The following should be read in conjunction with the consolidated financial
statements of the Company included elsewhere herein.
Forward Looking Statements
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "intend," "plans", and similar expressions are intended
to identify forward-looking statements regarding events, conditions and
financial trends which may affect our future plans of operations, business
strategy, operating results and financial position. Forward looking statements
in this report include without limitation statements relating to trends
affecting our financial condition or results of operations, our business and
growth strategies and our financing plans.
Such statements are not a guarantee of future performance and are subject to
risks and uncertainties and actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Such factors include, among other things, general economic conditions; cyclical
factors affecting our industry; lack of growth in our industry; our ability to
comply with government regulations; a failure to manage our business
effectively; our ability to sell products at profitable yet competitive prices;
and other risks and factors set forth from time to time in our filings with the
Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date made. We undertake no obligation to
publicly release the result of any revision of these forward-looking statements
to reflect events or circumstances after the date they are made or to reflect
the occurrence of unanticipated events.
Executive Overview
EnerTeck Corporation (the "Company" or "EnerTeck Parent"), formerly named Gold
Bond Mining Company and then Gold Bond Resources, Inc., was incorporated in the
State of Washington on July 30, 1935. We acquired EnerTeck Chemical Corp.
("EnerTeck Sub") as a wholly owned subsidiary on January 9, 2003. As a result of
this acquisition, we are now acting as a holding company, with EnerTeck Sub as
our primary operating business. Subsequent to this transaction, on November 24,
2003 we changed our domicile from the State of Washington to the State of
Delaware and changed our name from Gold Bond Resources, Inc. to EnerTeck
Corporation. Unless the context otherwise requires, the terms "we," "us" or
"our" refer to EnerTeck Corporation and its consolidated subsidiary.
EnerTeck Sub, our wholly owned operating subsidiary, was incorporated in the
State of Texas on November 29, 2000. It was formed for the purpose of
commercializing a diesel fuel specific combustion catalyst known as EnerBurn
(TM), as well as other combustion enhancement and emission reduction
technologies. Nalco/Exxon Energy Chemicals, L.P. ("Nalco/Exxon L.P."), a joint
venture between Nalco Chemical Corporation and Exxon Corporation commercially
introduced EnerBurn in 1998. When Nalco/Exxon L.P. went through an ownership
change in 2000, our founder, Dwaine Reese, formed EnerTeck Sub. It acquired the
EnerBurn trademark and related assets and took over the Nalco/Exxon L.P.
relationship with the EnerBurn formulator and blender, and its supplier, Ruby
Cat Technology, LLC ("Ruby Cat").
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 have included the trucking, heavy
construction, maritime shipping, railroad and mining industries, as well as
federal, state and international government applications. Each of these
industries shares certain common financial characteristics, i.e. (i) diesel fuel
represents a disproportionate share of operating costs; and (ii) relatively
small operating margins are prevalent. Considering these factors, management
believes that the use of EnerBurn and the corresponding derived savings in
diesel fuel costs can positively affect the operating margins of its customers
while contributing to a cleaner environment.
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During 2011, we acquired a 40% membership interest in an entity called EnerTeck
Environmental, LLC, which was formed for the purpose of marketing and selling a
diesel fuel emission reduction technology with the creators of such specific
technology. Indian Nations Technology, the co-owner of EnerTeck Environmental,
LLC is currently working on a testing protocol which could revive this entity.
Results of Operations
Three Months Ended September 30, 2022, Compared to Three Months Ended September
30, 2021
Revenues
We recognized revenues of $24,031 for the three months ended September 30, 2022,
compared to revenues of $15,241 for the three months ended September 30, 2021,
an increase of $8,790. Several trials and evaluations are currently underway in
the U.S. and various other countries, and it is expected revenue should show
increases for the remainder of 2022 and into 2023.
During the three months ended September 30, 2022, the primary source of revenue
was from the sale of EnerBurn to oilfield service, heavy construction and mining
industries. Sales delays have occurred due to delays in the completion of
important product testing projects, a lack of new customers and the COVID-19
shutdown and restrictions. As businesses fully reopen following the COVID-19
shutdown, we expect to see progress in ongoing trials and evaluations that are
currently underway in the U.S. and various other countries.
Gross Profit
Gross profit, defined as revenues less cost of goods sold, was $19,921, or 82.9%
of revenue, for the three months ended September 30, 2022, compared to $13,164,
or 86.4% of revenue, for the three months ended September 30, 2021. Although raw
material costs have increased substantially, we feel confident there will be an
increase in gross profits as the year proceeds and into next year as several
trials and evaluations are currently underway in the U.S. and various other
countries.
Cost of goods sold was $4,110 for the three months ended September 30, 2022
which represented 17.1% of revenue compared to $2,077 for the three months ended
September 30, 2021, which represented 13.6% of revenue.
General and Administrative Expenses
Operating expenses were $238,737 for the three months ended September 30, 2022
as compared to $412,108 for the three months ended September 30, 2021, a
decrease of $173,371. Costs and expenses in all periods primarily consisted of
payroll, professional fees, rent expense, amortization expense and other general
and administrative expenses. During the three months ended September 30, 2021,
we recognized $195,920 of stock-based compensation for the extension of
expiration dates and the issuance of new stock warrants and stock options.
Net Loss
We reported a net loss of $291,276 for the three months ended September 30, 2022
as compared to a net loss of $468,927 for the three months ended September 30,
2021, a decrease of $177,651. The expectation is that sales will increase for
the remainder of 2022 and into 2023 as several trials and evaluations are
currently underway in the U.S. and various other countries.
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September
30, 2021
Revenues
We recognized revenues of $100,091 for the nine months ended September 30, 2022,
compared to revenues of $33,905 for the nine months ended September 30, 2021, an
increase of $66,186. Several trials and evaluations are currently underway in
the U.S. and various other countries, and it is expected revenue should show
increases for the remainder of 2022 and into 2023.
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During the nine months ended September 30, 2022, the primary source of revenue
was from the sale of EnerBurn to oilfield service, heavy construction and mining
industries. Sales delays have occurred due to delays in the completion of
important product testing projects, a lack of new customers and the COVID-19
shutdown and restrictions. As businesses fully reopen following the COVID-19
shutdown, we expect to see progress in ongoing trials and evaluations that are
currently underway in the U.S. and various other countries.
Gross Profit
Gross profit, defined as revenues less cost of goods sold, was $74,703, or 74.6%
of revenue, for the nine months ended September 30, 2022, compared to $29,364,
or 86.6% of revenue, for the nine months ended September 30, 2021. Although raw
material costs have increased substantially, we feel confident that there will
be an increase in gross profits as the year proceeds and into next year as
several trials and evaluations are currently underway in the U.S. and various
other countries.
Cost of goods sold was $25,388 for the nine months ended September 30, 2022
which represented 25.4% of revenue compared to $4,541 for the nine months ended
September 30, 2021, which represented 13.4% of revenue.
General and Administrative Expenses
Operating expenses were $716,289 for the nine months ended September 30, 2022 as
compared to $908,542 for the nine months ended September 30, 2021, a decrease of
$192,253. Costs and expenses in all periods primarily consisted of payroll,
professional fees, rent expense, amortization expense and other general and
administrative expenses. During the nine months ended September 30, 2021, we
recognized $202,816 of stock-based compensation for the extension of expiration
dates and the issuance of new stock warrants and stock options.
Net Loss
We reported a net loss of $856,937 for the nine months ended September 30, 2022
as compared to a net loss of $934,749 for the nine months ended September 30,
2021, a decrease of $77,812. The expectation is that sales will increase for the
remainder of 2022 and into 2023 as several trials and evaluations are currently
underway in the U.S. and various other countries.
Operations Outlook
The fuel additive industry has historically been mired by a myriad of
technically dubious products. 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.
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. This is followed with sales presentations at both the executive
level and maintenance level.
The majority of our marketing effort since 2005 has been directed at targeting
and gaining a foothold in one of several major target areas, including the
inland marine diesel market, trucking, heavy construction and mining. Management
concedes that sales revenues for 2021 and prior years, and the first nine months
of 2022, have been considerably less than earlier anticipated. One of the issues
we have faced in recent years has been the very long timeline from initial
contact to contract signing subsequent to completion of an evaluation. Although
we believe that many times in the past, we have proven the benefits of EnerBurn,
various evaluating companies have opted not to move forward for a variety of
reasons which we believe were beyond our control.
Nevertheless, at both the Company and distributor level, we have recently
completed or are proceeding with evaluations of EnerBurn in many field trials.
As we continue to string together a series of positive evaluations in more
industries, we should begin to see more business generated from such results.
New trials are either in progress or should be commencing shortly.
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A substantial portion of the last few years was spent re-directing our marketing
emphasis for our primary product, EnerBurn. Our current sales process now
requires a signed commitment letter from the prospective customer for a minimum
of a 3-year supply agreement, prior to the commencement of an evaluation of any
of our products. Should the evaluation meet or exceed the established benchmarks
as outlined in the evaluation protocol document, the supply agreement would
become binding. We have adopted this strategy as we had numerous successful
evaluations in the past that did not result in the customer moving forward and
adopting the technology, with most of those evaluations being at the Company's
expense.
Additionally, we have contracted with outside sales representatives, both in the
United States and in other parts of the world to act as distributors of our
products. We currently have distribution agreements with Diesel-E Pty Ltd in
Australia and with Green Group in South America. Diesel-E Pty Ltd completed its
first EnerBurn evaluation with Robson Civil Projects Pty Limited of Australia
and is currently working on multiple other opportunities leveraging on that
successful trial. Green Group is currently running two evaluations in Peru, one
for a mining railroad and another for a large mining conglomerate. We also have
a representative working on mining evaluations in Mexico and expect that once
the COVID-19 pandemic subsides, we will commence an evaluation at a large mine
in Mexico. In the U.S. we have a representative working on a number of currently
ongoing EnerBurn evaluations in the Midwest, two of which have been completed
successfully and we have recently started to supply one of them with
chemical. Two other evaluations recently started but were terminated due to the
pandemic. We believe such will resume when it is safe to do so.
It should be noted that the ongoing coronavirus outbreak which began at the
beginning of 2020 has impacted various businesses throughout the world,
including travel restrictions and the extended shutdown of certain businesses in
impacted geographic regions. A pandemic typically results in social distancing,
travel bans and quarantine, and the effects of, and response to, the COVID-19
pandemic has so far limited access to our corporate office, personnel and
professional advisors, and has also hampered, and may continue to hamper, our
efforts to comply with our filing obligations with the Securities and Exchange
Commission. If the coronavirus outbreak situation should worsen, we may
experience additional disruptions to our business. The extent to which the
coronavirus impacts our operations or those of our third-party partners will
depend on future developments, which are highly uncertain and cannot be
predicted, including the duration of the outbreak, new information that may
emerge concerning the severity of the coronavirus and the actions to contain the
coronavirus or treat its impact, among others.
Liquidity and Capital Resources
On September 30, 2022 we had a working capital deficit of $11,589,862 and a
stockholders' deficit of $11,442,924 compared to a working capital deficit of
$10,737,124 and a stockholders' deficit of $10,585,987 on December 31, 2021. Our
continuing deficit levels are primarily due to poor sales. On September 30,
2022, we had $372 in cash, total assets of $386,684 and total liabilities of
$11,829,608, compared to $23,625 in cash, total assets of $269,180 and total
liabilities of $10,855,167 on December 31, 2021.
Net cash used in operating activities was $482,038 for the nine months ended
September 30, 2022 compared to net cash used in operating activities of $385,245
for the nine months ended September 30, 2021, an increase of $96,793. The
increase was primarily due to an increase of inventory during the nine months
ended September 30, 2022.
Cash used in investing activities was $5,224 and $0 for the nine months ended
September 30, 2022 and 2021, respectively.
In the past, we have been able to finance our operations primarily from capital
which has been raised. To date, sales have not been adequate to finance our
operations without investment capital. Cash provided by financing activities was
$464,009 for the nine months ended September 30, 2022, a result of funds
received from related party notes and advances. This is compared to cash
provided by financing activities of $307,583 during the nine months ended
September 30, 2021, primarily resulting from a PPP Small Business loan in the
amount of $73,100 and $285,000 from related party notes and advances.
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We anticipate, based on currently proposed plans and assumptions relating to our
operations, that in addition to our current cash and cash equivalents together
with projected cash flows from operations and projected revenues, we will
require additional investment to satisfy our contemplated cash requirements for
the next 12 months. No assurance can be made that we will be able to obtain such
investment on terms acceptable to us or at all. We anticipate that our costs and
expenses over the next 12 months will be approximately $3.0 million. Our
continuation as a going concern is contingent upon our ability to obtain
additional financing and to generate revenues and cash flow to meet our
obligations on a timely basis. As mentioned above, management acknowledges that
sales revenues have been considerably less than earlier anticipated. This was
primarily due to a combination of circumstances which have been corrected or are
in the process of being corrected and therefore should not reoccur in the future
and the general state of the economy. Management expects that sales should show
increases during the remainder of 2022 and into 2023. No assurances can be made
that we will be able to obtain required financing on terms acceptable to us or
at all. Our contemplated cash requirements in 2022 and beyond will depend
primarily upon level of sales of our products, inventory levels, product
development, sales and marketing expenditures and capital expenditures.
Due to our lack of meaningful revenues, we have been forced to finance our
operations primarily from capital which has been raised from promissory notes
and advances from related parties. Such loans and advances from related parties
total $3,992,500 and $3,492,500 on September 30, 2022 and December 31, 2021,
respectively. Many of these remaining loans are past due and certain others are
due on demand. The Company does not expect any of such related parties to demand
payment until the Company has adequate resources to pay back such loans and
advances, there can be no assurance that such will be the case. This debt
presents a significant risk to the Company in that in the event any of such
related parties demand payment, the Company may not have the necessary cash to
meet such payment obligations, or if it does, such payments may draw
significantly on the Company's cash position. Any of such events will likely
have a materially detrimental effect on the Company.
Inflation has not significantly impacted the Company's operations.
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