gold Bond Resources, Inc. in July 2000. We acquired EnerTeck
Chemical Corp. ("EnerTeck Sub") as a wholly owned subsidiary on January 9, 2003.
For a number of years prior to our acquisition of EnerTeck Sub, we were an
inactive, public "shell" corporation seeking to merge with or acquire an active,
private company. As a result of this acquisition, we are now acting as a holding
company, with EnerTeck Sub as our only operating business. Subsequent to this
transaction, on November 24, 2003 we changed our domicile from the State of
Washington to the State of Delaware, changed our name from Gold Bond Resources,
Inc. to EnerTeck Corporation and effected a one for 10 reverse common stock
split.
Our subsidiary was formed in Texas in November 2000 with the name EnerTeck
Chemical Corp. to develop and market a fuel borne catalytic engine treatment for
diesel engines known as EnerBurn(TM) and its associated products. We believe,
based upon extensive testing conducted by Southwest Research Institute ("SWRI")
and actual customer usage, that the EnerBurn diesel fuel additive formulation
improves fuel economy, reduces engine wear and increases engine horsepower. We
have a supply arrangement with RubyCat Technology, the blender, formulator and
supplier of the EnerBurn product line. In addition, we own the trademark rights
to the EnerBurn name. Our strategy is
12
to establish EnerBurn as a diesel engine treatment technology with strong brand
identity. Our targeted markets include industries that are heavy users of diesel
engines such as the trucking industry, the railroad industry and the maritime
shipping industry.
The majority of domestic diesel fuel consumption is found in freight
transportation applications, such as large trucking fleets, and the railroad and
maritime shipping industries, all areas where diesel fuel costs represent a
disproportionate share of operating expenses. Accordingly, our marketing
approach includes a proof of performance demonstration that is a monitored trial
period that proves to a potential customer that our product will produce the
desired advantages to that customer's specific application. Specifically, we
utilize RubyCat's proprietary fleet monitoring protocol system for on-road
applications to analyze customer and potential customer diesel fuel consumption
and provide hard data to prove the exact improvement in fuel economy that has
resulted from the use of EnerBurn. In addition, we utilize volumetric
proportioning injectors supplied by third parties that delivers the appropriate
dosage ratio of EnerBurn to diesel fuel, applicable to the customer's specific
needs.
We utilize our own employees to sell our product along with independent
sales agents inside and outside the US.
RESULTS OF OPERATIONS
Since the inception of EnerTeck Sub in 2000, we have had limited operations in
the various industries in which we are marketing our products . The following
provides a comparison of the results of those operations for the year ended
December 31, 2001 to the same period ended December 31, 2002, and a comparison
of the results of operations of the nine month period ended September 30, 2003
to the same period ended September 30, 2002.
On a consolidated basis, we incurred a net loss of $2,156,578, or $0.33
loss per share for the nine-month period ending September 30, 2003, versus a net
loss of $424,196, or $0.07 per share for the same period of 2002. The resulting
losses in the first nine months were primarily due to our expansion of sales and
marketing efforts, and a non cash charge of $1,450,000 in stock warrant expenses
booked pursuant to Accounting Practice Bulletin ("APB") Opinion No.25, i.e.
"Accounting for Stock issued to Employees". In addition, an increase in general
and administrative expenses were incurred that were associated with our
increased sales and marketing activities.
For the year ending December 31, 2002 we recorded a net loss of $757,955
versus a net profit of $333,236 for the year ending December 31, 2001. The
resulting losses in the first nine months were primarily from the loss of our
largest customer who filed for bankruptcy protection during that year. Total
revenue for the year ended December 31, 2002 was $981,244, a decrease of
$448,620 over the year ended December 31, 2001. Total revenue for the nine
months ending September 30, 2003 was $559,500, a decrease of $405,285 over the
same period ending September 30, 2002. The primary source of revenue for the
year ended December 31, 2002 is from the sale of EnerBurn to the trucking
industry, with a small component of the revenues being derived from the maritime
industry. The primary sources of revenue for the nine-month period ending
September 30, 2003 were derived equally from the trucking and maritime industry,
with a small component from the offshore drilling industry.
We expect future revenue trends to initially come from the trucking and
maritime industries, and subsequently expect revenues to also be derived from
the railroad, mining and offshore drilling industries. We expect this to occur
as we continue to increase our sales and implement our sales
13
and marketing strategies into the targeted markets and create understanding and
awareness of our technology through proof of performance demonstrations with
potential customers.
Our future growth is significantly dependent upon our ability to generate
sales from trucking companies with fleets of 1,000 trucks or more, and barge and
tugboat companies with large maritime fleets, and railroad, mining and offshore
drilling and genset applications. Our main priorities relating to revenue are:
(1) increase market awareness of our EnerBurn product through our strategic
marketing plan, (2) growth in the number of customers and vehicles or vessels
per customer, (3) accelerating the current sales cycle, and (4) providing
extensive customer service and support.
COSTS AND EXPENSES
During the nine month period ended September 30, 2003, we recorded cost of
goods sold of $132,788, a decrease of $380,040 over the same period the previous
year primarily due to reduced sales. Other costs and expenses for that period in
2003 were $2,583,290, an increase of $1,707,137 over the same period the
previous year. Similarly, during the year ended December 31, 2002, we recorded
cost of goods sold of $623,088, an increase of $69,069 over the year ended
December 31, 2001. Other costs and expenses for the year ended December 31, 2002
were $1,117,991, an increase of $571,943 over the other costs and expenses in
the year ended December 31, 2001.
The increase in other costs and expenses in the nine months ended
September 30, 2003 from the same nine-month period the previous year is the
result of a $1,030,000 non cash compensation charge for stock compensation,
$118,653 in sales commissions, and increases in selling and general and
administrative expenses of $558,484. The increase of these same costs during the
year ended December 31, 2002 from the year ended December 31, 2001 is attributed
to: the issuance of stock (non-cash compensation) to one of our officers in 2002
as part of a commission arrangement, of a $420,000 non cash compensation charge
for stock issued to executive employees, $85,714 in impairment of asset
expenses, and increases in selling and general and administrative expenses of
$66,229.
LIQUIDITY AND CAPITAL RESOURCES
We had cash and cash equivalents of $559,852 as of September 30, 2003, and
$102,973 at September 30, 2002, and working capital of $633,457 and $185,279 at
the same dates, respectively. For the nine months ended September 30, 2003, we
used cash in our operating activities and investing activities totaling $916,745
and provided cash from the same activities for the nine months ended September
30, 2003 of $81,443. We had cash and cash equivalents of $31,097 as of December
31, 2002, and $101,530 at December 31, 2001, and a deficit in working capital of
$31,971 as of December 31, 2002 and working capital of $231,689 as of December
31, 2001. For the year ended December 31, 2002, we used cash in our operating
activities and investing activities totaling $70,433 and provided cash from the
same activities of $100,529 for the year-end December 31, 2001.
We financed our operations and capital requirements primarily through
equity offerings. During the nine months ended September 30, 2003, the Company
sold 3,150,000 shares of common stock for $0.50 per share, or $1,445,500 after
expenses of $129,500 and $0 during the nine months ended September 30, 2002,
from the sale of common stock. Similarly, during the year ended December 31,
2002, we received $80,000 that was offset by a distribution of $80,000 to
shareholders and $0 during the year ended December 31, 2001 from the sale of
common stock. During the nine month period ended September 30, 2003, the Company
continues to use a portion of the proceeds of the sale of 3,150,000 shares of
common stock sold during the first and second quarter, sold for $0.50
14
per share, to meet its operating obligations. These are compared to the
operating activities of the nine months ended September 30, 2002 that used cash
generated from prior periods to meet its operating expenses.
The Company currently has plans to raise additional working capital
through equity financing and believes that together with its existing customer
base and the prospects for the future, and the exercise of warrants issued to
certain employees, consultants and our investment banker, that sufficient cash
will be provided to meet operating expenses for 2004.
The following information gives effect to our November 24, 2003 1 for 10
reverse common stock split as if it had already been effected. On October 26,
2001, we sold 25,000 shares of our restricted common stock at $1.00 per share,
or $25,000. 5,500 of these shares were sold to our then current officers. On
December 20, 2002, we began a private offering of 1,000,000 shares of common
stock at $.50 per share to accredited investors only and raised $500,000
receiving net proceeds of $495,000. Similarly, on May 28, 2003, we commenced
another private offering also to accredited investors only. In this offering, we
sold 2,150,000 shares at $.50 per share for $1,075,00, with net proceeds of
$945,485. The funds raised in this offering have been and will be used for
working capital. Our investment banker, Maxim Group, LLC ("Maxim"), a New York
based broker-dealer, acted as our selling agent and received a commission of 10%
($107,500), a non accountable expense reimbursement of 2% ($21,500) and a
warrant to purchase 200,000 shares at $.50 per share. The shares issued in these
last two private offerings are among the shares covered by this prospectus. In
addition, we have issued warrants to certain employees, consultants and our
investment banker to purchase up to 4,025,650 shares of our common stock at
varying exercise prices per share. If all the warrants are exercised, we will
receive approximately $3,206,280 for working capital. The shares underlying
these warrants are among the shares covered by this prospectus.
On April 30, 2003, we retained Maxim to provide a broad range of
investment banking, strategic and financial advisory services for an initial
term of 12 months. We paid this firm $50,000 as a retainer fee and pay it $6,000
per month, and have issued it warrants to purchase an additional 2,500 shares at
a price of $3.40 per share.
In January 2003, we executed a Memorandum of Understanding ("MOU") with
RubyCat Technology. This MOU is comprised of two components: a Supply and
Marketing Agreement and a Purchase Option Agreement. This arrangement is more
fully discussed below in "Our Business".
We cannot give you any assurance that we will be able or willing to
exercise this option. Accordingly, it is not a commitment on our part. We
currently have no material commitments for capital requirements.
We cannot be sure that we will be able to obtain additional financing that
we believe we need to satisfy our cash requirements or to implement our growth
strategy on acceptable terms, or at all. If we cannot obtain such financing on
acceptable terms, the ability to fund the planned business expansion and to fund
the on-going operations will be materially adversely affected. Presently, our
management is pursuing a variety of sources of debt and equity financing. If
debt is incurred, the financial risks associated with the business and with
owning our common stock could increase. If enough capital is raised through the
sale of equity securities, the percentage ownership of the current stockholders
will be diluted. In addition, any new equity securities may have rights,
preferences, or privileges senior to those of the common stock.
15
OUR BUSINESS
Except for historical information, the following description of our
business contains forward-looking statements based on current expectations that
involve risks and uncertainties. Our actual results could differ materially from
those set forth in these forward-looking statements as a result of a number of
factors, including those set forth in this prospectus under the heading "Risk
Factors."
OVERVIEW
We, through our wholly owned subsidiary, specialize in the sales and
marketing of a fuel borne catalytic engine treatment for diesel engines known as
EnerBurn(TM). We utilize a sales process that includes detailed proprietary
customer fleet monitoring protocols in on-road applications that quantify data
and assists in managing certain internal combustion diesel engine operating
results while utilizing EnerBurn. Test data prepared by Southwest Research
Institute and actual customer usage has indicated that the use of EnerBurn in
diesel engines improves fuel economy, lowers smoke, and decreases engine wear
and the dangerous emissions of both Nitrogen Oxide (NOx) and microscopic
airborne solid matter (particulates). Our principal target markets are the
trucking, railroad and maritime shipping industries. Each of these industries
share certain common financial characteristics, i.e. i) diesel fuel represents a
disproportionate share of operating costs; and ii) relatively small operating
margins are prevalent. Considering these factors, we believe the use of EnerBurn
and the corresponding 8 to 15% derived savings in diesel fuel costs can
positively effect the operating margins of our customers while contributing to a
cleaner environment.
Since we are currently a sales and marketing organization, we have not
spent any funds on research and development activities. We own the EnerBurn
trademark and, pursuant to a memorandum of understanding, were granted an
exclusive, global marketing rights from its formulator, blender and supplier,
RubyCat (which arrangement requires us to meet certain annual minimum purchase
levels to maintain such exclusivity), and an option to purchase the EnerBurn
technology and associated assets by December 31, 2003 for $6.6 million. Based
upon our sales volume to date, we have not achieved these required minimum
levels. However, we are presently in discussions with RubyCat to waive the
requirements necessary for us to maintain this exclusivity. No assurance can be
given that we can reach an agreement acceptable to both parties. If we were to
lose this exclusivity, it may have a material adverse effect on our business and
planned operations. With regard to this option arrangement, the memorandum calls
for the subsequent execution of a definitive purchase option agreement.
To date, we have engaged in limited marketing of the EnerBurn technology
and have generated minimal sales, principally to the trucking industry. We
compete in an evolving market with a significant number of competitors that
include both established businesses and new entries into the field.
You should note that for the nine months ended September 30, 2003, 95% of
our sales revenues were concentrated among five of our customers, of which one
provided 50% of those sales. Although we were able to replace a former customer
that we lost to bankruptcy in 2002 (one who had provided 80% of our sales at the
time), if we were to loss any of the aforementioned five customers, especially,
the biggest one, our business would be adversely effected. We cannot assure you
that we could adequately replace the loss of any of these customers.
16
HISTORY
On November 24 2003, Gold Bond Resources, Inc. merged with and into
EnerTeck Corporation, a wholly owned Delaware subsidiary, with EnerTeck being
the surviving entity. This resulted in us becoming a Delaware corporation,
changing our name to EnerTeck Corporation and effecting a 1 for 10 reverse
common stock split.
EnerTeck Parent was incorporated in the State of Washington in 1935 as
Gold Bond Mining Company. After a number of years of inactivity, with no
recurring source of revenue, an accumulated deficit and operating losses, we
made a strategic business decision during 2000 to sell our mineral properties,
change our name to Gold Bond Resources, Inc. and reorganize our capital
structure in order to position ourselves to identify and acquire or merge with a
viable private entity. On January 9, 2003, we acquired all 1,000,000 issued and
outstanding shares of EnerTeck Chemical Corp. ("EnerTeck Sub"), a private
company focused on combustion enhancement and emission reduction technology in
the diesel fuel applications additive business in exchange for 5,000,000 of our
shares of common stock. Accordingly, as a result of this acquisition, we have
entered the diesel fuel engine treatment and additive business operating through
our wholly owned subsidiary, EnerTeck Sub.
EnerTeck Sub, our wholly owned operating subsidiary, was incorporated in
the State of Texas on November 29, 2000. It was formed for the purpose of
commercializing a diesel fuel specific combustion catalyst, known as EnerBurn
(TM) as well as other combustion enhancement and emission reduction
technologies. EnerBurn was commercially introduced in 1998 by Nalco/Exxon Energy
Chemicals, L.P. ("Nalco/Exxon L.P."), a joint venture between Nalco Chemical
Corporation and Exxon Corporation. When Nalco/Exxon L.P. went through an
ownership change in 2000, EnerTeck Sub was formed by its founder, Dwaine Reese.
It acquired the EnerBurn trademark and related assets and took over the
Nalco/Exxon L. P. relationship with the EnerBurn formulator and blender, and our
supplier, RubyCat Technology. The decision to form EnerTeck Sub and acquire the
EnerBurn business was motivated by Mr. Reese's conclusions that:
o EnerBurn was clearly beginning to gain market acceptance;
o the gross margins associated with EnerBurn sales would support the
business model, since existing customers would likely continue to
buy the product due to the significant impact on diesel fuel savings
and reduced emissions;
o EnerBurn had been professionally tested extensively in field
applications as well as in the laboratory, clearly demonstrating its
effectiveness in increasing fuel economy and reducing emissions and
engine wear;
o use of the product in diesel applications has a profound impact on a
cleaner environment.
On January 22, 2001, the US Environmental Protection Agency issued
registration number EC 5805A pursuant to the Environmental Protection Act (40
CFR 79.23) permitting the use of EnerBurn for highway use in all diesel
applications in the United States of America.
OUR INDUSTRY
General Discussion of Diesel Fuel and Diesel Fuel Additives
As crude oil is heated, various components evaporate at increasingly
higher temperatures. First to evaporate is butane, the lighter-than-air gas used
in cigarette lighters, for instance. The last components of crude oil to
evaporate, and the heaviest, include the road tars used to make asphalt paving.
In between are gasoline, jet fuel, heating oil, lubricating oil, bunker fuel
(used in ships), and
17
of course diesel fuel. The fuel used in diesel engine applications such as
trucks and locomotives is a mixture of different types of molecules of hydrogen
and carbon and include aromatics and paraffin.
Diesel fuel cannot burn in liquid form. It must vaporize into its gaseous
state. This is accomplished by injecting the fuel through spray nozzles at high
pressure. The smaller the nozzles and the higher the pressure, the finer the
fuel spray and vaporization. When more fuel vaporizes, combustion is more
complete, so less soot will form inside the cylinders and on the injector
nozzles. Soot is the residue of carbon, partially burned and unburned fuel.
Sulfur is also found naturally in crude oil. Sulfur is a slippery
substance and it helps lubricate fuel pumps and injectors. It also forms
sulfuric acid when it burns and is a catalyst for the formation of particulate
matter (one of the exhaust emissions being regulated). In an effort to reduce
emissions, the sulfur content of diesel fuel is being reduced through the
refinery process, however, the result is a loss of lubricity.
Diesel fuel has other properties that affect its performance and impact on
the environment as well. The main problems associated with diesel fuel include:
o Difficulty getting it to start burning
o Difficulty getting it to burn completely
o Tendency to wax and gel
o With introduction of low sulfur fuel, reduced lubrication
o Soot clogging injector nozzles
o Particulate emissions
o Water in the fuel
o Bacterial growth
Diesel fuel additives have been developed to address the variety of
problems associated with diesel fuel performance.
Diesel Fuel and the Environment
The diesel fuel industry is at a critical juncture. Today, diesel fuel is
the most cost effective fuel/engine technology available for heavy-duty
industrial and vehicle service. However, environmentally it needs dramatic
improvement. Governments worldwide are legislating specifications regarding the
fuel itself and diesel engine design.
Today's advanced diesel engines are far cleaner than the smoke-belching
diesels of recent decades. Unfortunately, even smokeless diesel engines are not
clean enough to meet current stricter air pollution regulations.
While diesel engines are the only existing cost-effective technology
making significant inroads in reducing "global warming" emissions from motor
vehicles, it is not sufficient to satisfy regulators and legislators. Diesel
engines will soon be required to adhere to stringent regulatory/legislative
guidelines that meet near "zero" tailpipe emissions, especially on smog-forming
nitrogen oxides (NOx), particulate matter (PM) and "toxins"; the organic
compounds of diesel exhaust.
Diesel engines can become ultra-clean. Meeting the environmental
challenges will require extensive research on clean-diesel technology. Research
in this area is currently being sponsored by
18
government agencies, major engine companies, truck manufacturers, automobile
makers, catalyst producers and, for fuels, oil refining companies and their
technology suppliers.
The search for ultra-clean diesel is far from over. Discoveries and
breakthroughs will continue to prevail. In the past several months, new
developments have appeared on the horizon for combined PM/NOx traps, non-thermal
plasma/catalyst exhaust treatment systems, and new refinery desulfurization
technologies. Large Fortune 500 companies, as well as small, emerging technology
companies are investing hundreds of millions of dollars in research and
development worldwide on these and other clean-diesel technologies.
Today, there is no economic alternative to diesel engines for most
industrial applications. This is true for ocean vessels, tug boats,
commercial/recreational vessels, locomotive, trucking, bus transport,
construction, mining, agriculture, logging, distributed power generation, and,
in many parts of the world, personal transportation. In short, diesel fuel does
the world's heavy work.
Fuel Additive Registration and Regulation
Typically, there are registration and regulation requirements for fuel
additives in each country in which they are sold. In the United States, fuel and
fuel additives are registered and regulated pursuant to Section 211 of the Clean
Air Act. 40 CFR Part 79 and 80 specifically relates to the registration of fuels
and fuel additives
In accordance with the Clean Air Act regulations at 40 CFR 79,
manufacturers (including importers) of gasoline, diesel fuel and additives for
gasoline or diesel fuel, are required to have their products registered by the
EPA prior to their introduction into commerce. Registration involves providing a
chemical description of the fuel or additive, and certain technical, marketing,
and health-effects information. The health-effects research is divided into
three tiers of requirements for specific categories of fuels and additives. Tier
1 requires a health-effects literature search and emissions characterization.
Tier 2 requires short-term inhalation exposures of laboratory animals to
emissions and screened for adverse health effects, unless comparable data are
already available. Alternative Tier 2 testing can be required in lieu of
standard Tier 2 if EPA concludes that such testing would be more appropriate.
Certain small businesses are exempt from some or all the Tier 1 and Tier 2
requirements. Tier 3 provides for follow-up research, if necessary.
OUR PRODUCTS AND SERVICES
Our Diesel Fuel Additive Product Line
EnerBurn
EnerBurn is a liquid, chemical formulation, presently sold in bulk
quantities to fleet and vessel operators, under three product codes
differentiated by market application and product concentration, as indicated
below:
Product Application
- ------- -----------
EnerBurn EC5805A U.S. On-Road Market
EnerBurn EC5931A U.S. Off-Road Market
EnerBurn EC5805C International Market
Although added to diesel fuel and generally referred to as a diesel fuel
additive within our
19
industry, EnerBurn functions as an engine treatment application by removing
carbon deposits from the combustion surfaces of the engine and greatly reducing
further carbon deposit buildup. It also provides for an increased rate of
combustion. By adding EnerBurn to diesel fuel in accordance with proprietary
methodology, it forms a non-hazardous catalytic surface in the diesel engine
combustion chamber and on the surface of the piston heads. This surface is
visible in the form of a mono-molecular film that develops after initiation of
treatment and remains active for a period of time after cessation of treatment.
The buildup of carbon within the combustion chamber of a diesel engine can
generate greater exhaust opacity and increased engine wear. These carbon
deposits can cause piston rings to stick and reduce compression resulting in
decreased engine efficiency with extended use.
The unique chemical formulation of EnerBurn, when applied in accordance
with proprietary methodology, has been shown to produce the following benefits
(See "Product Testing", below):
- --------------------------------------------------------------------------------
MEASUREMENT PERCENTAGE IMPROVEMENT
- --------------------------------------------------------------------------------
Fuel Economy 8-15% Improvement
- --------------------------------------------------------------------------------
NOx Formation 10-20% Reduction
- --------------------------------------------------------------------------------
Smoke 25-70% Reduction
- --------------------------------------------------------------------------------
Brake Horsepower Up to a 4% increase
- --------------------------------------------------------------------------------
Engine Wear 30-50% Reduction
- --------------------------------------------------------------------------------
EnerBurn Volumetric Proportioning Injector Equipment (VPI)
Volumetric proportioning injection equipment is used to deliver proper
dosage ratios of EnerBurn to the diesel fuel, and are typically offered to our
customers in support of an EnerBurn sale. Two equipment vendors supply us our
additive injection equipment which is either installed at a bulk fueling depot
or onboard the vehicle or vessel.
Product Testing
Southwest Research Institute
The Southwest Research Institute ("SWRI") of San Antonio, Texas has
extensively tested the EnerBurn technology. This institute is an independent,
nonprofit, applied engineering and physical sciences research and development
organization with 11 technical divisions using multidisciplinary approaches to
problem solving. The Institute occupies 1,200 acres and provides nearly two
million square feet of laboratories, test facilities, workshops, and offices for
more the 2,700 employees who perform contract work for industry and government
clients.
The extensive testing of EnerBurn conducted by SwRI confirmed product
claims of lower highway smoke, reduced NOx emissions, a significant reduction in
engine wear and an increase in horsepower. Actual customer usage data has also
confirmed our claim that EnerBurn usage reduces fuel consumption.
EnerBurn Proof of Performance Demonstrations
An integral part of our sales process is to conduct proof of performance
demonstrations for potential customers wherein we accumulate historical fleet
data that documents the effects of the use
20
of EnerBurn (i.e. advantages in terms of increased fuel economy, a decrease in
engine wear and reductions in toxic emissions) on that customer's specific
vehicles. In connection with these proof of performance demonstrations, we
provide fleet monitoring services and forecasts of fuel consumption for purposes
of the prospective customer's own analysis. We have completed proof of
performance demonstrations for a large number of prospective and existing
customers. A sampling of such trials include: (1) a fleet of over 3,000 long
haul trucks (currently a material customer), (2) a fleet of 24 three-year old
Morrison Knudson 1500 locomotives with Caterpillar 3512 diesel engines,
(currently not a customer) and (3) a sampling of eight maritime push boats
(currently a material customer).
The results below are indicative of typical customer experiences using
EnerBurn. In many instances, customers have directly reported to us their
satisfaction with EnerBurn and the fuel savings that its use has provided them.
In all cases, our own comparison of the customer provided historical fuel usage
data with the EnerBurn usage (which we have monitored) data has proven to us and
the customer that the use of EnerBurn has reduced their fuel consumption. In
addition to fuel consumption reduction, we measure the decrease in emissions
resulting from EnerBurn use with a device called the UEI Intelligent Solutions
Meter. Similarly, the percentage reduction in opacity (smoke generated by diesel
engines) is measured by the Wager 6500 Meter (manufactured by Robert H. Wager
Co., Inc.).
o An EnerBurn proof of performance demonstration of a long haul truck fleet
began in August of 1998. The number of trucks treated with EnerBurn
exceeded 3,000-Century Class Freightliners, most of which were equipped
with Caterpillar or similar type engines. This company's measurable fuel
savings averaged 10.4% over a 3 plus year period while using EnerBurn,
resulting in annual fuel savings in excess of $6.5 million. In addition,
the company's maintenance department observed significant reductions in
metal loss in crankcase wear-parts, although they did not attempt to
quantify the value of this phenomenon.
o A fleet of 24 three-year-old 1400 horsepower Morrison Knudson MK1500
locomotives with Caterpillar 3512 diesel engines were used for a 12-month
proof of performance demonstration of the effectiveness of EnerBurn. This
demonstration started on July 1, 1999 and clearly documented a 10.8%
reduction in fuel consumption and a 9.5% reduction in Brake Specific Fuel
Consumption ("BSFC"). The demonstration also reflected a significant
reduction in engine wear, confirmed by a 56% reduction in copper content
of the lube oil.
o Three maritime vessels were selected from a large fleet, based on size and
typical routes for accessibility of regular fueling at this company's bulk
fueling barge. A proof of performance protocol was developed under the
guidance and supervision of this company's management. The base line
demonstration commenced on July 11, 2001 and the final demonstration was
performed on February 28, 2002. One of the three demonstration vessels
represented an untreated placebo; two were treated with EnerBurn. The two
treated vessels exhibited a measured reduction in fuel consumption of 7%
and 9.9%, while the untreated placebo experienced nearly a 10% increase in
fuel consumption. Additionally five vessels with different diesel engines
were selected for proof of performance under the same protocols yielding
results in excess of 10% in fuel savings, significant reductions in
opacity, from 33%-86%, reductions of NOx emissions between 11% and 20%.
OUR TARGET MARKET
Overview of Worldwide Diesel Fuel Consumption
The U.S. Department of Energy, Energy Information Administration ("EIA")
estimates that worldwide annual consumption of diesel fuel approximates 210
billion U.S. gallons. A breakdown of
21
this estimate is summarized as follows:
Annual consumption of
Diesel Fuel - Billion USG/Year
------------------------------
United States 60
Europe 60
Pacific Rim 50
Rest of the World 40
---
Total Gallons Consumption 210
Domestic Diesel Fuel Consumption
Based on further EIA published data, the following table* depicts domestic
distillate fuel oil consumption by energy use for 2001:
- --------------------------------------------------------------------------------
ENERGY USE 2001 (THOUSAND GALLONS)
- --------------------------------------------------------------------------------
U.S. Total 58,971,486
- --------------------------------------------------------------------------------
Residential 6,263,440
- --------------------------------------------------------------------------------
Commercial 3,505,057
- --------------------------------------------------------------------------------
Industrial 2,323,797
- --------------------------------------------------------------------------------
Oil Company 820,321
- --------------------------------------------------------------------------------
Farm 3,427,343
- --------------------------------------------------------------------------------
Electric Power 1,510,273
- --------------------------------------------------------------------------------
Railroad 2,951,831
- --------------------------------------------------------------------------------
Vessel Bunkering 2,093,252
- --------------------------------------------------------------------------------
On-Highway Diesel 33,215,320
- --------------------------------------------------------------------------------
Military 346,060
- --------------------------------------------------------------------------------
Off-Highway Diesel 2,514,791
- --------------------------------------------------------------------------------
* Sources: Energy Information Administration's Form EIA-821, "Annual Fuel
Oil and Kerosene Sales Report," for 1997-2001 and "Petroleum Supply
Annual," Volume 1, 1997-2001. Totals may not equal sum of components due
to independent rounding.
Diesel Fuel Consumption in Strategic Geographic Target Markets
The following table* depicts diesel fuel consumption for transportation
use only and excludes other such industries to include mining, farm, and
electric power. We have active sales efforts in each of these three
International markets.
- --------------------------------------------------------------------------------
COUNTRY/REGION 1999 CONSUMPTION (MILLION GALLONS)
- --------------------------------------------------------------------------------
Western Europe 44,457
- --------------------------------------------------------------------------------
Japan 9,198
- --------------------------------------------------------------------------------
Brazil 7,665
- --------------------------------------------------------------------------------
* Source: EIA "International Energy Annual, 1999."
22
Our Primary Domestic Target Markets by Energy Users
Our primary domestic target markets by energy users include the trucking
industry, railroad industry, and the maritime shipping industry, all responsible
for transporting freight. Combined, these three industries consume approximately
38 billion gallons of diesel fuel, or over 50% of annual domestic consumption.
According to information compiled by Charles River Associates, between
1960 and 1998, the amount of freight moved each year for each American increased
by 50%, while the average cost of moving a ton of freight one mile (adjusted for
inflation) fell by 12.5%. For trucking, railroad, and maritime shipping
companies, diesel fuel accounts for a disproportionate share of total operating
costs. Furthermore, each of these industries typically experiences relatively
small operating margins. Because of these financial factors, we believe that the
ability to reduce fuel consumption, even by a small amount, could have a
dramatic effect on our customers' competitive viability.
Trucking Industry
The domestic trucking industry employs over 9 million people, including
over 3 million truck drivers and contributes about five percent to our Gross
National Product. During 2000, according to the American Trucking Association,
excluding government and farm, 173 billion miles were logged by all trucks used
for business purposes and consumed 30.3 billion gallons of diesel fuel.
The trucking industry typically measures its costs by the mile, with fuel
representing one of the largest variable cost items for truck operators.
According to a publication prepared by Newport Communications, which profiled
the Heavy Duty and Commercial Truck Market, annual Class 8 Truck (heavy duty)
mileage ranged from 121,000 annual miles per truck for truck load carriers to
140,000 annual miles per truck for the owner-operator carrier. Annual operator
mileage for Class 6-7 Trucks (medium duty) was significantly lower, ranging from
40,000 to 56,000 miles per truck. Trucking industry analyst, Martin Labbe
Associates, calculates that in mid-1998, LTL truckers were spending an average
17.8 cents per mile for fuel. In mid-2001, the average cost had risen to 25
cents a mile for fuel. Unfortunately for trucking companies, the prices of
delivering freight have not kept pace with rising costs.
According to Transportation Technical Services, the average profit margin
for truckers since the late 1970's is about 2%. In 2000, revenues of public
truckload carriers rose 5.9%, representing a 40% increase in tonnage and 60% in
surcharges and higher rates. However, profits were down almost 22%. Market
analysts at A.G. Edwards & Sons noted 3,670 bankruptcies among companies with
five or more trucks in 2000. Another 1,000 closed down in the first quarter of
2001. In previous years, when fuel prices were low, the bankruptcy rate was
under 300 per quarter.
We believe this analysis clearly supports the significant impact of fuel
costs on the profitability and viability of trucking companies, particularly in
a slow economy with less freight being moved.
North American Railroad Industry
According to the Association of American Railroads, more than 600 freight
railroads operate in Canada, Mexico, and the United States with over 173,000
million miles of track and generate $42 billion in annual revenues. These
railroads account for more than 40 percent of all freight transportation.
23
Currently, the active locomotive fleets in the North American market
number approximately 33,000 units, including heavy-haul freight locomotives,
commuter locomotives and lower-horsepower, short-haul and terminal locomotives.
The average number of new locomotives delivered in the past 10 years was 1,000
annually.
On average, locomotives are three times more fuel-efficient than trucks.
Moreover, locomotive fuel efficiency is continually improving. In 2001,
locomotives moved a ton of freight 403 miles on average per gallon of diesel, up
from 235 miles in 1980. In 2001 alone, U.S. freight locomotives consumed 2.6
billion fewer gallons of diesel fuel than they would have if their fuel
efficiency had remained constant since 1980.
Based on revenue per ton-mile, on average it costs 29% less to move
freight by locomotive in 2001 than it did in 1981. Additionally, diesel fuel
expenditures typically represent between six and 10 percent of operating budgets
for domestic locomotive lines. Canada's railways, for instance, have been
improving their fuel efficiency at an annual rate of about 1.9 percent per year.
Because of these factors, locomotives, as demonstrated, are keenly aware
of the positive impact fuel savings can have on their ability to remain
competitive.
Maritime Shipping Industry
The domestic maritime shipping industry transports freight around our
Nation's inland waterways and along our Nation's coasts. Our primary marketing
efforts are presently directed at those companies that operate vessel fleets
throughout our Nation's inland and inter-coastal waterways.
Inland water freight transportation is comprised of more than 4,000
tugboats and towboats and over 28,000 barges. These vessels move 15% of the
Nation's freight representing nearly 800 million tons annually, over a
25,000-mile waterway system, contributing about $5 Billion a year to the U.S.
economy. Because of the enormous cargo capacity of a barge, this industry
represents the most economical mode of transporting commercial freight.
Our Secondary Domestic Target Markets by Energy Users
To a lesser extent, we market EnerBurn to other domestic industries that
are reliant upon diesel fuel. Those industries include electric power, oil and
gas production (both onshore and offshore), mining, and agricultural. However,
at the present time we have limited our efforts in these industries to specific
customer applications wherein we have a personal relationship.
SALES AND MARKETING STRATEGY
Our Sales Process
The fuel additive industry has historically been mired by a myriad of
technically dubious products and potential customers are usually wary of
promotional claims by product manufacturers or "snake oil" peddlers as they are
sometimes labeled.
Prospective customers in all targeted market sectors and geographic
locations are primarily concerned about the potential business risks associated
with the adoption of any new fuel or engine treatment. Thus, the first resistant
barrier to adoption of a fleet proof of performance demonstration is dispelling
fear about impact on engine warranties and any potential business risk
associated with a
24
fleet shutdown caused by our product. The potential EnerBurn fuel and
maintenance savings are strong motivators but are secondary to risk avoidance.
The SWRI fitness for use testing and customer testimonials are paramount in
assisting us in addressing these fears.
Potential customers have a strong predisposition to accept only
demonstrable proof-of-benefit in their own fleet as justification for any new
expenditure. After risk avoidance, the ability to demonstrate and prove results
is the primary obstacle for market adoption of our product.
Our sales process begins with a proof of performance demonstration that is
a thorough analysis of the potential customer, including fleet type, size, and
opportunity. (See "Business -Product Testing- EnerBurn Proof of Performance
Demonstrations", above)). This is followed with sales presentations at both the
executive level and maintenance level. Executive level sales presentations
emphasize return on investment ("ROI"), while maintenance level sales
presentations emphasize our technology and why it does not impact engine
warranties and any potential business risk associated with a fleet shutdown.
Convincing a potential customer to undertake a proof of performance
demonstration is a difficult task because there is a significant expense to be
borne by the potential customer. Specifically, the potential customer must pay
for both the EnerBurn that is used during the demonstration as well as purchase
the additive injection equipment that is also needed. The cost will vary
according to the potential customer and the industry in which it is in. For a
proof of performance demonstration on a typical fleet of 100 diesel engine
trucks, the cost of the EnerBurn would be approximately $30,000, while the
average cost of the equipment used would be approximately $20,000. The personnel
costs related to providing fleet monitoring services and forecasts of fuel
consumption for the potential customer's analysis are borne either by us, our
supplier or the sales agent. For a demonstration involving a fleet of 100
hundred trucks, typically 50 to 100 man-hours are involved.
The current sales cycle from inception to full customer implementation is
typically six to 12-months from initial customer contact. This includes the two
to six months it usually takes for the benefits of EnerBurn to begin to take
effect in the subject engines during the proof of performance demonstration
period.
Our International Marketing Partners
We presently market EnerBurn in Western Europe, certain countries in Asia
and Latin America though partnerships with entities that have an established
presence in these areas. Our marketing partners include Bond International, Ltd.
("Bond") in Western Europe, Mitsubishi International Corporation ("MIC") in the
Asia and EchemTrade Energy & Petrochemicals, Ltda. ("Echem") in the Mercusor
Nations.
Bond International, Ltd.
Bond is an independent marketing corporation organized in the United
Kingdom. Although we do not have a formal written agreement with them, Bond is
acting as our sales agent in 19 European countries, including the United
Kingdom, Austria, Germany, Spain, Italy and Switzerland. We are currently in the
process of negotiating a formal written agreement with Bond. To date, Bond has
had $ 297,000 (US) in EnerBurn sales on our behalf. Our current arrangement
calls for us and Bond to share equally in the operating margins of the products
sold in Bond's territory until such time that a definitive agreement is executed
between the parties.
25
Mitsubishi International Corporation
o On March 15, 2003, WaxTech International, Inc. assigned to EnerTeck its
December 15, 2002 agreement with MIC, its exclusive distributor of
EnerBurn products in the aforementioned Asian nations. The term of the
Distributorship Agreement is for five years with renewable one-year
options. We can terminate this agreement for a material breach of
contract, including the failure of MIC to meet annual sales requirements,
if the breach is not remedied within 60 days of the date of the notice of
the breach. Under this agreement, MIC's compensation is based entirely
upon the difference between its cost from us and MIC's sales prices to its
customers.
To date, MIC has not sold any of our product pursuant to this agreement.
However, certain proof of performance demonstrations have begun in the fourth
quarter of 2003 in these geographical areas.
EchemTrade Energy & Petrochemicals, Ltda.
On February 15, 2003, we entered into a Sales Agency Agreement with Echem,
a Brazilian corporation that was amended on September 1, 2003. Pursuant to this
agreement, as amended, Echem acts as our exclusive sales agent for the sale of
EnerBurn products in Latin America. The term of the agreement is for five years
with renewable one-year options. In order to maintain its geographic
exclusivity, Echem must meet certain minimum annual sales volume requirements.
In the event that Echem does not achieve the minimum sales volume in any given
period, we may, at our sole option, appoint additional sales agents or establish
our own sales initiative within the territory. However, in the event that Exhem
does lose its territorial exclusivity, we will continue to supply EnerBurn
products to Echem on a non-exclusive basis, and we will not solicit or otherwise
transact business with Echem's active commercial accounts or compete with Echem
or allow any additional appointed agents to compete or interfere with Echem's
active commercial accounts.
Under this agreement, Echem's compensation is entirely commission based,
with advance commission payments to be drawn against future commissions
permitted if agreed upon by the parties. The commission formula is as follows:
o For Echem sales to certain non-governmental Brazilian customers, the
difference between its cost from us and such customer's sales
prices;
o For all other non-governmental commercial accounts, 20% of the gross
sales price; and
o For all governmental accounts, 25% of the gross sales price.
To date, Echem has not sold any of our products pursuant to this
agreement. However, large railroad and certain government contracts are under
negotiation at this time.
Brenntag Latin America Incorporated
Brenntag Latin America Incorporated ("BLAI") is the Latin American sales
division of The Brenntag Group. On October 23, 2003, we entered into a one year
renewable Exclusive Distributor Agreement with BLAI. Under this agreement, we
appointed BLAI as our exclusive distributor of EnerBurn in the South American
countries of Colombia, Venezuela, Ecuador and the Dominican Republic. In order
to maintain exclusivity, BLAI must purchase at least 4,000 gallons of EnerBurn
within the first year. If it fails to do so, it may lose its exclusivity at our
option. In such case, it would proceed as a non-exclusive distributor in the
aforementioned countries. In connection with this distributorship arrangement,
BLAI has agreed not to sell and/or handle any other product that
26
competes with EnerBurn.
BLAI's compensation under this arrangement is derived from its mark-up of
the EnerBurn that it purchases from us. To date, BLAI has not purchased any of
our product under this agreement.
COMPETITION
The market for products and services that increase diesel fuel economy,
reduce emissions and engine wear is rapidly evolving and intensely competitive
and we expect it to increase due to the implementation of stricter environmental
standards. Competition can come from other fuel additives, fuel and engine
treatment products and from producers of engines that have been modified or
adapted to achieve these results. In addition, we believe that new technologies,
including additives, will further increase competition.
Our primary current competitors include Lubrizol Corporation, Chevron
Oronite Company (a subsidiary of Chevron Corporation), Octel Corp., Clean Diesel
Technologies, Inc. and Ethyl Corporation.
Many of our competitors have been in business longer than us, have
significantly greater financial, technical, and other resources, or greater name
recognition. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Competition could
negatively impact our business. Competitive pressures could cause us to lose
market share or to reduce the price of our products, either of which could harm
our business, financial condition and operating results.
We believe that the principal competitive factors in our market include
the:
* effectiveness of the product;
* cost;
* proprietary technology;
* ease of use; and
* quality of customer service and support.
GOVERNMENT REGULATION
We need to comply with registration requirements for each geographic
jurisdiction in which we sell EnerBurn. On January 21, 2001, the US
Environmental Protection Agency, pursuant to the Environmental Protection Act
(the "Act") (40 CFR 79.23) issued permit number EFC 5805A in connection with the
use of EnerBurn. This registration allows EnerBurn to be used anywhere in the
United States for highway use in all over-the-road diesel applications. Under
this registration, we have pass through rights from the formulator, blender and
supplier to sell EnerBurn. However, there are provisions in the Act under which
the EPA could require further testing. The EPA has not exercised these
provisions yet for any additive. Internationally, we intend to seek registration
in other countries as we develop market opportunities.
Our business is impacted by air quality regulations and other regulations
governing vehicle emissions as well as emissions from stationary engines. If
such regulations were abandoned or determined to be invalid, our prospects may
be adversely effected. As an example, if crude oil and resulting diesel prices
were to reach or approach historical lows, the emphasis for fuel efficiency
27
would be diminished, potentially impacting sales velocity of our products,
consequently adversely effecting the Company's performance.
OUR SUPPLY ARRANGEMENTS
Our Relationship with RubyCat Technology
In January 2003, we executed a Memorandum of Understanding ("MOU") with
RubyCat Technology. This MOU is comprised of two components: a Supply and
Marketing Agreement and a Purchase Option Agreement.
Supply and Marketing Agreement
Under the Supply and Marketing component of the MOU, EnerTeck will
collaborate with and purchase EnerBurn(TM) products and services exclusively
from RubyCat and RubyCat will collaborate with and sell EnerBurn diesel products
exclusively to EnerTeck. Accordingly, for EnerTeck to maintain annual, global
exclusivity, it is required to purchase certain minimum quantities of EnerBurn
as indicated below:
Year One ending December 31, 2003 180,000 gallons
Year Two ending December 31, 2004 270,000 gallons
Year Three ending December 31, 2005 400,000 gallons
And Each Year thereafter 500,000 gallons
Purchase Option Agreement
Under the Purchase Option component of the MOU, EnerTeck has been granted
a unilateral one-year option to purchase certain technology from RubyCat for a
sum of up to $6.6 million.
During December of 2002, RubyCat expressed an interest in selling its
technology to EnerTeck for a sum of up to $6.6 million. As a result of
negotiations between the parties, EnerTeck, in addition to securing exclusive
global marketing rights subject to minimum purchase requirements from RubyCat,
elected to pursue this acquisition with payment due no later than December 31,
2003. However, should EnerTeck elect not to exercise the purchase option and yet
meet the annual minimum purchase requirements, EnerTeck maintains its global
exclusivity, subject to our meeting certain minimum purchase levels.
If the supplier is not able to provide us with sufficient quantities of
the product, or not provide us the product at all (for any reason), our business
could be adversely effected. Although we have identified alternate suppliers of
the products, we cannot assure you that the replacement products will be
comparable in quality to the product presently supplied to us by RubyCat, or
that, if comparable, that it can be acquired under terms and conditions
acceptable to us.
In addition, we are dependent upon RubyCat for statistical analysis of
fleet data gathered from customers and potential customers in on-road
applications. This data is important in that it serves to demonstrate our
products' proof of performance to customers and potential customers. If this
service were not supplied to us, our sales efforts and ability to maintain
existing customers could be negatively effected. However, we believe that we can
adequately analyze the data ourselves.
Our arrangement with RubyCat Technology requires that we meet certain
annual minimum
28
purchase levels in order to maintain our global exclusivity. The Company has
purchased 9,700 gallons of product from RubyCat through November 30, 2003. Based
upon our sales volume to date, we have not achieved the required minimum levels
of purchases. However, we are presently in discussions with RubyCat to waive the
requirements necessary for us to maintain this exclusivity. No assurance can be
given that we can reach an agreement acceptable to both parties. If we were to
lose this exclusivity, it may have a material adverse effect on our business and
planned operations.
EMPLOYEES
We currently employ nine individuals on a full-time basis; five of whom
provide services to both EnerTeck Parent and EnerTeck Sub. The remaining four
provide services to EnerTeck Sub only. Two of the individuals, namely, James
Mullen (Executive Vice President, General Counsel, Secretary and Director) and
Parrish Ketchmark (President and Director) provide their services pursuant to
consulting agreements. Parrish Brian Partners, Inc., with whom we have a
consulting agreement, employs our president. We anticipate retaining additional
sales and marketing (as employees or consultants) and clerical personnel within
the next 12 months, if our financial resources permit.
PROPERTY
We do not own any real estate. We conduct our operations from leased
premises in Stafford, Texas. We lease approximately 2,692 square feet of space
at 10701 Corporate Drive, Suite No. 150 under a three-year lease, which
terminates on March 31, 2006 and currently provides for monthly rent of
$3,687.75 which increases ratably over the term of the lease to $3,911.25. We
believe that our current facility is adequate for the foreseeable future.
LITIGATION
We are not a party to any pending material legal proceeding nor are we
aware of any proceeding contemplated by any individual, company, entity or
governmental authority involving the Company.
MANAGEMENT
DIRECTORS EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following sets forth certain information regarding each of our
directors, executive officers and key employees. Unless otherwise indicated,
these individuals hold the same positions listed below for both EnerTeck
Corporation and our wholly owned subsidiary, EnerTeck Chemical Corp.
NAME AGE POSITIONS HELD
- ---- --- --------------
Dwaine Reese 61 Chief Executive Officer, and Chairman
of the Board of Directors
Parrish B. Ketchmark 38 President and Director
James J. Mullen 67 Executive Vice President, General Counsel,
Secretary and Director
V. Patrick Keating* 54 Executive Vice President/Business Development
Leon van Kraayenburg 48 Executive Vice President/Finance, Chief
Financial Officer and Treasurer
Roy Stern* 57 Vice President/Fleet Sales (USA)
29
* These individuals are key employees of our subsidiary, EnerTeck Chemical
Corporation. They are not employees or corporate officers of our parent,
and do not perform any policy-making functions for our parent.
The following is a brief summary of the business experience of each of the
above-named individuals:
DWAINE REESE. Mr. Reese has been the Chairman of the Board and our Chief
Executive Officer of EnerTeck Sub since 2000 and of EnerTeck Parent since 2003.
From approximately 1975 to 2000, Mr. Reese held various executive, management,
sales and marketing positions in the refining and specialty chemical business
with Nalco Chemical Corporation and later Nalco/Exxon Energy Chemicals, LP. In
2000, he founded EnerTeck Chemical Corp., and has been its President and Chief
Executive Officer since that time. Mr. Reese has been and will continue to
devote his full-time to our business. Mr. Reese has B.S. degree in Biology and
Chemistry from Lamar University and a M.S. degree in Chemistry from Highland New
Mexico University.
PARRISH B. KETCHMARK. Mr. Ketchmark has been our President and a Director since
May 15, 2003. He has over 14 years experience in the business development and
financing of small, emerging businesses. He is the founder, President and
Chairman of the Board of Parrish Brian Partners, Inc., a venture capital
business incubation firm, in operation since 2000. In addition, Mr. Ketchmark is
the President of Parrish Brian & Co., Inc., an asset management, and investment
and merchant-banking firm founded in 1995. From 1997 to 1999, Mr. Ketchmark
served as the Secretary, Treasurer and a Director of World Cyberlinks Corp. From
1993 to 1995, Mr. Ketchmark served as the President of Performance Capital
Corporation, an investment firm that managed and serviced a portfolio of
investments in early stage growth companies. Prior to 1993, Mr. Ketchmark was
employed as a Vice President at American Network Capital Corporation, a
financial public relations firm, where he was responsible for investor relations
and the financing of emerging companies. Mr. Ketchmark has attended Bernard
Baruch College and Fordham University, and has studied finance and investments
at Penn State University. He served in the U.S. Marine Corps from 1984 until his
honorable discharge in 1989 attaining the rank of Sergeant. Mr. Ketchmark will
devote such time to our business as he believes is necessary for us to be
successful.
JAMES J. MULLEN. Mr. Mullen is our Executive Vice President - General Counsel,
Secretary and a Director. He has over 40 years of legal experience primarily in
the areas of intellectual property rights (patents and trademarks), trade
regulation, business law, environmental matters, product liability and
litigation. Since 1992, Mr. Mullen has been General Patent Counsel -Intellectual
Property for Celanese Ltd. Mr. Mullen will continue this relationship with
Celanese, until such time that we will be able to compensate him at a level
commensurate with full-time employment. Until such time, Mr. Mullen will devote,
as much of his time to our business as he believes is necessary for us to be
successful. Mr. Mullen has his J.D. degree from Texas A &M University Law
Center/South Texas College of Law, and a B.Ch.E. from Georgia Technical
Institute.
V. PATRICK KEATING. Mr. Keating is an Executive Vice President - Business
Development of our wholly owned subsidiary, EnerTeck Chemical Corp. only. Mr.
Keating has approximately twenty-
30
eight years of refining/petrochemical management experience with fully
integrated oil companies. For the most recent five years, he has been engaged in
the management of start-up refining and petrochemical ventures. He is the
founder and Chief Executive Officer of WaxTech International, Inc., a firm that
has in the past provided consulting and sales services to EnerTeck Sub. Although
Mr. Keating intends to devote substantially all of his business time to our
business operations, he will still maintain his position with WaxTech. Mr.
Keating has a B.S. Degree in Chemical Engineering from McNeese State University.
LEON VAN KRAAYENBURG. Mr. van Kraayenburg is our Executive Vice President -
Finance, who has over 20 years of financial corporate reporting, tax, finance
and treasury experience, serving the private and public sector. From 1993 until
1999, he served as Manager of Corporate Reporting for the U.S. holding companies
of BTR, Plc., a UK public reporting company and BTR Nylex Ltd., an Australian
public reporting company. During 1998, he managed the consolidation of the
Amatek Holdings Group, a division of BTR Nylex, Ltd., a reporting entity
comprising of over 60 companies and $900 million (USD) in revenues. He first
served as the Chief Financial Officer and Treasurer of Westlake Styrene
Corporation, with total assets of over $120 million (USD), a wholly owned
subsidiary of BTR Nylex Ltd. before he joined corporate BTR Plc. Mr. van
Kraayenburg is a graduate of Witwaters Rand College in South Africa.
ROY K. STERN. Mr. Stern is our Vice President - Fleet Sales (USA) of our wholly
owned subsidiary, EnerTeck Chemical Corp. only. He has over 30 years experience
in transportation, real estate and facilities logistics management. Most
recently, from 1996 until 2002, he was Director of Purchasing and Fuel
Management for Consolidated Freightways, a national trucking firm that filed for
Chapter 11-bankruptcy protection in 2002 and is currently in liquidation. Mr.
Stern has a B.S. degree in Biology from the University of Wisconsin and an
M.B.A. degree in Finance /Management from Redlands College.
DIRECTORS' TERMS OF OFFICE
With regard to our parent, EnerTeck Corporation, and its subsidiary,
EnerTeck Chemical Corp., all the directors hold office for a term of one (1)
year or until his/her successor is duly elected and qualified.
BOARD OF DIRECTORS AND OFFICERS
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
DIRECTORS COMPENSATION
Directors who are also officers of the Company receive no additional
compensation for serving on the Board of Directors, other than reimbursement of
reasonable expenses incurred in attending meetings.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer whose total annual salary and bonus exceeded $100,000
during the past three calendar years. Except as set forth below, no officer or
Executive Officer of the Company received compensation in
31
excess of $100,000 during the past three calendar years. However, two of our
employees are currently being compensated at a rate in excess of $100,000 per
year. They are Dwaine Reese and Roy Stern ($150,000 and $110,000 per year,
respectively). All of this information includes the dollar value of base
salaries, bonus awards and number of stock options granted, and certain other
compensation, if any.
SUMMARY COMPENSATION TABLE
COMPENSATION IN
NAME AND PRINCIPAL FISCAL THE FORM
POSITION YEAR SALARY($) BONUS($) OF EQUITY ($)
- --------- ---- --------- -------- --------------
Dwaine Reese 2000 0 0 0
Chief Executive Officer 2001 $125,000 0 0
Chairman (1) 2002 $150,000 0 $420,000 (2)
(1) Mr. Reese has served in these positions with both companies since shortly
after we acquired EnerTeck Sub on January 9, 2003. Prior thereto, from
EnerTeck Sub's inception on November 29, 2000, Mr. Reese served as the
President and Chief Executive Officer of EnerTeck Sub. The compensation
that is indicated here is his compensation from EnerTeck Sub for the
periods indicated as its officer and director.
(2) In September 2002, EnerTeck issued 420,000 shares of its common stock to
Mr. Reese. This issuance was valued at a $1.00 per share as non-cash
compensation in 2002.
On September 2, 2003, our shareholders approved an employee stock option
plan authorizing the issuance of options to purchase up to 1,000,000 shares of
our common stock. This plan is intended to give us greater ability to attract,
retain, and motivate our officers, key employees, directors and consultants; and
is intended to provide us with the ability to provide incentives more directly
linked to the success of the Company's business and increases in shareholder
value. To date no options have been issued under the plan.
In addition to the stock option plan, all of the officers and significant
employees (or their affiliates) have been issued warrants to purchase shares of
our common stock. (See "Certain Relationships and Related Transactions"
immediately below.) To date, none of these previously issued warrants to
purchase our securities have been exercised. The shares underlying these
warrants are among the shares covered by this prospectus.
EMPLOYMENT AGREEMENTS - EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES
All of the officers and key employees, with the exception of Mr. Ketchmark
and Mr. Mullen, have entered into employment agreements. Mr. Ketchmark is acting
as the president of the Company and its subsidiary pursuant to a May 15, 2003
amendment to the January 9, 2003 consulting agreement between his firm, Parrish
Brian Partners, Inc and us. He is compensated on a consulting basis at the rate
of $72,000 per year. Mr. Mullen has a consulting agreement with both our parent
and subsidiary. He is also compensated at the rate of $72,000 per year. All of
the remaining officers and significant employees have entered into employment
agreements with both our Company and its subsidiary except Messrs. Keating and
Stern who have employment agreements with our subsidiary only. All employment
agreements contain non-compete provisions. Messrs. Reese and Stern are
compensated at the rate of $150,000 and $110,000 per year, respectively. The
remaining officers and key employees
32
are compensated at the rate of $72,000 per year. In addition, we will pay Mr.
Stern a 1% commission on sales that he generates.
Copies of these agreements and any amendments thereto are included in the
Form SB-2 Registration Statement of which this prospectus is a part, which
registration statement has been filed with the Securities and Exchange
Commission.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 1, 2003, we issued to Dwaine Reese, our principal shareholder,
Chairman and Chief Executive Officer, a warrant to purchase 1,000,000 shares of
our restricted common stock at $.01 per share or $10,000 in connection with his
employment agreement. In addition, we have issued another warrant to purchase
498,150 of our restricted shares at $1.20 per share or $597,780 to Allan F. Dow
and Associates, a management consulting firm for consulting services rendered to
EnerTeck Sub. We have also issued to J.D. McGraw, a consultant who previously
rendered services to us, a warrant to purchase 150,000 shares of our restricted
common stock at $1.20 per share or $180,000. Similarly, we have issued another
warrant to purchase 175,000 shares of our restricted common stock at $1.20 per
share or $210,000 to WaxTech International, Inc. in consideration for services
also rendered to EnerTeck Sub. V. Patrick Keating, a significant employee of
EnerTeck Sub, is a principal of WaxTech.
Our president, Parrish B. Ketchmark, is presently compensated on a
consulting basis through his firm, Parrish Brian Partners, Inc. ("Partners").
Prior to him becoming president on May 15, 2003, we entered into a January 9,
2003 financial consulting and business development agreement with Partners, an
affiliate to Mr. Ketchmark. He is providing his services as president pursuant
to a May 15, 2003 amendment to this consulting agreement. In connection with
this agreement, we issued a warrant to Partners to purchase 1,500,000 shares of
our shares of common stock at $1.00 per share or $1,500,000 and are paying Mr.
Ketchmark for services rendered at the rate of $6,000 per month or $72,000 per
year. For the year ending December 31, 2003, he has been paid a total of
$48,000. In addition, on January 9, 2003, we issued 500,000 shares of our common
stock to Parrish Brian & Co., Inc., an affiliate of Mr. Ketchmark and Parrish
Brian Partners, Inc., for business, financial and marketing services previously
rendered to EnerTeck Sub before we acquired it.
In addition to the above, we have issued warrants to purchase our common
stock to the following officers and employees as follows:
o Leon van Kraayenburg - a warrant to purchase 200,000 shares at $1.20
per share.
o James J. Mullen - a warrant to purchase 100,000 shares at $1.20 per
share.
o Roy Stern - a warrant to purchase 100,000 shares at $1.20 per share.
o Deborah Tenney - a warrant to purchase 100,000 shares at $1.20
We consider the terms of the foregoing warrant transactions to be fair and
reasonable to both us and respective parties involved. With the exception of the
warrant transaction with our principal shareholder and Chairman, Dwiane Reese,
all warrant issuances, including exercise prices, were the result of arms length
negotiations between the parties. Since the shares underlying the warrants were
restricted at the time of the negotiation and the subsequent grants, the price
of the publicly traded shares was not relevant, and their fair market value
could not be determined. Regarding the warrants issued to Mr. Reese, as our
founder, Chairman and principal shareholder, he was rewarded accordingly, i.e.,
with a lower warrant exercise price and a warrant to purchase a greater number
of shares. Although it was not an arms length transaction, considering Mr.
Reese's perceived value to the
33
Company, we believe it is fair and in our best interests.
This prospectus covers the shares underlying all of the warrants referred
to in this section as well as the 202,500 shares underlying the warrants issued
to our investment banker. See "Management Discussion and Analysis of Financial
Condition and Plan of Operation - Liquidity and Capital Resources", above.
Accordingly, the total number of shares covered by this prospectus underlying
warrants is 4,025,650.
On November 24, 2003, we effected a one from 10 reverse stock split and a
change of domicile merger whereby we changed our name from Gold Bond Resources,
Inc. to EnerTeck Corporation and our state of domicile from the State of
Washington to the State of Delaware. All references to shares contained herein
give effect to the aforementioned reverse common stock split as if it had
occurred previously to the transactions cited.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as indicated below, the following table sets forth the stock
ownership of each of our directors and officers, and each beneficial owner of
greater than 5% of the outstanding shares of the Company, as of December 12,
2003, after giving effect to the November 24, 2003 one for 10 reverse common
stock split.
Name and Address of Amount and Nature
Beneficial Owner Title of Class of Beneficial Ownership Percent of Class
- ------------------- -------------- ----------------------- ----------------
Dwaine Reese (1) (2) Common 3,550,000 32.89%
206 Country Creek Way
Richmond, Texas 77469
Parrish B. Ketchmark (1)(3) Common 2,000,000 18.39%
75 Oak Street
Norwood, NJ 07648
James J. Mullen (1)(4) Common 100,000 01.00%
802 Campodolcino Drive
Corpus Christi, Texas 78414
Leon van Kraayenburg (1)(5) Common 200,000 02.00%
14826 Cedar Point Drive
Houston, TX 77070
Tom Himsel Common 575,000 5.87%
2177 Willow Lake Drive
Greenwood, Indiana 46143
Stan Crow Common 500,000 5.11%
1410 Andover
Livingston, Texas 77351
Leo Long Common 1,000,000 10.21%
14600 W. 107th Street
Lenexa, KS 66215
John Russell (6) Common 1,000,000 10.21%
116 A Main Street
Tiburon, CA 94920
All directors and
executive officers
as a group (4 persons) Common 5,350,000 42.49%
34
(1) Holds these positions (officer and/or director) with both Companies.
(2) This includes the shares underlying the warrant we have issued to this
shareholder to purchase an additional 1,000,000 shares at $.01 per share
in connection with his employment agreement. The percent of class assumes
the exercise of this shareholder's warrants only.
(3) This includes the shares underlying the warrant we have issued to an
affiliate of this shareholder, Parrish Brian Partners, Inc., to purchase
1,500,000 shares of our common stock for $1.00 per share. The percent of
class assumes the exercise of this shareholder's warrants only. In
addition, it also includes 500,000 shares owned by an affiliate of this
shareholder, Parrish Brian & Co., Inc.
(4) This includes the shares underlying the warrant we have issued to this
shareholder in connection with his consulting agreement. This is a warrant
to purchase 100,000 shares at $1.20 per share. The percent of class
assumes the exercise of this shareholder's warrants only.
(5) This includes the shares underlying the warrant we have issued to this
shareholder in connection with his employment agreement. This is a warrant
to purchase 200,000 shares at $1.20 per share. The percent of class
assumes the exercise of this shareholder's warrants only.
(6) This individual's common stock holdings are comprised of shares owned by
his affiliates as follows: Park City Investors, LP (400,000 shares),
Carlsbad Industrial Association, LP (200,000 shares) and The Sherman
Family Partners, LP (400,000). Mr. Russell controls all of these entities.
Unless otherwise noted above, this table has been prepared based on
9,791,999 shares of common stock being outstanding. If all of the aforementioned
warrants are exercised, we will have 13,817,649 shares outstanding.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of common stock,
$.001 par value per share, of which 9,791,999 are outstanding as of the date of
this prospectus.
Holders of common stock have equal rights to receive dividends when, as
and if declared by the Board of Directors, out of funds legally available
therefor. Holders of common stock have one vote for each share held of record
and do not have cumulative voting rights.
Holders of common stock are entitled, upon liquidation of the Company, to
share ratably in the net assets available for distribution, subject to the
rights, if any, of holders of any preferred stock then outstanding. Shares of
common stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock are fully paid and non-assessable.
35
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock
with no stated value and a par value of $.001, none of which are issued and
outstanding. The preferred stock will be entitled to preference over the common
stock with respect to the distribution of assets of the Company in the event of
its liquidation, dissolution, or winding-up, whether voluntarily or
involuntarily, or in the event of any other distribution of assets of the
corporation among its stockholders for the purpose of winding-up its affairs.
The authorized but unissued shares of preferred stock may be divided into and
issued in designated series from time to time by one or more resolutions adopted
by the Board of Directors. The Board in its sole discretion shall have the power
to determine the relative powers, preferences, and rights of each series of
preferred stock. The issuance of preferred shares with such voting or conversion
rights may have the effect of delaying, deferring or preventing a change in
control of the Company.
There are no other provisions in our certificate of incorporation or our
bylaws that may result in the delaying, deferring or preventing of a change in
control of our Company.
DIVIDEND POLICY
The Company has never paid cash dividends on its common stock. The Board
of Directors does not anticipate paying cash dividends in the foreseeable future
as it intends to retain future earnings, if any, to finance the growth of the
business. The payment of future dividends will depend on such factors as
earnings levels, anticipated capital requirements, the operating and financial
condition of the Company and other factors deemed relevant by the Board of
Directors.
TRANSFER AGENT
The transfer agent for the Company's common stock and warrants is Jersey
Transfer & Trust Company, 201 Bloomfield Avenue, Verona, New Jersey 07044. Its
telephone number is 973-239-2712.
THE OFFERING
The Prospectus covers the public resale of a total of 7,675,650 shares of
our common stock that is made up of the following:
In April 2003, we completed our December 20, 2002 private offering of
1,000,000 shares of our common stock at $.50 per share for a total of $500,000
to be used for working capital. We included with these shares the right to have
them registered with the Securities and Exchange Commission ("SEC"). This
prospectus covers the public resale of these 1,000,000 shares.
In June 2003, we completed our May 28, 2003 private offering of 2,150,000
shares of our common stock at $.50 per share for a total of $1,075,000 to be
used for working capital. We included with these shares the right to have them
registered with the SEC. This prospectus covers the public resale of these
2,150,000 shares.
During 2003, we issued warrants to officers, employees, consultants, and
our investment banker/selling agent, in private transactions, for the purchase
up to 4,025,650 shares of our common
36
stock at varying exercise prices. These warrant holders have the right to have
us register the underlying 4,025,650 shares with the SEC. This prospectus covers
the public resale of the shares of common stock underlying the warrants.
In January 2003, we issued 500,000 shares of its common stock to Parrish
Brian & Co., Inc. for business, financial and marketing consulting services
previously rendered to EnerTeck Sub before its acquisition. We assumed this
liability after the acquisition. The services were valued by the parties at par
value at the time of issuance (pre-reverse split) or $5,000. The shares issued
to Parrish Brian & Co., Inc. are covered in this prospectus.
We cannot prevent the holders from immediately reselling all shares after
this registration becomes effective with the SEC.
SELLING SECURITY HOLDERS
The selling security holders identified in the following table are
offering for sale 7,675,650 shares of common stock. All shares are issuable upon
the exercise of a privately negotiated and issued warrant or common stock
previously issued to the selling security holders in a private placement
transaction.
The following table sets forth as of December 12, 2003:
o The number of shares being held of record or beneficially by each
selling security holder and any material relationship between the
Company and each selling security holder based upon information
currently available to the Company.
o The percentage ownership of each selling security holder prior to
the offering.
o The number of shares offered hereunder by each selling security
holder.
o The number of shares held of record or beneficially and the
percentage ownership of each selling security holder after the
offering.
This calculation assumes the exercise of all the warrants, of which there
can be no assurance, and that all shares are sold pursuant to this offering and
that no other shares of common stock are acquired or disposed of by the selling
security holder prior to the termination of this offering.
37
Beneficial Beneficial
Ownership of Ownership of
Selling Security Selling Security
Holder Prior to Holder After
Offering (1): Offering (1):
---------------------- ----------------------
Number of
Name of Selling Shares Offered
Security Holder Number Percent Hereby Number Percent
- --------------------------------------------------------------------------------------------------------------
Parrish Brian
Partners, Inc. (2)(3) 1,500,000 10.86% 1,500,000 0 0
WaxTech
Int'l Inc. (3) (4) 175,000 1.27% 175,000 0 0
James Etter (5) 50,000 * 50,000 0 0
John Coghlan(5) 50,000 * 50,000 0 0
Jack Cowles (5) 50,000 * 50,000 0 0
Jack Manning (5) 50,000 * 50,000 0 0
Anthony Scorpio (5) 50,000 * 50,000 0 0
William Taylor (5) 50,000 * 50,000 0 0
Dan Ice (5) 50,000 * 50,000 0 0
Mary Martin (5) 30,000 * 30,000 0 0
Paul Lodi (5) 50,000 * 50,000 0 0
Paul and Edith Lodi (5) 30,000 * 30,000 0 0
David Crocker (5) 50,000 * 50,000 0 0
John Roglieri (5) 50,000 * 50,000 0 0
Christopher Walker (5) 100,000 * 100,000 0 0
Vincent Vallario (5) 5,000 * 5,000 0 0
Lola Carson (5) 45,000 * 45,000 0 0
Dean Dennecio (5) 50,000 * 50,000 0 0
Daniel Luchansky(5) 25,000 * 25,000 0 0
Margaret Murray (5) 20,000 * 20,000 0 0
Edward Pegram (5) 50,000 * 50,000 0 0
Jose Pietri, Jr. (5) 25,000 * 25,000 0 0
Jacobs Pond (5)(6) 20,000 * 20,000 0 0
Rirkdiyifel Ltd.
Partnership(5)(7) 100,000 * 100,000 0 0
Leo Long (8) 1,000,000 7.24% 1,000,000 0 0
Park City
Investors, L.P.(8)(9) 400,000 2.89% 400,000 0 0
Carlsbad Industrial
Association L.P.(8)(9) 200,000 1.45% 200,000 0 0
The Sherman Family
Partners LP.(8)(9) 400,000 2.89% 400,000 0 0
Joel Jonezyk (8) 50,000 * 50,000 0 0
James Singleton (8) 50,000 * 50,000 0 0
Everyone
Counts, Inc.(8)(10) 50,000 * 50,000 0 0
Leon van
Kraayenburg (3)(11) 200,000 1.45% 200,000 0 0
James J. Mullen (3)(11) 100,000 * 100,000 0 0
Roy Stern (3)(11) 100,000 * 100,000 0 0
Deborah Tenney (3)(11)100,000 * 100,000 0 0
Dwaine Reese (3)(11) 1,000,000 7.24% 1,000,000 0 0
J.D. McGraw (3)(12) 150,000 1.09% 150,000 0 0
Maxim
Group LLC (3)(13) 202,500 1.47% 202,500 0 0
Allan F. Dow
& Associates (3)(14) 498,150 3.61% 498,150 0 0
Parrish Brian & Co., Inc.(3)(15) 500,000 3.62% 500,000 0 0
7,675,650 55.56%
========= =====
38
* Represents less than 1% of the outstanding shares of common stock either
before or after the exercise of any of the warrants.
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations promulgated under the Securities Exchange Act of 1934 and,
accordingly, may include securities owned by or for, among others, the
spouse and/or minor children of an individual and any other relative who
has the same home as such individual, as well as, other securities as to
which the individual has or shares voting or investment power or which
each person has the right to acquire within 60 days through the exercise
of options or otherwise. Beneficial ownership may be disclaimed as to
certain of the securities. Unless otherwise indicated, this table has been
prepared based on 13,817,649 shares of common stock outstanding as of
September 12, 2003, assuming the exercise of all the outstanding warrants.
(2) Parrish Brian Partners, Inc. is a financial and business development
consultant with whom we negotiated the terms and conditions of the
warrants as a means of financing our operations. It is an affiliate of our
President, Parrish B. Ketchmark.
(3) Represents shares issuable upon exercise of warrants to purchase shares of
common stock.
(4) WaxTech International, Inc. provided consulting services to EnerTeck Sub
prior to its acquisition by us. It was compensated with warrants to
purchase 175,000 shares at $1.20 per share. V. Patrick Keating, a current
significant employee of EnerTeck Sub, is a principal of WaxTech
International. Inc.
(5) These shares were issued in our December 20, 2002 private placement.
(6) This investor is controlled by Paul Lodi
(7) This investor is controlled by Ms. Diane Kreske
(8) These shares were issued in our May 28, 2003 private placement.
(9) This investor is controlled by Mr. John Russell.
(10) This investor is controlled by Ms. Amy Hyman.
(11) An officer and/or director or employee of the Company and/or its
subsidiary.
(12) Mr. McGraw rendered consulting and marketing services to us during 2002
and early 2003. These warrants were part of his compensation for these
services.
(13) Maxim Group LLC received these warrants as partial compensation for
participating in our May 28, 2003 private placement, and pursuant to its
investment banking agreement with us.
(14) Allan F. Dow & Associates, Inc. provided consulting and marketing services
to us during late 2002 early 2003.
(15) Parrish Brian & Co., Inc. rendered business, financial and marketing
consulting services to our subsidiary before we acquired it. Parrish Brian
& Co., Inc. is an affiliate of our president, Parrish B. Ketchmark, and
Parrish Brian Partners, Inc.
Under agreements with the selling security holders, we will pay all
offering expenses except the fees and expenses of any counsel and other advisors
that the selling security holders may employ to represent them in connection
with the offering and except for all brokerage or underwriting discounts or
commissions paid to broker-dealers in connection with the sale of the shares.
PLAN OF DISTRIBUTION
The selling security holders have not advised us of any specific plan for
distribution of the shares offered hereby, but it is anticipated that the shares
will be sold from time to time by the selling security holders or by pledgees,
donees, transferees or other successors in interest on a best efforts basis
without an underwriter. Such sales may be made on the OTC Bulletin Board, or any
exchange
39
upon which our shares may trade in the future, over-the-counter, or otherwise,
at prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The shares may be sold by one or
more of the following methods:
o ordinary brokerage transactions and transactions in which the broker
solicits purchases; block trades in which the broker or dealer so
engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker or dealer for its account pursuant to this
prospectus;
o in privately negotiated transactions;
o through a combination of any such methods of sale;
o in accordance with Rule 144 under the Securities Act, rather than
pursuant to this prospectus;
or
o any other method permitted pursuant to applicable law.
The selling security holders may sell their shares directly to purchasers
or may use brokers, dealers, underwriters or agents to sell their shares.
Brokers or dealers engaged by the selling security holders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions,
discounts or concessions from the selling security holders, or, if any such
broker-dealer acts as agent for the purchaser of shares, from the purchaser in
amounts to be negotiated. The selling security holders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved. Broker-dealers may agree with a selling security holder
to sell a specified number of shares at a stipulated price per share, and, to
the extent the broker-dealer is unable to do so acting as agent for a selling
security holder, to purchase as principal any unsold shares at the price
required to fulfill the broker-dealer commitment to the selling security holder.
Broker-dealers who acquire shares as principal may thereafter resell the shares
from time to time in transactions, which may involve block transactions and
sales to and through other broker-dealers, including transactions of the nature
described above, in the over-the counter market or otherwise at prices and on
terms then prevailing at the time of sale, at prices then related to the
then-current market price or in negotiated transactions. In connection with
resales of the shares, broker-dealers may pay to or receive from the purchasers
of shares, commissions as described above.
The selling security holders and any broker-dealers or agents that
participate with the selling security holders in the sale of the shares may be
deemed to be "underwriters" within the meaning of the U.S. Securities Act of
1933. In that event, any commissions received by broker-dealers or agents and
any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
From time to time the selling security holders may engage in short sales,
short sales against the box, puts and calls and other hedging transactions in
our securities, and may sell and deliver the shares in connection with such
transactions or in settlement of securities loans. These transactions may be
entered into with broker-dealers or other financial institutions. In addition,
from time to time to the extent permitted by existing regulations, a selling
security holder may pledge its shares pursuant to the margin provisions of its
customer agreements with its broker-dealer. Upon delivery of the shares or
default by a selling security holder, the broker-dealer or financial institution
may offer and sell the pledged shares from time to time.
The selling security holders have been advised that they are subject to
the prospectus delivery requirements of the U.S. Securities Act of 1933 and
subject to the applicable provisions of the U.S. Securities and Exchange Act of
1934, including without limitation, Rules 10b-5 and Regulation M thereunder.
Regulation M may limit the timing of purchases and sales of Company common stock
by
40
the Selling Security Holders. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares to engage in market making
activities with respect to Company common stock. These regulations may affect
the marketability of the shares.
We will not receive any proceeds from the sale of the shares. We will pay
the expenses of preparing this prospectus and the related registration
statement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation provides for the elimination of the
personal liability of our officers, directors, corporate employees and agents to
the fullest extent permitted by the provisions of Delaware General Corporation
Law. Under such provisions, the director, officer, corporate employee or agent
who in his capacity as such is made or threatened to be made, party to any suit
or proceeding, shall be indemnified if it is determined that such director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of our company. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, and persons controlling our company pursuant to the
foregoing provision, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
LEGAL MATTERS
Certain legal matters, including the validity of the shares being issued,
will be passed upon for the company by Danzig Kaye Cooper Fiore and Kay, LLP,
P.O. Box 333, 30A Vreeland Road, Florham Park, New Jersey 07932, (973) 443-0600.
EXPERTS
Our financial statements for the years ended December 31, 2002 and 2001 in this
prospectus have been audited by Malone & Bailey, PLLC, independent certified
public accountants, to the extent and for the periods set forth in their report,
and are set forth in this prospectus in reliance upon such report given upon the
authority of them as experts in auditing and accounting.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
On March 14, 2003, the client-auditor relationship between EnerTeck
Corporation ("EnerTeck Parent") and DeCoria, Maichel & Teague P.S. ("DeCoria")
ceased as DeCoria was dismissed as EnerTeck Parent's auditor by an action of its
Board of Director's of the same day. The decision to use another accounting firm
was made due to the recent acquisition of EnerTeck Sub. To the knowledge of our
current Board of Directors, DeCoria's report of the financial statements for
fiscal years ended July 31, 2002 and 2001 did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles, except for our ability to continue as a going
concern.
During the audit of EnerTeck Parent's financial statements for the years
ended July 31, 2002 and 2001 and any subsequent interim period through the date
of dismissal, DeCoria did not have any disagreements with us on any matter of
accounting principles or practices, financial statement
41
disclosure, or auditing scope or procedure and there were no "reportable events"
with DeCoria as described in Items 304 (a) (1) (iv) and (v) of Regulation S-K,
respectively.
In December 2002, EnerTeck Chemical Corp. engaged Malone & Bailey, PLLC,
as its independent accountant for the two years ended December 31, 2002 and
December 31, 2001. On March 14, 2003, EnerTeck Corporation's board of directors
engaged Malone & Bailey, PLLC, as its independent accountant for the year ended
December 31, 2003. During the most recent calendar year and any subsequent
interim period prior to engaging Malone & Bailey, PLLC, we did not consult with
Malone & Bailey, PLLC regarding either (i) the application of accounting
principals to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on our financial statements; or (ii) any
matter that was either the subject matter of a disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable
event (as defined in Item 304(a)(1)(v) of Regulation S-K). Malone & Bailey, PLLC
has reviewed this disclosure required by Item 304(a) before it was filed with
the Commission and has been provided an opportunity to furnish the Company with
a letter addressed to the Commission containing any new information,
clarification of our expression of its views, or the respects in which it does
not agree with the statements made by us in response to Item 304(a). Malone &
Bailey, PLLC did not furnish a letter to the Commission.
DeCoria provided us with a letter addressed to the SEC that was attached
as an exhibit to our Form 8-K/A which was filed with the SEC on April 2, 2003.
The letter does not contain any disagreements regarding the disclosure included
in this section about our change in accountants.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the
United States Securities and Exchange Commission. You should rely only on the
information provided in this prospectus. We have not authorized anyone to
provide you with information different from that contained in this prospectus.
The selling security holders are offering to sell, and seeking offers to buy
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. Applicable SEC rules may require us
to update this prospectus in the future. This preliminary prospectus is subject
to completion prior to this offering.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statement or other information that we file with the Commission at
the Commission's public reference rooms in Washington, D.C. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. These Commission filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web site maintained
by the Commission at http://www.sec.gov. This prospectus is part of a
registration statement we filed with the Securities and Exchange Commission. The
prospectus and any accompanying prospectus supplement do not contain all of the
information included in the registration statement. We have omitted a few parts
of the registration statement according to the rules and regulations of the
Securities and Exchange Commission. For further information, we refer you to the
registration statement, including its exhibits and schedules. Statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. For each of these contracts,
agreements or documents filed as an exhibit to the
42
registration statement, we refer you to the actual exhibit for a more complete
description of the matters involved. You should not assume that the information
in this prospectus or any supplement is accurate as of any date other than the
date on the front of those documents. We do not intend to distribute annual
reports or audited financial statements to our shareholders. This information
may be found in our filings with the Securities and Exchange Commission.
7,675,650 SHARES
[LOGO]
ENERTECK CORPORATION
COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
_________, 2004
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
EnerTeck Chemical Corporation
Houston, Texas
We have audited the accompanying balance sheet of EnerTeck Chemical Corporation
as of December 31, 2002, and the related statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the two-year period
ended December 31, 2002. These financial statements are the responsibility of
EnerTeck's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EnerTeck Chemical Corporation
as of December 31, 2002, and the results of its operations and cash flows for
the two years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Malone & Bailey, PLLC
www.malone-bailey.com
Houston, Texas
March 10, 2003, except for Note 9
dated September 2, 2003
F-1
ENERTECK CHEMICAL CORPORATION
BALANCE SHEET
December 31, 2002
ASSETS
Current assets:
Cash $ 31,097
Accounts receivable, trade - no allowance for
doubtful accounts 18,060
Inventory 87,192
---------
Total current assets 136,349
Property and equipment, net of accumulated
depreciation of $4,819 28,253
---------
$ 164,602
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 68,320
Accrued liability 100,000
---------
Total current liabilities 168,320
---------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 1,000,000 shares
authorized, 1,000,000 shares issued and outstanding 501,001
Retained deficit (504,719)
---------
(3,718)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DIFICIT) $ 164,602
=========
See accompanying summary of accounting policies
and notes to financial statements.
F-2
ENERTECK CHEMICAL CORPORATION
STATEMENTS OF OPERATIONS
Years Ended December 31, 2002 and 2001
2002 2001
---------- ----------
Revenues $ 981,244 $1,429,864
Cost of goods sold 623,088 554,019
---------- ----------
Gross profit 358,156 875,845
---------- ----------
Costs and expenses:
Salaries 317,047 278,042
General and administrative 295,230 268,006
Non-cash compensation 420,000 --
Provision for asset impairment 85,714 --
---------- ----------
1,117,991 546,048
---------- ----------
Income (loss) from operations (759,835) 329,797
---------- ----------
Other income 1,880 3,439
---------- ----------
Net income (loss) $ (757,955) $ 333,236
========== ==========
Net income (loss) per share:
Basic and diluted $ (.97) $ .67
========== ==========
Weighted average shares outstanding:
Basic and diluted 780,164 500,000
========== ==========
See accompanying summary of accounting policies
and notes to financial statements.
F-3
ENERTECK CHEMICAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2002 and 2001
Common Stock Retained
----------------------- Earnings
Shares Amount (Deficit) Total
--------- --------- --------- ---------
Balances, December 31, 2000 500,000 $ 1,001 $ -- $ 1,001
Net income -- -- 333,236 333,236
--------- --------- --------- ---------
Balances, December 31, 2001 500,000 1,001 333,236 334,237
Issuance of common stock
for services 420,000 420,000 -- 420,000
Sale of common stock 80,000 80,000 -- 80,000
Distributions to
stockholders -- -- (80,000) (80,000)
Net loss -- -- (757,955) (757,955)
--------- --------- --------- ---------
Balances, December 31, 2002 1,000,000 $ 501,001 $(504,719) $ (3,718)
========= ========= ========= =========
See accompanying summary of accounting policies
and notes to financial statements.
F-4
ENERTECK CHEMICAL CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002 and 2001
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITES:
Net income (loss) $(757,955) $ 333,236
Adjustments to reconcile net income
(loss) to cash provided by (used in) operating activities:
Depreciation 11,682 17,160
Provision for asset impairment 85,714 --
Common stock issued for
services 420,000 --
Changes in operating assets and
liabilities:
Accounts receivable 193,668 (209,728)
Inventory (87,192) --
Accounts payable (11,249) 75,569
Accrued expenses 100,000 --
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (45,332) 216,237
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (25,101) (115,708)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 80,000 --
Distributions to stockholders (80,000) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -- --
NET INCREASE (DECREASE) IN CASH (70,433) 100,529
Cash, beginning of period 101,530 1,001
--------- ---------
Cash, end of period $ 31,097 $ 101,530
========= =========
See accompanying summary of accounting policies
and notes to financial statements.
F-5
ENERTECK CHEMICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
EnerTeck Chemical Corporation ("EnerTeck") was incorporated in Texas on November
29, 2000 and is a Houston-based corporation specializing in combustion
enhancement and emission reduction technology for diesel fuel. EnerTeck's
primary product is EnerBurn, and is registered for highway use in all USA diesel
applications. The products are used primarily in on-road vehicles, locomotives
and diesel marine engines throughout the United States.
INVENTORY
Inventory consists of EnerBurn. Inventory is valued at the lower of cost or
market using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed over the estimated useful lives of the assets using the
straight-line method for financial reporting purposes. Maintenance and repairs
are charged to operations as incurred.
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, sets
forth guidance as to when to recognize an impairment of long-lived assets and
how to measure such impairment. The standards require certain assets be reviewed
for impairment whenever events or circumstances indicate the carrying amount may
not be recoverable. Based on application of SFAS No. 121, EnerTeck recognized an
$85,714 impairment during fiscal 2002 related to certain equipment (see note 8
for additional information).
REVENUE RECOGNITION
EnerTeck recognizes revenue for products sold when the customer receives the
product.
INCOME TAXES
EnerTeck has received approval from the Internal Revenue Service to be treated
as an S Corporation in accordance with Internal Revenue Code section 1362.
Accordingly, EnerTeck's income is taxed directly to the shareholders, and no
provision for federal income taxes is recorded by EnerTeck.
INCOME PER COMMON SHARE
The basic net income (loss) per common share is computed by dividing the net
income (loss) applicable to common stockholders by the weighted average number
of common shares outstanding.
Diluted net income (loss) per common share is computed by dividing the net
income applicable to common stockholders, adjusted on an "as if converted"
basis, by the weighted average number of common shares outstanding plus
potential dilutive securities.
F-6
During 2002 and 2001 EnerTeck did not have any dilutive securities outstanding.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
The accompanying financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
EnerTeck does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on EnerTeck's results of operations,
financial position or cash flow.
NOTE 2 - LOSS OF CUSTOMER
In October 2002, EnerTeck's largest customer filed for bankruptcy and ceased
operations. As a result, EnerTeck's cash flows decreased significantly
EnerTeck has taken steps to increase sales to other customers and as of March
10, 2003 has raised $400,000 in equity funding (see note 9). Although no
assurances can be given, EnerTeck expects that the continued support of
EnerTeck's creditors and shareholders combined with capital raised will provide
EnerTeck the ability to continue with its current operations.
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 2002, property and equipment consisted of the following:
Useful Lives Amount
------------ -----------
Computer equipment 5 $ 6,215
Furniture and fixtures 7 19,988
Equipment 7 6,869
-----------
33,072
Less: accumulated depreciation 4,819
-----------
$ 28,253
===========
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock - In November 2000, EnerTeck issued 500,000 shares of common stock
to its founder and original shareholders for $1,001. In September 2002, EnerTeck
issued an additional 420,000 shares of its common stock to EnerTeck's President
and Chief Executive Officer. The issuance has been recorded as non-cash
compensation expense at $1 per share in 2002.
In October 2002, EnerTeck sold 80,000 shares of common stock for $1 per share.
F-7
Distributions to Stockholders - In January 2002 the Company made a cash
distribution to its stockholders totaling $80,000.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
RubyCat Technology Agreement- Effective September 7, 2001, EnerTeck entered into
an Exclusive Market Segment Development Agreement (the "Agreement") with RubyCat
Technology, Inc. The Agreement gives EnerTeck exclusive rights to market RubyCat
products, which includes EnerBurn, to on-highway diesel large fleet truck
market, small engine marine (<7,000 horsepower) market, railroad diesel and the
international diesel fuel market. In addition, EnerTeck was able to obtain
approval from the Environmental Protection Agency to sell the product through
its Agreement with RubyCat.
Under the Agreement, EnerTeck is required to purchase minimum quantities for the
diesel truck fleet market each calendar year as follows:
Year ending December 31, Gallons
---------
2003 180,000
2004 270,000
2005 400,000
Thereafter 500,000
If EnerTeck fails to purchase the quantities noted above, the products and
technologies will still be available to EnerTeck for purchase, but without
exclusive market segment rights. EnerTeck was required to purchase 90,000
gallons in 2002 and only purchased approximately 40,000 gallons, resulting in
EnerTeck being in default under the purchase commitment. As a result, on
February 3, 2003 EnerTeck agreed to pay RubyCat $100,000 for the default and an
amended agreement. The amended agreement extends the exclusive rights through
December 31, 2003. In addition, the new agreement has a purchase option allowing
EnerTeck to purchase the EnerBurn Technology for $6,000,000 to $6,600,000
depending on when the option would be exercised in 2003. The purchase option is
from January 2003 through December 2003. The one time charge of $100,000 is
included in cost of good sold in 2002 and in accrued liabilities as of December
31, 2002.
RubyCat has the right to review the price it charges EnerTeck quarterly. If the
parties are unable to reach an agreement on the price increase, the agreement
will terminate.
Office Lease - EnerTeck leases office space under a non-cancelable operating
lease. Future minimum rentals due under non-cancelable operating leases with an
original maturity of at least one-year are approximately as follow:
December 31, Amount
-----------
2003 $ 9,747
2004 3,250
Rent expense for the years ended December 31, 2002 and period from inception
through December 31, 2001 totaled approximately $10,000 and $11,000,
respectively.
F-8
NOTE 6 - CONCENTRATION OF CREDIT RISK
For the years ended December 31, 2002 and 2001, EnerTeck purchased 100% of its
products from RubyCat (see note 5).
Financial instruments that potentially subject EnerTeck to concentration of
credit risk are accounts receivable. EnerTeck performs ongoing credit
evaluations as to the financial condition of its customers. Generally, no
collateral is required. Two customers accounted for 100% of accounts receivable
balance at December 31, 2002.
NOTE 7 - REVENUE FROM MAJOR CUSTOMERS
A summary of EnerTeck's revenues from major customers for the years ended
December 31, 2002 and 2001 was approximately:
2002 2001
---------- ----------
Customer A $ 646,000 $ 956,000
Customer B 156,000 166,000
---------- ----------
Totals $ 802,000 $1,122,000
========== ==========
NOTE 8 - PROVISION FOR ASSET IMPAIRMENT
During fiscal 2002 EnerTeck recorded an asset impairment charge of $85,714. The
equipment impaired by EnerTeck was equipment located at various locations of its
largest customer. Because of the bankruptcy of the customer, EnerTeck will not
receive any future cashflows from the equipment resulting in management
impairing all assets associated with this customer. These assets have been
historically depreciated over seven years. There was no such charge in fiscal
2001.
NOTE 9 - SUBSEQUENT EVENTS
On January 8, 2003, EnerTeck merged with Gold Bond Resources, Inc. ("Gold
Bond"), a U.S. public company. EnerTeck stockholders' received 5,000,000 shares
of Gold Bond common stock in exchange for 100% of EnerTeck's common stock or
approximately 75% of the combined entity.
For accounting purposes this transaction was be treated as an acquisition of
Gold Bond and a recapitalization of EnerTeck.
After the merger, Gold Bond sold 3,150,000 shares of common stock for
$1,500,000. In addition, Gold Bond issued warrants and options to acquire
4,025,650 shares of common stock at prices ranging from $.01 to $1.20 per share
to various consultants and employees.
On September 2, 2003, the stockholders and directors of Gold Bond approved a
10:1 reverse stock split which is reflected in the share amounts noted above and
changed the name of Gold Bond to EnerTeck Corporation.
F-9
ENERTECK CORPORATION and SUBSIDIARY
(formerly Gold Bond Resources, Inc.)
CONSOLIDATED BALANCE SHEET
September 30, 2003
(Unaudited)
ASSETS
Current assets
Cash $ 559,852
Accounts receivable, net of allowance for doubtful accounts of $0 306,839
Other receivables 26,486
Inventory 68,487
-----------
Total current assets 961,664
Property and equipment, net 112,140
-----------
Total assets $ 1,073,804
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 144,015
Accrued expenses 184,192
-----------
Total current liabilities 328,207
-----------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value, 100,000,000 shares authorized,
9,791,899 shares issued and outstanding 9,792
Additional paid-in capital 3,397,101
Accumulated deficit (2,661,296)
-----------
Total stockholders' equity 745,597
-----------
Total liabilities and stockholders' equity $ 1,073,804
-----------
ENERTECK CORPORATION and SUBSIDIARY
(formerly Gold Bond Resources, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2003 and 2002
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues $ 46,154 $ 168,820 $ 559,500 $ 964,785
Cost and expenses:
Cost of revenues 28,042 131,650 132,788 512,828
Sales commission 2,653 -- 118,653 --
Non-cash stock compensation 960,000 420,000 1,450,000 420,000
General and administrative 361,187 173,780 1,014,637 456,153
----------- ----------- ----------- -----------
1,351,882 725,430 2,716,078 1,388,981
----------- ----------- ----------- -----------
Net loss $ 1,306,728) $ (556,610) $(2,156,578) $ (424,196)
----------- ----------- ----------- -----------
Net loss per share:
Basic and diluted $ (0.13) $ (0.10) $ (0.33) $ (0.07)
----------- ----------- ----------- -----------
Weighted average shares outstanding:
Basic and diluted 9,791,890 5,700,000 6,563,801 5,700,000
----------- ----------- ----------- -----------
ENERTECK CORPORATION and SUBSIDIARY
(formerly Gold Bond Resources, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003 and 2002
(Unaudited)
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,156,578) $ (424,196)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation 32,542 --
Non-cash stock compensation 1,450,000 420,000
Provision for asset impairment -- 100,000
Changes in assets and liabilities:
Accounts receivable (288,779) 108,417
Other current assets 7,781 (95,825)
Accounts payable (9,305) (17,548)
Accrued expenses 79,023 9,963
----------- -----------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES (885,316) 100,811
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (31,429) (19,368)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to stockholders' -- (80,000)
Sale of common stock, net of $129,500 cost of fundraising 1,445,500 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES 1,445,500 (80,000)
----------- -----------
NET INCREASE IN CASH 528,75 1,443
Cash, beginning of period 31,097 101,530
----------- -----------
Cash, end of period $ 559,852 $ 102,973
----------- -----------
NON-CASH INVESTING ACTIVITIES:
Equipment purchased included in accounts payable $ 85,000 $ --
----------- -----------
ENERTECK CORPORATION and SUBSIDIARY
(formerly Gold Bond Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: PRESENTATION
The consolidated balance sheet of EnerTeck Corporation ("EnerTeck"), formerly
Gold Bond Resources, Inc., , as of September 30, 2003, the related consolidated
statements of operations for the three and nine months ended September 30, 2003
and 2002 and the consolidated statements of cash flows for the three and nine
months ended September 30, 2003 and 2002 included in the financial statements
have been prepared by Enerteck without audit. In the opinion of management, the
accompanying financial statements include all adjustments (consisting of normal,
recurring adjustments) necessary to summarize fairly EnerTeck's financial
position and results of operations. The results of operations for the three
months period are not necessarily indicative of the results of operations for
the full year or any other interim period. Notes to the financial statements
which would substantially duplicate the disclosure contained in the audited
financial statements for the most recent fiscal year ended December 31, 2002 as
reported in Form 8-K/A, have been omitted.
Stock Options and Warrants
Enerteck accounts for its stock-based compensation plans under Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. Statement of Financial Accounting Standard ("FAS") No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, issued in
December 2002 requires pro forma net loss and pro forma net loss per share to be
disclosed in interim financial statements.
During the quarter ended September 30, 2003, EnerTeck's board of directors
approved the issuance of warrants to acquire 400,000 shares of common stock to
three employees. The options vested immediately and have a five year life. The
warrants have an exercise price of $1.20 per share resulting in $940,000 of
compensation expense during the quarter ended September 30, 2003 under the
intrinsic value method.
The following table illustrates the effect on net income and earnings per share
if EnerTeck had applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
----------- ------------ ----------- ------------
Net loss, as reported $(1,306,728) $ (556,610) $(2,156,758) $ (424,196)
Add: Expense recorded 940,000 -- 1,450,000 --
Deduct: Total stock-based employee
compensation expense determined under
the fair value based method for all awards 1,245,576) -- (1,787,576) --
----------- ----------- ----------- -----------
Pro forma net loss $(1,612,304) $ (556,610) $(2,494,334) $ (424,196)
----------- ----------- ----------- -----------
Loss per share:
Basic and diluted - as reported $ (0.13) $ (0.10) $ (0.33) $ (0.07)
----------- ----------- ----------- -----------
Basic and diluted - pro forma $ (0.17) $ (0.10) $ (0.38) $ (0.07)
----------- ----------- ----------- -----------
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield 0.0%, expected volatility of 100%, risk-free
interest rate of 3.5%, and expected life of 5 years.
Comprehensive Income - Comprehensive income is defined as all changes in
stockholders' equity, exclusive of transactions with owners, such as capital
investments. Comprehensive income includes net income or loss, changes in
certain assets and liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries, and certain
changes in minimum pension liabilities. EnerTeck's comprehensive income (loss)
was equal to its net income (loss) for all periods presented in these financial
statements.
NOTE 2: REVERSE MERGER
On January 9, 2003, Enerteck Corporation (formerly Gold Bond Resources, Inc), an
inactive public corporation, issued 5,000,000 shares of common stock in exchange
for 100% of the outstanding common stock of Enerteck Chemical Corp., a privately
held corporation. After the merger the stockholders of Enerteck Chemical Corp.
owned approximately 75% of the combined entity. For accounting purposes this
transaction was treated as an acquisition of EnerTeck Corporation and a
recapitalization of Enerteck Chemical Corp., now a wholly-owned subsidiary of
EnerTeck Corporation.
As a result of the merger Enerteck will no longer account for income taxes as
disclosed in the footnotes to the audited financials. Enerteck will now compute
Income taxes using the asset and liability method. Under the asset and liability
method, deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. A
valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized On September 2,
2003, the Company's shareholders approved the name change from Gold Bond
Resources, Inc. to EnerTeck Corporation.
NOTE 3: COMMON STOCK
During the nine months ended September 30, 2003, Enerteck sold 3,150,000 shares
of common stock for $.50 per share, or $1,445,500. Enerteck received $945,485
after expenses of $129,500 which were recorded as a reduction of additional paid
in capital.
On September 2, 2003, the stockholders and directors approved a 10:1 reverse
stock split whereby each stockholder of EnerTeck Corporation will receive one
share of EnerTeck Corporation's common stock in exchange for each ten shares of
EnerTeck Corporation common stock.
All per share information included in the unaudited interim financial statements
have been adjusted to reflect the stock split.
NOTE 4 - WARRANTS
During the nine-months ended September 30, 2003, EnerTeck Corporation issued
warrants to consultants and employees as follows:
Various consulting agreements were executed at the time of the reverse merger,
see note 2, consultants received warrants to acquire 2,148,150 shares of common
stock at $1.20 per share. These options were valued using Black-Scholes with the
resulting fair value charged against equity as a cost of the merger.
Warrants to acquire 175,000 shares of common stock at $1.20 per share were
issued to a consultant for services provided to EnerTeck Chemical Corporation
prior to the merger. No expense was recorded related to these warrants in the
current year as the services were provided in 2002.
Warrants to acquire 200,000 shares of common stock at $.50 per share and 2,500
shares of common stock at $3.40 per share were issued to the investment banking
firm. These shares were valued using Black-Scholes and charged against
additional paid in capital as a cost of financing.
Warrants to acquire 1,000,000 shares of common stock at $.01 were issued to the
CEO of EnerTeck Corporation. The warrants were accounted for under the intrinsic
value method and resulted in $490,000 in compensation expense in the nine-months
ended September 30, 2003.
Warrants to acquire 500,000 shares of common stock at $1.20 per share were
issued to four employees. The warrants were accounted for under the intrinsic
value method and resulted in $960,000 of compensation expense in the nine-months
ended September 30, 2003.
Warrants outstanding and exercisable as of September 30, 2003
---Outstanding--- Exercisable
Exercise Price Number of Shares Remaining Life Number of Shares
- -------------- ---------------- -------------- ----------------
$0.01 1,000,000 4.5 1,000,000
$1.00 1,500,000 4.5 1,500,000
$1.20 1,323,150 4.5 1,323,150
$0.50 200,000 4.5 200,000
$3.40 2,500 4.5 2,500
--------- ---------
4,025,650 4,025,650
--------- ---------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for broad
indemnification of officers and directors. In this regard, our Certificate of
Incorporation provides in its Sixth Article that:
"No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this paragraph by
the stock holders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification."
Section 174 of the General Corporation Law referred to above in item iii
of the Sixth Article indicates what the liability of directors is for unlawful
payment of a dividend or unlawful stock purchase or redemption.
In addition to the Sixth Article, the Seventh Article of our Certificate
of Incorporation states that:
"The Corporation shall indemnify all persons whom it may indemnify to the
fullest extent allowed by the General Corporation Law of Delaware."
Under the foregoing provisions of Delaware law together with the
abovementioned articles of our Certificate of Incorporation, the director,
officer, corporate employee or agent, who in his capacity as such, is made, or
threatened to be made, a party to any suit or proceeding, shall be indemnified
if it is determined that such director or officer, corporate employee or agent
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Furthermore, because the
Certificate of Incorporation of the Company provides for such indemnification,
the foregoing provisions are broad enough to permit the Company to indemnify its
officers and directors from liability that may arise under the Securities Act of
1933, as amended.
We have not sought or obtained any director or officer insurance coverage
or made any other arrangements for the funding of any indemnification
obligations it might incur under the terms of its Certificate of Incorporation
and Delaware law.
II-1
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have 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 us of expenses incurred or paid by any one of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted against us by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the preparation and filing of this Registration
Statement.
SEC Registration Fee $ 1,800.78
Printing and Engraving $ 5,000.00
Accountants' Fees and Expenses $ 7,500.00
Legal Fees and Expenses $15,000.00
Miscellaneous Expenses $ 5000.00
----------
Total $34,300.78
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
The references below to the number of shares and warrants issued, and stock
purchase prices or warrant exercise prices have been adjusted to reflect the
November 24, 2003, 1 for 10 reverse common stock split as if it had occurred
prior thereto.
1. On October 26, 2001, the Company sold 25,000 shares of its common stock at
$1.00 per share for a total of $25,000 in a private placement offering exempt
from the registration requirements of the Securities Act pursuant Rule 506 of
Regulation D under Section 4(2) thereof directly by the Company without engaging
in any advertising or general solicitation of any kind and without payment of
underwriting discounts or commissions to any person. The sales were as follows:
Terrence Dunne ---- 3,500 shares
Robert W. O'Brien ---- 3,500 shares
Wayne DeMeester ---- 3,000 shares
Martin A. Powell ---- 3,000 shares
W. Sherwin Broadhead ---- 2,000 shares
James F. Etter ---- 10,000 shares
II-2
2. On April 30, 2003 and May 28, 2003, the Company sold a total of 3,150,000
shares of its common stock at $.50 per share (1,000,000 shares to 22 investors
and 2,150,000 shares to seven investors, respectively)for total gross proceeds
of $1,575,000 in two separate private placement offerings to accredited
investors only. These offerings were exempt from the registration requirements
of the Securities Act pursuant Rule 506 of Regulation D under Section 4(2)
thereof. These securities were sold both directly by the Company with regard to
some sales and through a NASD registered broker-dealer ("Selling Agent") with
regard to others. The offerings were conducted without engaging in any
advertising or general solicitation of any kind and without payment of
underwriting discounts or commissions to any person except commissions to the
Selling Agent on sales effected by it. The sales agents were paid $134,000 in
fees and commissions.
3. On January 9, 2003, , the Company issued 500,000 shares of its common stock
to Parrish Brian & Co., Inc. for business, financial and marketing consulting
services previously rendered to the Company's subsidiary before its acquisition.
The Company assumed this liability after the acquisition. The services were
valued by the parties at par value at the time of issuance (pre-reverse split)
or $5,000. In addition, during 2003, the Company issued warrants to purchase up
to 4,025,650 shares of common stock at varying exercise prices ranging from $.01
to $1.20 per share to a total of 10 warrant holders. They include employees, a
consultant, former consultants and the Company's investment banker/selling
agent. The shares issued to Parrish Brian & Co., Inc. and the shares underlying
these warrants are covered in this Registration Statement. The warrants are
immediately exercisable. All of the securities issued in 2003 were issued in
private transactions exempt from the registration requirements of the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereunder without payment of
underwriting discounts or commissions.
The foregoing transactions are exempt from the registration provisions
of the Securities Act of 1933, as amended, by reason of exemptions from
registration afforded by Section 4 (2) thereof as constituting private
transactions not involving a public offering. The transfer thereof has been
appropriately restricted by the Company. The offers and sales should not be
integrated with the public offering herein in reliance upon the safe harbor
interpretation of Rule 152 under which it is the view of the Staff of the SEC
that the filing of a registration statement following an offering otherwise
exempt under Section 4 (2) does not vitiate the exemption in that Section.
ITEM 27. EXHIBITS
THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REGISTRATION STATEMENT:
Exhibit No. Exhibit Method of Filing
- ----------- ------- ----------------
2.1 Share Exchange Agreement Incorporated by reference to
Exhibit 10.1 to Registrant's
Report on Form 8-K
filed on January 23, 2003
2.2 Plan of Merger Filed herewith
2.3 Articles of Merger (Delaware) Filed herewith
II-3
2.4 Articles of Merger (Washington) Filed herewith
3.1 Articles of Incorporation Previously filed
(July 8, 2003 filing date)
3.2 Bylaws Filed herewith
4.1 Specimen of Common Stock Certificate Filed herewith
4.2 Registrant's 2003 Stock Option Plan Incorporated by reference to
Exhibit 4.1 to Registrant's
Schedule 14A filed
on August 12, 2003
5.1 Opinion on Legality Filed herewith
10.1 Employment Agreement by and between Previously filed
Dwaine Reese and the Registrant
dated July 1, 2003
10.2 Employment Agreement by and between Previously filed
Dwaine Reese and the Registrant's Subsidiary
dated July 1, 2003
10.3 Employment Agreement by and between Previously filed
V. Patrick Keating and the Registrant's Subsidiary
dated August 1, 2003
10.4 Employment Agreement by and between Previously filed
Leon van Kraayenburg and the Registrant
dated August 1, 2003
10.5 Employment Agreement by and between Previously filed
Leon van Kraayenburg and the Registrant's
Subsidiary dated August 1, 2003
10.6 Consulting Agreement by and between Previously filed
James J. Mullen and the Registrant
dated January 15, 2003
10.7 Employment Agreement by and between Previously filed
Roy Stern and the Registrant's Subsidiary
dated August 1, 2003
10.8 Consulting Agreement by and between Previously filed
Parrish Brian Partners, Inc. and the
Registrant dated January 9, 2003
II-4
10.9 Amendment to Consulting Agreement by Previously filed
and between Parrish Brian Partners, Inc.
and the Registrant dated May 15, 2003
10.10 Intentionally omitted
10.11 Warrant to purchase 15,000,000 shares Previously filed
issued to Parrish Brian Partners, Inc.
dated August 1, 2003 filed herewith
10.12 Warrant to purchase 10,000,000 shares Previously filed
issued to Dwaine Reese
dated August 1, 2003
10.13 Warrant to purchase 1,000,000 shares Previously filed
issued to James Mullen
dated August 1, 2003
10.14 Warrant to purchase 2,000,000 shares Previously filed
issued to Leon van Kraayenburg
dated August 1, 2003
10.15 Warrant to purchase 1,750,000 shares Previously filed
issued to WaxTech International, Inc.
dated August 1, 2003
10.16 Warrant to purchase 1,000,000 shares Previously filed
issued to Debbie Tenney
dated August 1, 2003
10.17 Warrant to purchase 1,000,000 shares Previously filed
issued to Roy Stern
dated August 1, 2003
10.18 Warrant to purchase 4,981,500 shares Previously filed
issued to Allan F. Dow & Assoc., Inc.
dated August 1, 2003
10.19 Warrant to purchase 1,500,000 shares Previously filed
issued to JD McGraw
dated August 1, 2003
10.20 Warrant to purchase 25,000 shares Previously filed
issued to Maxim Group LLC
dated April 30, 2003
II-5
10.21 Warrant to purchase 2,000,000 shares Previously filed
issued to Maxim Group LLC
dated June 6, 2003
10.22 Memorandum of Understanding by and between Previously filed
the Registrant's Subsidiary and
RubyCat Technology dated February 1, 2003
10.23 Office Lease dated February 1, 2001 Previously filed
10.24 Office Lease Amendment dated March 31, 2003 Previously filed
10.25 Distribution Agreement by and between Previously filed
WaxTech International, Inc. and
Mitsubishi International Corporation ("MIC")
dated December 15, 2002
10.26 March 15, 2003 letter from Previously filed
WaxTech International, Inc. to Registrant's
Subsidiary assigning Distribution Agreement
10.27 March 26, 2003 letter from Previously filed
WaxTech International, Inc. to MIC-re:
assumption of Distribution Agreement
10.28 Agency Agreement by and between Previously filed
EchemTrade Energy & Petrochemical, Ltda.
and the Registrant's Subsidiary dated
February 15, 2003
10.29 Amendment to Agency Agreement by and between Filed herewith
EchemTrade Energy & Petrochemical, Ltda.
and the Registrant's Subsidiary dated
September 1, 2003
10.30 Sales Agreement by and between Previously filed
Allan F. Dow & Associates, Inc.
and the Registrant's Subsidiary dated
May 1, 2003
10.31 Consulting Agreement by and between Previously filed
Allan F. Dow & Associates, Inc.
and the Registrant's Subsidiary dated
October 10, 2002
II-6
10.32 Amendment to the October 10, 2002 Previously filed
Consulting Agreement by and between
Allan F. Dow & Associates, Inc. and the
Registrant's Subsidiary dated
March 18, 2003
10.33 Investment Banking Agreement by and between Previously filed
Maxim Group, LLC and the Registrant
dated March 26, 2003
10.34 Letter Agreement between Brenntag Latin Filed herewith
America Incorporated and the Registrant
dated September 15, 2003
21.1 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Malone & Bailey, PLLC Filed herewith
23.2 Consent of Danzig Kaye Cooper Filed herewith in
Fiore & Kaye, LLP Exhibit 5.1
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, an
effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933,
as amended; (ii) reflect in the prospectus any facts or events arising
after the effective date of the registration statement which,
individually or together, represent a fundamental change in the
information in the registration statement; and (iii) include any
additional or changed material information on the plan of distribution.
2. For the purpose of determining liability under the Securities Act of
1933, as amended, treat each post-effective amendment as a new
registration statement relating to the securities offered, and the
offering of such securities at that time to be the initial bona fide
offering thereof.
3. To file a post-effective amendment to remove from registration any of
the securities being registered that remain unsold at the termination
of the offering.
II-7
4. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in a successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has reasonable grounds to believe that it meets all of the
requirements for filing SB-2 and authorized this amendment to the registration
statement to be signed on its behalf in the City of Stafford, State of Texas, on
January 5, 2004.
ENERTECK CORPORATION
By: /s/ Dwaine Reese
Dwaine Reese
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
/s/ Dwaine Reese Chief Executive Officer January 5, 2004
- ----------------
Dwaine Reese Chairman of the Board
Principal Operating Officer
/s/ Leon van Kraayenburg Executive Vice President/Finance January 5, 2004
- ------------------------
Leon van Kraayenburg Chief Financial Officer & Treasurer
Principal Accounting Officer
/s/ Parrish B. Ketchmark President January 5, 2004
- ------------------------
Parrish B. Ketchmark Director
/s/ James J. Mullen Executive Vice President January 5, 2004
- ---------------------------
James J. Mullen Director
II-9
EXHIBIT INDEX
Exhibit No. Exhibit Method of Filing
- ----------- ------- ----------------
2.1 Share Exchange Agreement Incorporated by reference to
Exhibit 10.1 to Registrant's
Report on Form 8-K
filed on January 23, 2003
2.2 Plan of Merger Filed herewith
2.3 Articles of Merger (Delaware) Filed herewith
2.4 Articles of Merger (Washington) Filed herwith
3.1 Articles of Incorporation Previously filed
(July 8, 2003 filing date)
3.2 Bylaws Filed herewith
4.1 Specimen of Common Stock Certificate Filed herewith
4.2 Registrant's 2003 Stock Option Plan Incorporated by reference to
Exhibit 4.1 to Registrant's
Schedule 14A filed
on August 12, 2003
5.1 Opinion on Legality Filed herewith
10.1 Employment Agreement by and between Previously filed
Dwaine Reese and the Registrant
dated July 1, 2003
10.2 Employment Agreement by and between Previously filed
Dwaine Reese and the Registrant's Subsidiary
dated July 1, 2003
10.3 Employment Agreement by and between Previously filed
V. Patrick Keating and the Registrant's Subsidiary
dated August 1, 2003
10.4 Employment Agreement by and between Previusly filed
Leon van Kraayenburg and the Registrant
dated August 1, 2003
10.5 Employment Agreement by and between Previously filed
Leon van Kraayenburg and the Registrant's
Subsidiary dated August 1, 2003
10.6 Consulting Agreement by and between Previously filed
James J. Mullen and the Registrant
dated January 15, 2003
10.7 Employment Agreement by and between Previously filed
Roy Stern and the Registrant's Subsidiary
dated August 1, 2003
10.8 Consulting Agreement by and between Previously filed
Parrish Brian Partners, Inc. and the
Registrant dated January 9, 2003
10.9 Amendment to Consulting Agreement by Previously filed
and between Parrish Brian Partners, Inc.
and the Registrant dated May 15, 2003
10.10 Intentionally omitted
10.11 Warrant to purchase 15,000,000 shares Previously filed
issued to Parrish Brian Partners, Inc.
dated August 1, 2003 filed herewith
10.12 Warrant to purchase 10,000,000 shares Previously filed
issued to Dwaine Reese
dated August 1, 2003
10.13 Warrant to purchase 1,000,000 shares Previously filed
issued to James Mullen
dated August 1, 2003
10.14 Warrant to purchase 2,000,000 shares Previously filed
issued to Leon van Kraayenburg
dated August 1, 2003
10.15 Warrant to purchase 1,750,000 shares Previously filed
issued to WaxTech International, Inc.
dated August 1, 2003
10.16 Warrant to purchase 1,000,000 shares Previously filed
issued to Debbie Tenney
dated August 1, 2003
10.17 Warrant to purchase 1,000,000 shares Previously filed
issued to Roy Stern
dated August 1, 2003
10.18 Warrant to purchase 4,981,500 shares Previously filed
issued to Allan F. Dow & Assoc., Inc.
dated August 1, 2003
10.19 Warrant to purchase 1,500,000 shares Previously filed
issued to JD McGraw
dated August 1, 2003
10.20 Warrant to purchase 25,000 shares Previously filed
issued to Maxim Group LLC
dated April 30, 2003
10.21 Warrant to purchase 2,000,000 shares Previously filed
issued to Maxim Group LLC
dated June 6, 2003
10.22 Memorandum of Understanding by and between Previously filed
the Registrant's Subsidiary and
RubyCat Technology dated February 1, 2003
10.23 Office Lease dated February 1, 2001 Previously filed
10.24 Office Lease Amendment dated March 31, 2003 Previously filed
10.25 Distribution Agreement by and between Previously filed
WaxTech International, Inc. and
Mitsubishi International Corporation ("MIC")
dated December 15, 2002
10.26 March 15, 2003 letter from Previously filed
WaxTech International, Inc. to Registrant's
Subsidiary assigning Distribution Agreement
10.27 March 26, 2003 letter from Previously filed
WaxTech International, Inc. to MIC-re:
assumption of Distribution Agreement
10.28 Agency Agreement by and between Previously filed
EchemTrade Energy & Petrochemical, Ltda.
and the Registrant's Subsidiary dated
February 15, 2003
10.29 Amendment to Agency Agreement by and between Filed herewith
EchemTrade Energy & Petrochemical, Ltda.
and the Registrant's Subsidiary dated
September 1, 2003
10.30 Sales Agreement by and between Previuyosly filed
Allan F. Dow & Associates, Inc.
and the Registrant's Subsidiary dated
May 1, 2003
10.31 Consulting Agreement by and between Previously filed
Allan F. Dow & Associates, Inc.
and the Registrant's Subsidiary dated
October 10, 2002
10.32 Amendment to the October 10, 2002 Previously filed
Consulting Agreement by and between
Allan F. Dow & Associates, Inc. and the
Registrant's Subsidiary dated
March 18, 2003
10.33 Investment Banking Agreement by and between Previouisly filed
Maxim Group, LLC and the Registrant
dated March 26, 2003
10.34 Letter Agreement between Brenntag Latin Filed herewith
America Incorporated and the Registrant
dated September 15, 2003
21.1 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Malone & Bailey, PLLC Filed herewith
23.2 Consent of Danzig Kaye Cooper Filed herewith in
Fiore & Kaye, LLP Exhibit 5.1