ENERTECK CORPORATION The following discussion should be read in conjunction with the audited consolidated financial statements and the notes thereto appearing elsewhere in this report and is qualified in its entirety by the foregoing.
Executive Overview
EnerTeck Sub, our wholly owned operating subsidiary, was incorporated in the
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
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During 2011, we acquired a 40% membership interest in an entity called
Results of Operations
Revenues
We recognized revenues of
The primary source of revenue for the years ended
Gross Profit
Gross profit, defined as revenues less cost of goods sold, was
Cost of goods sold was
Cost and Expenses
Operating expenses were
Net Loss
We reported a net loss of
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.
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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 2022 and prior years 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.
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
Since the latter part of 2022, we have been working on a research and
development project to automate injection of Enerburn. In the past, we have
found that the need to hand treat Enerburn at a customer site has been a
hindrance to our ability to sell our products to potential customers. We believe
this has prevented our success to spread our technology not only to existing
customers to also to potential new customers. In this regard, we recently
completed the design and the building of our first drum automatic system for use
at one of our existing customer's sites, which was installed at such customer's
site in
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
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Capital Resources
On
Net cash used in operating activities was
Cash used in investing activities was
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
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
Due to our lack of meaningful revenues, we have been forced to finance our
operations primarily from capital which has been raised from third parties and
promissory notes and advances from related parties. Such loans and advances from
related parties total
Inflation has not significantly impacted the Company's operations.
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Significant Accounting Policies
Revenue Recognition
We follow Accounting Standards Update (ASU) 2014-09, Revenues from Contracts with Customers and all subsequent amendments to the ASU (collectively Topic 606) which creates a single framework for recognizing revenue from contracts with customers that fall within its scope. The core principle of Topic 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled in exchange for the goods and services.
While we have had some direct customers over the years, the principal method of
selling our product EnerBurn is through the use of independent distributors, for
both domestic and international markets. The transaction price for each sale is
explicitly stated within the contract with a customer. We do not accept returns
nor do we provide warranty on our product's performance, as control of
performance is based on the proper utilization by the final user. Normal payment
terms for domestic sales to both customers and distributors shipping within
As stated above, we do not accept returns nor do we provide warranty on our product's performance, as control of performance is based on the proper utilization by the final user. We periodically test the product manufactured prior to shipment for its proprietary quality standards and guarantees to the distributors that the product will always maintain the level of strict quality standard that is integral to the performance of its product for the end customer. We will provide a Certificate of Analysis, ("C of A") on each shipment of our product, if requested by the customer. The C of A provides proof that the product is manufactured to meet chemical specifications that insure performance standards.
Stock Options and Warrants
Compensation cost for equity awards is based on the fair value of the equity instrument on the date of grant and is recognized over the period during which an employee is required to provide service in exchange for the award. Compensation cost for liability awards is based on the fair value of the vested award at the end of each period.
We value warrant and option awards using the Black-Scholes option pricing model. Stock options and warrants expire on the dates designated in the instrument. The Board has agreed and can agree in the future to issue replacement options and warrants, on a case-by-case basis, if they so determine, that to be appropriate at the time however there is no set policy in place to do so. Forfeitures of any options are accounted for as they occur.
Fair value measurements
We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. The valuation techniques require inputs that are categorized using a three-level hierarchy, from highest to lowest level of observable inputs, as follows: (1) significant observable inputs, including unadjusted quoted prices for identical assets or liabilities in active markets ("Level 1"), (2) significant other observable inputs, including direct or indirect market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets ("Level 2") and (3) significant unobservable inputs, including those that require considerable judgment for which there is little or no market data ("Level 3"). When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement even though other significant inputs that are more readily observable may have also utilized.
Financial instruments consist of cash and cash equivalents, trade receivable, trade payable and related party notes payable. With the exception of the related party notes payable, the carrying value of the financial instruments approximates fair value due to the short-term nature of these items. The carrying value of the related party notes payable may not represent the fair values of these financial instruments.
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Going Concern
In accordance with ASC Subtopic 205-40, Going Concern, management evaluates whether relevant conditions and events that, when considered in the aggregate, indicate that it is probable the Company will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. When relevant conditions or events, considered in the aggregate, initially indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued (and therefore they raise substantial doubt about the Company's ability to continue as a going concern), management evaluates whether its plans that are intended to mitigate those conditions and events, when implemented, will alleviate substantial doubt about the Company's ability to continue as a going concern. Management's plans are considered only to the extent that 1) it is probable that the plans will be effectively implemented and 2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the Company's ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. During the years ended
The Company's continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenues and cash flow to meet its obligations on a timely basis. The Company has been able to obtain cash in the past through private placements and issuing promissory notes and believes that these avenues will remain available to the Company. These financings are intended to mitigate the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the consolidated financial statements. However, there is no certainty that additional financing can be obtained in the future at terms acceptable to the Company.
Issued Accounting Pronouncements
In
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
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