As filed with the Securities and Exchange Commission on June 29, 2000.
Registration No. _______________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB_2 AMENDMENT 1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SAVE ON ENERGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
GEORGIA 336300 58-2267238
---------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of (Primary Standard (IRS Employer
Incorporation or Organization Classification Code Number) Identification Number)
</TABLE>
SAVE ON ENERGY, INC.
Ste. 211 4851 Georgia Hwy 85
Forest Park Georgia 30050
(404) 765-0131
----------------------------------------------------------------------------
(Address and Telephone Number
of Registrant's Principal Executive Offices and Principal Place of Business)
Robby E. Davis
President and Chief Executive Officer
SAVE ON ENERGY, INC.
Ste. 211, 4851 Georgia Hwy 85
Forest Park Georgia 30050
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
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with a copy to:
Edward C. Kramer, Esq.
Kramer & Kramer, LLP
708 Third Avenue
New York, NY 10017
(212) 983-0007
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the date on which this Registration Statement becomes
effective.
-----------------------------------
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, check
the following box. |_|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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 for the same
offering. |_|
--------------
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. |_|
2
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
Title of each class Proposed maximum Proposed maximum Amount of
of securities Amount to be offering price per aggregate offering registration
to be registered registered (1) share (2) price (2) fee
=========================================================================================================
<S> <C> <C> <C> <C>
Common Stock 4,852,900(1) $1.75(2) $8,492,575 $2,242
=========================================================================================================
</TABLE>
(1) This registration statement covers shares which may be offered from
time to time by selling stockholders, including (i) 3,386,000 shares of
common stock issued and outstanding, (ii) 399,400 shares of common
stock issuable upon exercise of warrants, (iii) 317,500 shares of
common stock issuable upon conversion of convertible promissory notes,
(iv) 500,000 shares of common stock reserved and available for
officers, directors and employees, and (v) 250,000 shares of common
stock reserved and available upon exercise of warrants which may be
issued with respect to a consulting agreement with MBO, Inc.
(2) Based on the highest sales price of the registrant's common stock as
quoted on the Nasdaq OTC Bulletin Board on March 17, 2000, as estimated
solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
SAVE ON ENERGY, INC.
Up to 4,722,900 Shares
of Common Stock
Save on Energy, Inc. is registering an aggregate of 4,722,900 shares of
our common stock under this prospectus. The number of shares being registered
includes shares of common stock that may received by warrant holders if they
exercise warrants for the purchase of shares of common stock, as well as common
stock to which certain promissory note holders may convert their promissory
notes and common stock reserved for officers, directors and employees and common
stock reserved for the exercise of warrants which may be issued under a
consulting agreement. The number also includes shares of common stock that are
currently issued and outstanding. As of March 23, 2000 our common stock was
quoted on the Nasdaq OTC Bulletin Board under the symbol "SAVEE." At this time
our common stock is no longer traded on the Nasdaq OTC Bulletin Board under the
symbol "SAVEE, but is traded on the "Pink Sheets" under the symbol "SAVE." On
March 17, 2000, the last reported sale price of Save's common stock was $1.75
per share. We will not receive any proceeds from the resale of any securities
being registered. We have agreed to pay the expenses of this offering.
3
<PAGE>
-------------------------
See "Risk Factors" beginning on page 6 of this prospectus for a
discussion of certain factors that you should consider before investing.
-------------------------
The information in this prospectus is not complete and may be changed.
We 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.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------
This prospectus is dated June 23, 2000.
4
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY.......................................................................6
FORWARD LOOKING STATEMENTS....................................................7
RISK
FACTORS.......................................................................7
USE OF
PROCEEDS.....................................................................12
MARKET FOR COMMON STOCK......................................................13
DIVIDEND
POLICY.......................................................................13
THE
COMPANY......................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................24
PRINCIPAL STOCKHOLDERS.......................................................27
MANAGEMENT...................................................................29
RELATED PARTY TRANSACTIONS...................................................30
DESCRIPTION OF SECURITIES....................................................32
PLAN OF
DISTRIBUTION.................................................................33
LEGAL
MATTERS......................................................................33
EXPERTS
.............................................................................33
WHERE YOU CAN GET MORE INFORMATION...........................................33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-1
UNAUDITED FINANCIALS FOR PERIOD ENDING OF MARCH 31, 2000...................FU-1
5
<PAGE>
SUMMARY
This summary highlights selected information from this prospectus and
may not contain all the information that is important to you. To understand the
stock offering fully, you should carefully read this entire prospectus.
References in this prospectus to "we," "us," and "our" refer to Save on Energy,
Inc., Electronic Fuel Control, a division of Save on Energy, Inc., Save or EFC.
SAVE ON ENERGY, INC.
Ste. 211 4851 Georgia Hwy 85
Forest Park Georgia 30050
(404) 765-0131
Save on Energy, Inc., formerly known as Electronic Fuel Control, Inc.
(the "Company"), was incorporated in the State of Georgia in 1996 to manufacture
and market retrofit systems for the conversion of gasoline and diesel engines,
stationary or vehicular, to non_petroleum based fuels such as compressed natural
gas and liquefied natural gas.
The Company markets alternative fuel conversion kits for gasoline or
diesel fuel engines which include a patented device. In the case of a gasoline
engine, the engine is converted to an engine powered by either gasoline or an
alternative fuel. In the case of a diesel engine, the engine is converted into
an engine powered by either diesel fuel or a mixture of diesel fuel and
alternative fuel.
The Company maintains its principal executive offices at 4851 Georgia
Hwy 85, Suite 211, Forest Park, Georgia, 30050. The Company's telephone number
is (404) 765-0131 and its facsimile number is (404) 765-0171.
The Offering
We will use any proceeds from the exercise of warrants for working capital and
general corporate purposes.
Dividends
We have never paid a cash dividend on our common stock and do not plan to pay
any cash dividends on our common stock in the foreseeable future.
Market for the Common Stock
There is a limited market for the common stock, which was quoted on the Nasdaq
OTC Bulletin Board under the symbol "SAVEE." In early April 2000, our stock was
delisted from the Nasdaq OTC Bulletin Board and is currently traded on the "Pink
Sheets" under the symbol "SAVE." It is intended that upon this filing becoming
effective, that application will be made to again have the stock quoted on the
Nasdaq OTC Bulletin Board.
Important Risks in Owning Save's Common Stock
6
<PAGE>
Before you decide to purchase shares of common stock offered pursuant to this
prospectus, you should read the "Risk Factors" section of this prospectus
beginning on page 6.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future expectations,
contain projections of results of operations or financial condition or state
other "forward-looking" information. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and was derived using
numerous assumptions.
Important factors that may cause actual results to differ from projections
include, for example:
o general economic conditions, including their impact on capital
expenditures;
o business conditions in industries using diesel engines;
o the regulatory environment;
o rapidly changing technology and evolving industry standards;
o new products and services offered by competitors; and
o price pressures.
RISK FACTORS
The purchase of the securities offered involves a high degree of risk. You
should consider, in addition to the negative implications of all material in
this prospectus, the following specific risks, particularly in relation to your
own financial circumstances and your ability to suffer the loss of your entire
investment.
RISK FACTORS RELATING TO THE COMPANY'S BUSINESS
-----------------------------------------------
You should carefully consider the following risk factors before making an
investment.
1. Limited Operating History. The Company was organized on April 1,
1996 and has conducted only limited operations to date, consisting of
negotiating the license to use the Patents, further research and development and
limited sales efforts. No assurances can be given that we will develop a
marketing and sales program which will generate significant revenues from the
sales of the products we offer. The likelihood of our success must be viewed in
light of the delays, expenses, problems and difficulties frequently encountered
by an enterprise in its development stage, many of which are beyond our control.
We are subject to all the risks inherent in the development and marketing of new
products.
2. No Assurance of Sales or Acceptance of Products. The engine
conversion kits we market and sell have been distributed only on a limited basis
during the last 14 years and no assurance can be given that we will be able to
market such products successfully on a wide_scale commercial basis or that
significant revenues will be generated from any such sales.
3. Dependence on License. Our right to manufacture and market products
based upon the Patents is dependent upon the continuing validity of a license
(the "License") granted by the Davis Family Trust, the assignee (or holder) of
the Patents, to us.
7
<PAGE>
4. Government Regulation. Federal, state and local governments are
endeavoring to find ways to decrease pollution caused by petroleum burning
products and simultaneously reduce the use of petroleum products in general. To
that end, the federal government has enacted the National Energy Strategy
(1992), the Clean Air Act of 1970, as amended in 1990, and the Energy
Conservation Act, among many other regulations, which provide a major impetus
for our business. In order to be successful, our products will have to operate
at levels which allow compliance with the myriad government regulations now
existing or which may be implemented in the future. The implementation of many
of the provisions of these regulations relating to the phase_in of alternative
fuels have been deferred indefinitely which could diminish or dampen any impetus
for success of our products. Hence, these regulations and the timing of the
activation of their key provisions, as they relate to us, will have a
significant bearing on our operations and may, in some instances, materially
adversely effect our business. A number of states and alternative fuel industry
associations have adopted safety standards relating to the integrity of fuel
systems in vehicles and equipment which burn alternative fuels. Standards have
been adopted for fueling connection devices, fuel containers, natural gas
compressors, and conversion kits such as those we manufacture and market. In
order to be certified by the American Gas Association ("AGA"), each aspect of a
conversion kit must be in compliance with AGA standards. We believe that the
products we design and manufacture meet current AGA safety standards, but there
is no guarantee that our belief will be accepted by a government entity,
regulator or court. However, as the industry is relatively new, standards and
regulations governing the use of alternative fuels and conversion kits are being
revised frequently. In the event that the regulations governing the manner of
use of alternative fuels are amended or laws specifically affecting alternative
fuel conversion kits are adopted by the federal government or in the event that
our products are not within AGA standards, such laws, regulations, and new
standards could have a material adverse effect on our business, as we may have
to redesign our products to be in compliance with these standards which would
require time and expense and which may cause us to scrap its inventory.
5. Regulatory Changes. Changes in existing regulatory requirements or
the adoption of new requirements could have a material adverse effect on our
business, financial condition and results of operations. For instance, the
government may extend time_tables decelerating the time within which certain
industries must comply with existing regulations mandating the use of
alternative fuels so that the industry will grow at a much slower pace. Further,
there can be no assurance that we will not be required to incur significant
costs to comply with laws and regulations in the future or that laws and
regulations adopted in the future will not have a material adverse effect on our
business, financial condition and results of operations. State and local laws
and regulations vary significantly from state to state; therefore, any changes
in the regulatory framework in any one or more states could cause delays in our
operation in such states, or make continued operation unprofitable.
6. Technological Change. Modern technology is characterized by
extensive research and rapid technological change. Newer technologies may be
developed which perform more efficiently than the equipment we manufacture and
market. Major automobile and truck companies, academic and research institutions
and others could develop new fuels or new devices which could be installed at
the OEM (original equipment manufacturer) level and which could potentially
render our systems obsolete. In addition, competitors may develop technology and
systems which can be sold and installed at a lower per unit cost. There can be
no assurance that we will have the capital resources available to undertake the
research which may be necessary to upgrade our equipment or develop new devices
to meet the efficiencies of changing technologies. Our inability to adapt to
technological change could have a materially adverse effect on our results of
operations.
8
<PAGE>
7. Limited Availability of Alternative Fuels. Alternative fuel engines
have been commercially available in the past; however, the most significant
impediment to the growth in the market for alternative fuel vehicles
traditionally has been the limited availability of alternative fuel sources,
such as natural gas and propane. The success of engines based on alternative
fuels will probably be directly effected by the development of the
infrastructure of the natural gas industry and the widespread availability of
such fuel sources. To some degree, this problem will remain at the forefront of,
and be an impediment to, the success of alternative fuel power sources. However,
we believe that with the development of the dual fuel conversion system kit,
vehicles will not be tied exclusively to alternative fuels, but will have the
option and ability to operate on standard diesel fuel alone. In all events, our
business and the market for alternative fuel vehicles would benefit
substantially from the growth of the infrastructure of the natural gas industry
and the more widespread availability of alternative fuels. Conversely, our
business and the market for alternative fuel vehicles would be substantially
hurt by a diminished or lack of growth of the infrastructure of the natural gas
industry and the less widespread availability of alternative fuels.
8. Lack of Distributorships. As of the date hereof, we are distributing
our products exclusively through our offices in Forest Park, Georgia. We intend
to establish regional master distributorships through which we will offer and
sell our products. However, there is no assurance that we will be able to
negotiate or conclude satisfactory distributor agreements or, if negotiated and
concluded, that such distributors will employ qualified or competent personnel
or that they can obtain satisfactory locations from which to distribute our
products. Until such time as we can establish distributorships, if ever, we must
continue to rely on our offices in Forest Park to develop a sales base for our
products.
9. Competition. As the time to comply with federal and state
regulations relating to emissions and fuel efficiency approaches, so too does
the universe of entities seeking to develop and market products such as those we
sell. Other companies presently are marketing diesel fuel and dual fuel
conversion kits. In addition, automobile and truck manufacturers may develop and
install similar proprietary devices as original equipment. The current
regulatory emphasis on lowering engine emissions is an economic incentive for
developing non_petroleum based or decreased hydro_carbon emitting power sources,
some of which may be superior to ours or may well be selected by converters,
states or federal agencies, regardless of superiority. In this regard, we are
also competing against manufacturers of electric vehicles and against vehicles
which rely on other fuel sources such as solar power or hydrogen. Electric cars
have been in development for many years and have been tested extensively and
some manufacturers are selling such vehicles on a commercial basis. Most of the
entities against which we compete and may compete in the future may posses
greater financial, technical, human and marketing resources than we do and there
can be no assurance that we will be able to compete successfully against these
entities.
10. Resistance to Our Products by Major Oil Companies. The major oil
companies remain a powerful and formidable lobby. Our products directly contest
the continued use of large quantities of petroleum based products (gasoline and
diesel fuel) and we and others in the industry may face obstacles to our success
imposed by the major oil companies. We are unable to predict at this time
whether or not the oil companies will present any significant impediments to the
continued growth and overall success of the industry in which we are engaged.
11. Safety Concerns in Connection with Alternative Fuels and Our
Limited Insurance. Liquefied natural gas ("LNG") is highly flammable and may
present risk in the event of a collision involving the storage tanks. We have
obtained liability insurance from a "Best" A rated insurance carrier in the
gross amount of $2 million. The policy provides insurance of $2 million in the
aggregate during any one year and $1 million per event to cover accidents or
other liability incurred as a result of a malfunction of the Company's products.
There is no assurance that coverage in this amount will be sufficient to meet
all claims which we may face in respect of our products in the event of serious
bodily harm or property damage as a result of defects or flaws in the products.
9
<PAGE>
In the event the amount of any claim or claims in the aggregate exceed the
amount of our liability insurance, we may be required, among other possible
scenarios, to remit all revenues to claimants which may force us to cease
operations.
12. Dependence Upon Key Employee and Consultant. Our future success
will be largely dependent on the personal efforts of Robby Davis, an officer and
director of the Company, and Frank Davis, a consultant to the Company and the
Technical Advisor to the Board of Directors. The loss of either of such persons
would have a material adverse effect on our business and prospects. We have no
key man life insurance on either individual.
13. No Cumulative Voting: Retention of Control by Current Shareholders.
Our certificate of incorporation, as amended, does not provide for cumulative
voting in the election of directors. Therefore, the holders of a majority of the
outstanding shares of Common Stock immediately after the sale of the Shares
offered in this prospectus will be in a position to elect the directors of the
Company and otherwise control the Company.
14. No Anticipated Dividends. We have not previously paid any dividends
and do not anticipate paying cash dividends in the foreseeable future. We intend
to follow a policy of retaining our earnings, if any, to finance the development
and expansion of our business.
15. International Regulatory Changes. We intend to sell our products
and do business abroad and are relying to a great extent on foreign sales.
Changes in existing regulatory requirements outside of the United States or the
adoption of new requirements in foreign countries could have a material adverse
effect on our business, financial condition and results of operations. For
instance, foreign governments may extend time_tables decelerating the time
within which certain industries must comply with existing regulations mandating
the use of alternative fuels so that the industry will grow at a much slower
pace. Further, there can be no assurance that we will not be required to incur
significant costs to comply with foreign laws and regulations in the future or
that other countries' laws and regulations adopted in the future will not have a
material adverse effect on our business, financial condition and results of
operations. Regulations vary significantly from country to country; therefore,
any changes in the regulatory framework in any one or more countries could cause
delays in our operation or sales in such countries, or make continued operation
or sales unprofitable.
16. Suppliers. Currently, the control boxes and other key elements used
for our conversion kits are received from a single source. Accordingly, should
anything happen to our supplier, or for some reason we are no longer able to
obtain the control boxes or other key elements from our supplier, we will not be
able to produce or will be delayed in producing conversion kits for sale or
distribution, which could cause delays in our operation or sales or make
continued operation or sales unprofitable.
17. Technological Advances. If we do not adapt to technological
advances in our industry as quicky as our competitors, our operating results and
financial condition could be adversely affected. We compete in markets and
industries that require sophisticated manufacturing systems and other advanced
technology to deliver state_of_the_art products. These systems and technologies
will have to be refined and updated as the underlying technologies advance. We
cannot assure you that, as systems and technologies become outdated, we will be
able to replace them, to replace them as quickly as our competitors or to
develop and market new and better products in the future. Higher overhead and
manufacturing costs due to a failure to update and improve processes could limit
our competitive position. In addition, failure to make technological advances
could adversely affect our ability to successfully market our products.
10
<PAGE>
18. Concentration of Orders. Concentration of order backlog in a single
project could expose us to operating losses and cash flow problems. From time to
time we have a significant percentage of our order backlog concentrated in a
single project. If manufacture or payment for shipped materials is delayed on
such a significant project, we could be exposed to operating losses and
restrictive cash flow problems. This could also hamper our ability to pursue new
business opportunities or result in credit shortages.
19. General Risks in International Operations. We are subject to risks
related to our international operations. We anticipate that international sales
will increasingly account for a significant portion of our net sales and
revenue. We intend to widen the scope of our license from the Davis Family Trust
and to expand our export sales to markets in Asia, Europe, South America, Africa
and the Middle East and to enter additional countries in these international
markets which may require significant management attention and financial
resources. Our operating results will be increasingly subject to risks related
to international sales, including:
o regulatory requirements;
o political and economic changes and disruptions;
o transportation delays;
o national preferences for locally manufactured products; and
o import duties or other taxes which may affect the prices of
our products in other countries relative to competitors.
GENERAL RISKS RELATING TO INVESTMENT
------------------------------------
1. No Underwriter. We have not engaged the services of an underwriter
with respect to this registration and, as a result, the due diligence review of
us and our affairs which would customarily be performed by an underwriter and
its legal counsel has not been performed with respect to us or this offering. In
addition, the management of the registration by us rather than by an underwriter
is likely to increase the risk that no market or a minimum market for the stock
will develop following the registration.
2. No Assurances of Additional Financing. We have financed our working
capital requirements and capital expenditures primarily through debt, sales of
shares and cash flow generated from operations. In order to satisfy our existing
obligations and support our future growth strategy, we may require additional
capital. There can be no assurance that additional capital will be available or
that, if available, we can obtain such capital on satisfactory terms. Any
additional equity financing may dilute the holdings of stockholders, and debt
financing may impose substantial restrictions on our ability to operate and
raise additional funds.
o Our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be
available on favorable terms;
o We may be more generally vulnerable to a downturn in our
business or the economy generally.
If we are unable to obtain additional financing, as needed, our
business and financial condition would be materially, adversely affected.
11
<PAGE>
3. Small Control Group of Stockholders. We are controlled by a small
group of stockholders. Our common stock is held by a small group of
stockholders. Therefore, our public stockholders may not have the power to elect
our directors and direct our policies.
4. There is a limited public market for our common stock. There is no
established active public trading market for our common stock. Our common stock
is traded on the "Pink Sheets" and is quoted under the symbol "SAVE". As of
March 6, 2000, the last reported sale price of our common stock was $2.875, and
there were 11 firms listed as market makers for our common stock. There can be
no assurance that our common stock will trade at prices at or about its present
level, and an inactive or illiquid trading market may have an adverse impact on
the market price. Moreover, price fluctuations and the trading volume in our
common stock may not necessarily be dependent upon or reflective of our
financial performance. In early April, our stock was delisted from the Nasdaq
OTC Bulletin Board and is now only be traded on the "Pink Sheets." This will
make it more difficult to trade our shares. Although, upon this filing becoming
effective, it is expected that we will reapply to be listed on the Nasdaq OTC
Bulletin Board.
Holders of our common stock may experience substantial difficulty in
selling their securities. The trading price of our common stock could be subject
to significant fluctuations in response to variations in quarterly operating
results, changes in the analysts' estimates, announcements of technological
innovations, general industry conditions. Furthermore, our stock is very thinly
traded, meaning that very few shares are sold in a day and that there are very
few actual trades. Thus, although the public sale price of our stock has
increased over 400% in the past several months, this increase is based upon few
and low volume trades and may not be representative of the value of the stock or
a particular selling price on any given day. Before purchasing our stock, you
should become aware of the stock's volume and number of trades, as well as the
history of the price of the stock over, at least, the last year.
USE OF PROCEEDS
We will not be selling any of our shares through this registration, since the
main purpose of this registration is to register already issued shares.
Accordingly, we will not receive any funds or proceeds from this registration.
However, if the holders of warrants to purchase common stock, at some point in
time, exercise the warrants, the holders will pay an exercise price to us. We
will use any proceeds from the exercise of warrants for working capital and
general corporate purposes.
MARKET FOR COMMON STOCK
Our common stock is quoted on the "Pink Sheets" under the symbol "SAVE" and
began trading December 17, 1996. The following table taken from America Online
shows quarterly low and high bid information for the common stock from January
1, 1998 through March 6, 2000:
12
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2000 Low Bid High Ask
---- ------- -------
First Quarter (1) $0.875 $3.875
1999
----
Fourth Quarter $0.25 $1.125
Third Quarter $0.48 $1.125
Second Quarter $0.375 $0.9375
First Quarter $0.75 $1.375
1998
----
Fourth Quarter $0.625 $1.125
Third Quarter $0.25 $2.00
Second Quarter $1.50 $3.375
First Quarter $1.00 $3.125
----------
(1) Through and including March 6, 2000.
Market quotations reflect inter_dealer prices, without retail markups, markdown
or commissions and may not necessarily reflect actual transactions. As of March
6, 2000, there were 3,386,000 shares of common stock outstanding.
DIVIDEND POLICY
We have never paid a cash dividend on our common stock and do not plan to pay
any cash dividends on our common stock in the foreseeable future.
THE COMPANY
Save On Energy, Inc. ("SAVE") was originally incorporated as Electronic Fuel
Control, Inc. on April 1, 1996 for the purpose of developing and marketing
after_market conversion systems to permit diesel engines to run in a "dual_fuel"
mode with natural gas added to the fuel mixture. Although the technology is
equally applicable to gasoline and diesel engines, we subsequently decided to
concentrate our energy and assets on building a business serving only
diesel_powered vehicles, a market determined to have a larger revenue potential
per customer.
We became a publicly traded company in 1996 as a result of the sale of 195,000
shares at $5.00 per share under Section 504 of the Securities Act of 1934. This
placement raised $975,000 for us, less commissions and costs of the offering. It
was from these funds as well as other monies previously and subsequently raised
that we developed commercial versions of our technology to fit many older,
naturally aspirated, diesel engine types and placed more than 1,200 conversion
units into engines all around the world. In addition, we completed preliminary
work to apply our technology to the newer Drive_by_Wire engine types. As a
result of these activities we believe we are poised to begin a much more
extensive sales and revenue creation phase.
13
<PAGE>
During the first quarter of 1999, we acquired we entered into an agreement with
International Fuel Systems, Inc. ("IFS"), a Tennessee corporation, and Lanier
Davenport in memorializing the prior purchase of 600,000 shares and, in
addition, for 600,000 additional shares to be issued upon certain contingencies.
As of March 6, 2000, 200,000 of the reserve shares have been issued. IFS
established several business relationships for the SAVE Dual Fuel System with
organizations outside the US. In particular, IFS initiated a development program
with a diesel engine manufacturer in Hungary and established a joint venture
with NUI/CARITRADE INTERNATIONAL with respect to certain countries of Eastern
and Western Europe. Should this program materialize, we will seek to include
such additional territories as may be relevant to our License from The Davis
Family Trust. At this time it cannot be determined if such program and venture
will eventually realize revenue.
LEASES
We lease 6,000 square feet of combination office and warehouse space in an
established industrial park in Forest Park, Georgia located near the
intersections of Interstates 285 and 75, and close to the Atlanta airport. The
lease for this location expires at the end of February 2001. There are 8 full
time employees in this facility, with adequate space to add several more as the
business grows.
PRODUCTS and TECHNOLOGY
German engineer Rudolf Diesel invented the diesel engine in the late 1890's. A
diesel engine looks and works very much like a gasoline engine. However, unlike
the gas engine, diesel engines have no spark plugs. Diesel fuel has a very low
flash point, meaning that it self ignites at a low pressure/temperature
condition. Within the diesel engine, when the piston is at the top of the
cylinder (at the conclusion of the compression stroke) and the mixture of fuel
and air within the cylinder is at the maximum pressure, the air has been heated
by being compressed, and the diesel fuel vapors spontaneously combust. With no
spark (and no spark plugs or distributor) needed to ignite the fuel, diesel
engines are much simpler and more reliable than gasoline engines. In addition,
diesel fuel contains unrefined hydrocarbons that act as a lubricant to internal
engine components while the engine is running. This contributed to a
significantly longer engine life than can be expected from other fuels.
The main disadvantage of a diesel engine is that it emits far more pollutants
than its gasoline_fueled counterpart. Diesel exhaust contains particulate
matter, visible as soot that contains unburned and partially burned fuel. These
hydrocarbon emissions are a significant contributor to air pollution and to
human respiratory system difficulties. This is particularly true when
hydrocarbons become suspended in the atmosphere (as opposed to settling to
earth) or when they come to exist in great quantity in the air at a particular
location (such as is the case Los Angeles, Mexico City, and Cairo). Of even
greater significance is the fact that diesel fuel combustion produces Nitrous
Oxide ("NOx"), a toxin that is universally acknowledged as harmful to humans and
the environment.
Engines. There are different diesel engines. Many of the differences are in how
the fuel/air mixing operation is performed. However, all diesel engine are
sparkless, using the increased temperature of the compressed air to ignite the
fuel.
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Naturally Aspirated Engine. Unlike gasoline engines that mix the fuel with the
air outside the cylinder, diesel engines mix the fuel with the air inside the
cylinder. In all diesel engines, the fuel is directly injected into the
cylinder. Because they are able to operate on a wider range of fuel quality than
gasoline engines and because they could be built in much larger and more
powerful configurations, diesel engines quickly adapted to many commercial
applications.
Turbocharged Engine. Turbocharged engines force compressed air into the
cylinder. These are more efficient than the naturally aspirated engines and
consume less fuel.
Drive_by_Wire Engines. As a further extension of automobile engine technology to
diesels, in 1993/94, engine manufacturers began producing turbocharged engines
that use an electronically timed fuel injection system. In this engine,
injection of the fuel into the engine cylinder is controlled more precisely than
is possible using the mechanical system. Because the fuel injection process is
more precisely timed and measured, Drive-By-Wire engines have lower emissions
and better fuel economy than other engines.
The improved fuel efficiency and reduced emissions that resulted from the
Drive_by_Wire engines is only a small step. These engines, like other diesel
engines continue to emit substantial quantities of unburned fuel, particulate
hydrocarbons and NOx that exceed the levels permitted under the guidelines of
the Clean Air Act.
BARRIERS TO GROWTH OF ALTERNATIVELY FUELED VEHICLES
Few Fueling Stations. Gas companies are reluctant to install fueling stations
against a market with a limited vehicle count. Recent estimates indicate that
there are about 1,200 compressed natural gas vehicle refueling stations in the
USA, certainly far less than one on every corner, as is the case with gasoline.
Despite this, suppliers of CNG and LNG have developed trailer mounted fueling
stations to provide an option for fleet vehicle fueling without the great
expense for a fixed installation.
Few Vehicles. Even though the base legislation has now been in force for nearly
10 years, and the conversion requirements are clearly set, particularly for
state, municipal and federal vehicle fleets, estimates place the number of
Natural Gas powered medium and heavy duty vehicles in service in the USA at less
than 50,000. This compares disproportionately to the more than 1 million natural
gas or dual fuel vehicles in service outside the US.
High Cost of Dedicated Engine Conversions. To convert an existing and running
diesel engine to run exclusively on natural gas (a "dedicated" engine),
regardless of whether the gas is liquefied or compressed, requires that an
electronic ignition system be installed in the vehicle. This requires new
cylinder heads, the spark plug electronics, and a whole lot more. The end result
is a conversion cost for a typical heavy_duty truck in excess of $50,000.
Similarly, the cost of a new vehicle equipped with a full time natural gas
engine is as much as $50,000 more than the same vehicle with its standard diesel
engine.
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Large Inventory of Diesel Powered Vehicles. One of the main advantages of diesel
engines is their long life. With millions of perfectly good vehicles in service,
private sector fleet operators have little incentive to discard them and replace
them with dedicated alternative fuel vehicles.
SAVE CONVERSION KITS.
The SAVE Dual Fuel System permits existing vehicles to be converted to dual fuel
capability at a cost, including the fuel tank, of less than $10,000 in most
cases. Importantly, we believe that significant engine performance is not lost
as a result.
LEGISLATIVE INCENTIVE and ASSISTANCE PROGRAMS
Some of the Federal laws that apply directly to increased use of alternative
fuels and conversion of vehicles to for the use of alternative fuels are
described below:
The Clean Air Act of 1970, together with the Clean Air Act Amendments of 1990.
The Clean Air Act (CAA) was passed in 1970 to improve air quality nationwide.
Congress amended that law in 1990, passing the Clean Air Act Amendments of 1990
(CAAA) creating several initiatives to reduce vehicle pollutants. The CAAA sets
emissions standards for stationary and mobile pollutant sources. The Act
establishes targets, sets standards and creates procedures for reducing human
and environmental exposure to a range of pollutants generated by industry in
general and transportation most specifically. Importantly for SAVE, the1990
Amendments to the Clean Air Act requires businesses that maintain centrally
fueled fleets of 10 or more vehicles in certain heavy smog locations to convert,
either through new vehicle purchases or by converting existing vehicles, a
portion of their fleet to clean burning alternative fuels. The Act specifically
includes the diesel and natural gas duel_fuel system as an "alternative fuel."
The Act goes on to specify actions that fleet operators must take and timetables
for their completion.
The Energy Policy Act of 1992 (EPAct) was created to accelerate the use of
alternative fuels in the transportation sector. With the EPAct in place, the
primary goal of the Department of Energy (DOE) became to decrease the nation's
dependence on foreign oil and increase our energy security through the use of
domestically produced alternative fuels.
EPAct mandates the schedule by which Federal, State and Municipal vehicle fleets
must incorporate alternative fueled vehicles into their overall vehicle mix. As
we enter the 21st Century, this aspect of the EPAct has significant
ramifications for the military, which operates thousands of diesel vehicles, and
for the state departments of transportation, which operate tens of thousands of
diesel powered dump trucks and related highway service and repair vehicles, plus
the tens of thousands of vehicles operated by the private contractors who
support these agencies.
Other Federal and State Incentives and Alternative Fuel Vehicle Programs. There
are a number of other Federal and State programs that have been created and
which provide funding or other incentives for the conversion from diesel engines
to alternative fuels.
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Clean Cities Program. Created by the DOE, the Clean Cities Program coordinates
voluntary efforts between locally based government and industry to accelerate
the use of alternative fuels and expand the alternative fuel vehicle ("AFV")
refueling infrastructure.
State and Alternative Fuel Provider Fleets AFV Credits Program. Congress created
the "Credits Program" to encourage fleets to increase the number of AFVs in
their fleets early and aggressively. Credits are allocated to state fleet
operators and covered Alternative Fuel Provider fleet operators when AFVs are
acquired over and above the amount required, or earlier than expected. Since
credits can be traded and sold, fleets have the flexibility to acquire AFVs on
the most cost_ effective schedule without impeding the achievement of EPAct
national oil displacement goals.
State Energy Program. States will promote the conservation of energy, reduce the
rate of growth of energy consumption, and reduce dependence on imported oil
through the development and implementation of a comprehensive State Energy
Program. The State Energy Program is the result of the consolidation of two
Federal formula_based grant programs _ the State Energy Conservation Program and
the Institutional Conservation Program. The State Energy Program includes
provisions for financial assistance for a number of state_oriented special
project activities. These activities specifically include programs to accelerate
the use of alternative transportation fuels for government vehicles, fleet
vehicles, taxis, mass transit, and individuals' privately owned vehicles.
DOE/Urban Consortium Funds. DOE's Municipal Energy Management Program has funded
about 300 projects that demonstrate innovative energy technologies and
management tools in cities and counties through the Urban Consortium Energy Task
Force (UCETF). Each year the task force requests proposals from urban
jurisdictions including cities, counties and recognized tribal governments. It
funds those projects that best define and demonstrate innovative and realistic
technologies, strategies, and methods that can facilitate urban America's
efforts to become more energy efficient and environmentally responsible. In the
past, a number of AFV projects have received funding from UCETF.
Petroleum Violation Escrow (PVE) Account. Oil overcharge funds, also known as
petroleum violation escrow (PVE) funds were created by fines or settlements that
became available as a result of oil company violations of the federal oil
pricing controls. These monies have been made available to the states for use in
one or more of three federal energy_related grant programs: the State Energy
Program (as discussed above) and the Weatherization Assistance Program
(administered by DOE), and the Low_Income Home Energy Assistance Program, which
is administered by the Department of Health and Human Services.
Congestion Mitigation and Air Quality (CMAQ) Improvement Program. The CMAQ
program was re_authorized in the recently enacted Transportation Equity Act for
the 21st Century (TEA_21). The primary purpose of the CMAQ program remains to
fund projects and programs in non_attainment and maintenance areas that reduce
transportation related emissions.
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Section 3 Discretionary and Formula Capital Program. This program provides
funding for the establishment of new rail projects, improvement and maintenance
of existing rail projects, and the rehabilitation of bus systems. Funding is not
specifically designated for AFVs, but the funds provided by this program could
be used to purchase alternative fuel buses. For most projects funded through
Section 3, FHWA will pay 80% of the total project costs.
The Clean Fuel Fleet Program (CFFP). This is an initiative implemented by the
EPA in response to the CAAA. The CFFP requires fleets in cities with significant
air quality problems to incorporate vehicles that will meet clean fuel emissions
standards.
National Low Emission Vehicle (NLEV) Program. The NLEV program, effective March
2, 1998, is a voluntary program between the EPA, nine of the Ozone Transport
Commission (OTC) states, and the automobile manufacturers. The program is
designed to reduce unhealthy levels of smog and other toxic air pollutants
formed from vehicle tailpipe emissions. Automobile manufacturers will provide
cars and light_duty trucks that are cleaner burning than currently required by
law.
Pollution Prevention Grants Program. This Federal program supports the
establishment and expansion of state pollution prevention programs and addresses
various sectors of concern such as energy, transportation, industrial toxins,
and agriculture. Funds available under this grant/cooperative agreement are
awarded to support innovative pollution prevention programs that address the
transfer of potentially harmful pollutants across air, land, and water. State
agencies are required to contribute at least 50% of the total cost of their
project.
State Legislation and Alternative Fuel Vehicles Support Programs. In addition,
many states also offer incentives for converting and operating alternative
fueled vehicles. These incentives take many forms, including income tax
deductions and credits, vehicle fuel tax reductions, access to HOV lanes, and
grants to cover some of the costs of acquiring or converting vehicles and
installing fueling infrastructure.
Impact of Legislative Initiatives on SAVE. We consider that the dual fuel system
we have developed and marketed is an "alternative fuel" as defined by these
laws. Subject to completing EPA certifications for reduced emissions, engines
converted to the SAVE Dual Fuel Operating System may qualify for available tax
incentives.
Global Initiatives. In addition to the many Federal and State programs, the
United Nations has a long_standing program to improve the air quality,
worldwide. The program is administered through the UN's Economic and Social
Development Division. The UN does not provide funding, but they do work
extensively to facilitate the flow of technical information into member nations
that have need to address local or regional pollution problems.
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PATENTS ISSUED AND APPLIED
On October 30, 1984, United States Patent # 4,479,466 was issued to SAVE founder
Frank Davis for:
"A natural gas and air mixing device for allowing the combustion of a
mixture of natural gas and air in a conventional internal combustion
engine."
Although this device was designed specifically for the purpose of using natural
gas to power a gasoline engine, it set the stage for future work to develop
conversion kits that would permit diesel engines to operate on a mixture of
diesel and natural gas.
From the knowledge gained in subsequent years, Frank Davis and his son, Robby
Davis, were granted three additional patents for mixing devices. Two were issued
in 1991 and the third in 1994. All three described apparatuses for introducing a
mixture of air and gaseous fuel into internal combustion engines and the method
or process for doing that.
Further, in December 6, 1994, Frank Davis and Robby Davis were issued United
States Patent # 5,370,097 for a "Combined Diesel and Natural Gas Engine Fuel
Control System and Method of Using Such" for an internal combustion engine. This
patent describes using a control means to insert the gaseous fuel in response to
engine speed and load. This is the base patent upon which the Company relies.
Foreign applications have been filed in Germany and the United Kingdom. Frank
Davis and Robby Davis have assigned their interests in these patents to the
Davis family Trust. The Trust has granted us a license to use the patents. (See
License)
THE SAVE DUAL FUEL SYSTEM
There are two types of dual fuel systems in use. The SAVE Dual Fuel system is a
"Closed Loop" system. The fuel flow Controller monitors engine operating
parameters. Based on the input it receives, it adjusts the gas/air and diesel
fuel mixtures as necessary to create the optimum engine performance for the load
at the time. The system makes continuous changes to the percentages of natural
gas and diesel entering the cylinder during the intake cycle.
In an "Open Loop" system, as used by two competitors, the natural gas to diesel
fuel mixture is pre_set, usually to around 40% gas and 60% diesel. The engine
receives this mixture at all times, without regard to engine speed or load.
We believe that SAVE's Closed Loop system generally provides better fuel economy
than an Open Loop system, better vehicle performance under the variety of load
requirements engines face, a greater emissions reduction (particularly unburned
fuel, hydrocarbon particulate and NOx) and reduced engine maintenance costs.
The SAVE Dual Fuel System has three main components.
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The Controller. This electronic unit is the brain of the system. From sensors
that monitor key parameters of engine performance (speed, temperature and
several others) and what it is being asked to do (throttle position and fuel
demand), the Controller determines how much natural gas to place into the air
intake stream. In general, the controller places the least amount of gas into
the engine at idle engine speed without load. At this resting state, a typical
dual_fuel engine would be running on 80% diesel and 20% natural gas. Conversely,
the greatest amount of gas is inserted when the vehicle is cruising at speed. In
this state, a typical engine would be consuming a mixture of 20% diesel and 80%
gas. Experience gathered over hundreds of installations has indicated that a
typical engine, after conversion to SAVE's Dual Fuel System will normally run on
a mixture of 70% gas and 30% diesel.
The Gas Air Mixing Device. The natural gas vapor must be administered into the
air fuel flow in a manner that permits thorough mixing. To accomplish this, we
hold patents on three different and unique devices that are placed into an
engine air intake system This device, called the Gas Air Mixing Device, together
with the fuel flow regulator and hoses is the second major component of the SAVE
Dual Fuel System.
The Measuring, Monitoring and Reporting Devices and Their Connections. To
optimize engine and vehicle performance, the Controller needs to know the
current status of a number of engine operating parameters ranging from throttle
position to exhaust temperature. The sensors and wiring that gather and report
this information to the Controller make this the third component of the SAVE
Dual Fuel system.
SWITCHING FROM DUAL FUEL TO FULL DIESEL OPERATION
The Controller is programmed to automatically switch from dual_fuel operation to
diesel when the natural gas fuel supply reaches a low level. As an option, a
vehicle can be equipped with a manual switch. This switch permits 100% diesel
operation on the drivers command.
COMPRESSED VS. LIQUEFIED NATURAL GAS.
The SAVE Dual Fuel system is indifferent to the two gas types. In general,
compressed and liquefied natural gas differ only in their method of storage.
Once they leave their storage vessels and are presented for insertion into the
engine's fuel flow, both are in a gaseous state.
We do not include gas storage vessels in our "conversion kit". The customer
purchases these separately from a number of companies who manufacture them, or
from us at the customer's request.
At the moment, Liquefied Natural Gas (LNG) is the preferred form of fuel. In
liquid form, the gas requires less space to hold and its tanks put less weight
onto the vehicle than does Compressed Natural Gas (CNG). Because the LNG dealer
brings the gas to the fleet site as frequently as needed, there is no supply
constraint.
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However, as the future unfolds, CNG filling stations might proliferate making
these more easily accessible than is presently the case. Regardless, our dual
fuel engine does not care which type is on the vehicle. The fleet's service
technicians can make whatever minor adjustments the Controller may require for
optimum engine performance.
CERTIFICATION OF POLLUTION REDUCTIONS
In order to qualify for Federal and State grants and tax benefits, the reduction
in polluting emissions that result from our engine modifications must be
certified by independent outside agencies.
Environmental Protection Agency (EPA). The Federal Income Tax deductions
available as a result of the Energy Policy Act of 1992 require that the engine
"satisfy any federal and state emissions certification, testing, and warranty
requirements that apply." We will attempt to qualify the SAVE Dual Fuel System
on several of the most common diesel engine families in the first two quarters
of 2000. An engine family is generally one manufacturer/displacement/or
horsepower type, even though numerous models of that type may have been
manufactured over the years. The cost to certify an engine is generally between
$50,000 and $75,000. Testing requires about 30 days, including set up and tear
down. The EPA typically issues reports of the results and certifications within
60 days following the testing.
New York State Energy Research and Development Authority (NYSERDA). The State of
New York provides funding for alternative fuel projects through NYSERDA. We are
currently taking steps to formalize our relationship with N.Y.S. Electric and
Gas, with which we intend to jointly develop a project under a NYSERDA grant,
which may be as high as 50% of the cost of the project.
MARKET SIZE
The Company believes that the market for after_market vehicle conversion kits is
large, assuming the actual conversion of only a very small portion of the more
than 12 million medium and heavy_duty diesel powered vehicles, 3 million of
which are in the US, and 9 million are outside the US. The assumed average cost
of the component kit to convert one vehicle is a conservative $5,000. This
market estimate does not include the tanks to contain the gas or any costs born
by the fleet operator to create the refueling facility.
USA Market Potential. To determine the market potential for SAVE Dual Fuel
System, the US vehicle inventory can be divided into several segments, all
consisting of heavy_duty vehicles with large numbers of the same type of engine.
Transit Buses. The Department of Transportation reports more than 128,000
transit buses in use nationwide. Of these, less than 5,000 are believed to be
operating on alternative fuel.
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School Buses. The transit bus figures do not include buses operated by public
school districts or by private schools or churches. According to Department of
Transportation statistics, there are 580,000 school, church, institutional and
industrial buses registered in the US. The federal government, excluding the
military, operates an additional 5,000 buses.
Trucks. Motor Vehicle Census data from 1992 indicate that "Heavy_ Heavy" trucks
(gvw exceeding 26,000 pounds) numbered over 2 million then. The data does not
indicate the number that were diesel powered, however, it is believed that most
were. This census included detailed information about types of trucks. Some of
the highlights were:
Sanitation Trucks. The total number of sanitation vehicles was over 72,000.
Dump Trucks. Cities, counties and states own dump trucks for highway
maintenance. In addition, there are countless fleets operated by private
construction companies. The total number of dump trucks was reported to be
611,900, nationwide.
Wreckers. In 1992, there were 104,000 wrecker body trucks and an additional
58,800 trucks with a winch or crane.
Concrete Mixers. There were 61,000 concrete mixers in 1992.
Interstate Freight Trucks. According to Department of Transportation statistics,
there were 1,741,800 "Combination" trucks, another way of describing the truck
end of a "semi."
Local Delivery Trucks. United Parcel Service, the largest local delivery
operation with over 50,000 trucks in service, is already the largest operator of
dedicated CNG vehicles. Beverage delivery trucks, which frequently appear at
local convenience stores, numbered 73,000 in 1992.
Retail Delivery Trucks. This category will includes a number of smaller trucks,
and the beverage trucks will be double counted, but for companies like Wal_Mart,
the retail grocery industry, department stores, and the building supply
retailers, and others, there were over 1.1 million vehicles.
Working Boats. Certain highly active port cities have large numbers of
ferryboats and tugboats. Although these have highly specialized marine engines,
there is no doubt that their air pollution is receiving attention from various
government programs. The Department of Transportation reports that there were
8,300 vessels licensed to transport things or people in the US.
Locomotives. Because of the loads they pull, and particularly in urban areas
where they move slowly and engine load is heavy, diesel locomotives are serious
polluters. These engines will require a hybrid system to be converted to dual
fuel, similar to vehicle engines, but controlling a much larger engine.
Department of Transportation statistics indicated there were 19,600 locomotive
engines.
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Foreign Markets.
In addition to the US market, there are many nations with large and antiquated
diesel_engine vehicle fleets. Various estimates place the number of
diesel_engine transportation and freight vehicles outside the US at more than 10
million. Significant numbers are located in the nations referred to as the
Eastern Block (Czechoslovakia, Hungary, Romania, etc.), Mexico, Egypt, Chile,
Philippines, China, India and Japan. These nations each have a serious air
pollution problem. Importantly, each has excellent access to natural gas in
their urban centers.
FUEL SUPPLY
It must be noted as a significant strategic influence on the fuel supply side
that vast quantities of natural gas are being burned at the wellhead or simply
expelled into the atmosphere every day because there is no market for it. This
represents an undetermined incentive for the oil industry to increase demand for
natural gas.
COMPETITIVE ANALYSIS
OEM Dedicated Fuel Systems. Diesel engine manufacturers offer an engine
alternative that runs only on Natural Gas. These single_fuel (natural gas)
engines often cost at least $50,000 more than the same engine in diesel_only
form. The major reason for this cost difference is that to convert a diesel
engine to operate only on natural gas, a complete spark plug and ignition system
must be incorporated. In addition, because the all gas mixture explodes much
more violently upon ignition, the pistons have to be extensively modified to
reduce the compression ratio. Experience has demonstrated that these engines
have higher maintenance costs and shorter lives. This phenomenon is partially
explained by the fact that diesel fuel acts as an engine lubricant.
Caterpillar. Caterpillar offers two OEM Dual Fuel engines. Both are "Open Loop"
systems that operate on one, pre_set mixture of diesel and natural gas. The cost
of this option is often more than $25,000 higher than the same engine in Diesel
only form.
Alternative Fuel Systems, Inc. AFS, headquartered in Calgary, Alberta, Canada is
a company that manufactures an after_market "Open Loop" kit to convert an
existing vehicle engine to dual fuel. Installed in the customer's vehicle, the
AFS and the SAVE systems are believed to cost approximately the same. AFS is a
publicly traded company on the Canadian Stock Exchange under the symbol "ATF".
Additional information on the AFS system is available at their website,
www.altfuelsys.com.
OEM Bi_Fuel Systems. Some engine manufacturers also manufacture an engine that
will run on natural gas or diesel, but not on both at the same time. We call
these bi-fuel engines. These engines suffer the same up to $50,000+ cost
disadvantage as the dedicated, single_fuel engine. In order to convert a bi_fuel
engine from one fuel to another, the vehicle must be returned to the service
facility and have its operating parameters re_set. By comparison, the SAVE dual
fuel system can be set to change to full diesel operation either manually or
automatically.
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Bio_Diesel Fuel. In addition to natural gas/diesel, bio_diesel is another "clean
burning" dual_fuel. This fuel is a mixture of diesel and a vegetable oil.
Several such oils are available. Bio_diesel requires no engine conversion for
use. At about $3.00 per gallon, the cost is prohibitive to most operators. A
further disadvantage is the odor emitted, which depends on the specific oil that
is being used. For example, corn/diesel emits a popcorn odor from the exhaust.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of the financial
condition and results of operations should be read in conjunction with our
financial statements and the accompanying notes appearing elsewhere in this
prospectus. In addition to historical information, this management discussion
and analysis of financial condition and results of operations contain
forward_looking statements. Our actual results could differ materially from
those anticipated in the forward_looking statements as a result of factors,
including those set forth under "Risk Factors" and in other parts of this
prospectus.
Overview
We primarily market alternative fuel retrofit conversion kits which
include a patented device by which a diesel fuel engine is converted to an
engine powered by either a mixture of diesel fuel and alternative fuel
(approximately 80% natural gas, 20% diesel fuel) or diesel fuel exclusively,
which system permits the vehicle operator to switch from the mixed fuel source
to diesel fuel at the flip of a switch from the driver's seat when the
alternative fuel is depleted (the system is referred to as the "Save Dual Fuel
System"). We also market conversion kits which convert a gasoline fuel engine to
a bi-fuel engine which can be powered by either gasoline or natural gas.
The primary marketing focus of the Save Dual Fuel System is the diesel
truck and bus market segments. Although we have completed development of the
Save Dual Fuel System for normally aspirated engines and turbocharged engines,
we are still in the process of developing the Save Dual Fuel System for
Drive-by-Wire engines. For a description of these engines, see Products and
Technology, above.
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Results of Operations
Comparison of Twelve Month Periods Ended December 31, 1999 and December 31, 1998
The following table sets forth certain statement of operation items as a
percentage of net sales for the period indicated:
<TABLE>
<CAPTION>
Twelve Months Ended December 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales....................................... 100.0% 100.0% 560,124 539,443
Cost of Goods Sold.............................. 58.9 36.1 329,791 194,701
Gross Profit.................................... 41.1 63.9 230,333 344,742
Selling and Administrative...................... 123.8 127.4 693,379 687,420
Interest Expense................................ 5.9 2.7 33,013 14,483
Other Expense................................... 22.3 - 125,000 -
Income Tax...................................... - - - -
------- ------ --------- ---------
Income (Loss)................................... (110.9) (66.2) (621,059) (357,161)
======= ====== ========= =========
</TABLE>
Our revenues resulted mostly from sales of the Save Dual System Fuel
kits. About 60 Dual Fuel System Fuel kits, at prices ranging from about $4,000
to over $5,000 (depending on customers' needs and configurations) were sold in
each of 1998 and 1999. The remaining revenues stemmed from the sale of gasoline
bi-fuel conversion kits, part kits for dedicated diesel fuel vehicles,
installations of conversion kits and sales of fuel tanks.
However, while Net Sales increased 3% from 1998 to 1999, Cost of Goods
Sold increased by 69% in the same period. The increase in the Cost of Goods Sold
was primarily due to increased use of inventory during development, as well as
the greater consulting income we generated in 1998 than in 1999. Since our
consulting income is generated with less total associated costs than that of
product sales, the mix of consulting sales and product sales in each year helped
produce a lower Cost of Goods Sold in 1998 than in 1999. These were the primary
reasons that the Loss for 1999 (excluding Losses for Litigation) increased by
$138,898 or 39% over 1998.
Including Losses for Litigation (see, Other Expense, above), the Loss
for 1999 increased by $263,898 or 74% over 1998. The Losses for Litigation for
1999 comprise an accrual of $125,000 with respect to a lawsuit brought against
us by an independent contractor in connection with a project in Uzbekistan in
1997 and 1998. See Note 4 to the accompanying financial statements.
Selling and Administrative expense, which primarily included salaries,
employee benefits, consulting fees, transportation, rent, utilities,
professional fees, insurance and provision for doubtful accounts, changed little
from 1998 to 1999, from $687,420 to $693,379. However, the Provision for
Doubtful Accounts portion of the Selling and Administrative expense increased by
$73,338 from 1998 to 1999. At the same time, Interest Expense increased from
$14,483 in 1998 to $33,013 in 1999, a change of $18,530.
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Our losses in 1998 were funded by loans totaling $153,500, represented
by promissory notes payable in 18 months which bear interest at 9% and are
convertible to common stock at $4.00 per share. These lenders also received
57,400 warrants to purchase our common shares at $1.50 per share. Forty thousand
of such warrants expire on June 17, 2000 and 17,400 of such warrants expire on
December 15, 2000. As of the date of this filing, the principal of all such
loans have been paid in full. The losses were also funded by $105,000 paid in
capital from the sale of shares of common stock. In addition, in 1998, we
borrowed $50,000 as a revolving loan from Peachtree National Bank at an interest
rate of 8.75%. See Note 4 to the accompanying financial statements.
Our losses in 1999 were funded by loans totaling $150,000, represented
by promissory notes payable in 1 year, which bear interest at 12% and are
convertible to common stock at $0.75 per share, and by $133,000 paid in capital
from the sale of shares of common stock. In addition, we increased the revolving
loan from Peachtree National Bank by an additional $90,000 to a total of
$140,000 and the interest rate on the entire balance increased to 10.5% and is
payable on May 5, 2000. See Note 4 to the accompanying financial statements.
Since we are not liquid, if we are unable to raise additional funds by
either loans or the sale of securities this year or have a substantial increase
in sales, we may not be able to continue operations or may have to decrease
development and testing efforts.
On November 23, 1999, we entered into a Consulting Agreement with MBO,
Inc., a South Carolina Corporation, principally for the following purposes, to
raise up to $750,000 and to assist in marketing our products, provide financial
advice and help form strategic alliances.
During the first quarter of 1999, we acquired we entered into an
agreement with International Fuel Systems, Inc. ("IFS"), a Tennessee
corporation, and Lanier Davenport in memorializing the prior purchase of 600,000
shares and, in addition, for 600,000 additional shares to be issued upon certain
contingencies. As of March 6, 2000, 200,000 of the reserve shares have been
issued in exchange for payment of $155,000, one of such contingencies.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of December 31, 1999,
by (i) each of the Company's officers and directors; (ii) each person who is
known by the Company to own beneficially 5% or more of the Company's outstanding
Common Stock; and (iii) all officers and directors of the Company as a group:
26
<PAGE>
Name and Address of 5% Number of
Shareholders, Officers Shares
and Directors Owned(1) Percent
------------- -------- -------
Robby E. Davis /1 357,000 10.6%
Director, President and
Chief Executive Officer
4851 Ga. Hwy #85
Forest Park, GA 30297
Jeffrey Davis /1 357,000 10.5%
Director, Vice President
and Secretary
4851 Ga. Hwy #85
Forest Park, GA 30297
Ricky Davis /1 357,000 10.5%
Treasurer and Chief
Financial Officer
4851 Ga. Hwy #85
Forest Park, GA 30297
Kerry Davis /1 357,000 10.5%
4851 Ga. Hwy #85
Forest Park, GA 30297
Davis Family Trust /2 358,000 10.6%
C/0 Mark Crouch - Trustee
PO BOX 502287
Atlanta, GA 31150
Lanier M. Davenport 300,000 8.9%
PO BOX 178
Lookout Mountain, TN 37350
Edward C. Kramer - 0.0%
Director
Kramer & Kramer, LLP
708 Third Ave.
New York, NY 10017
All Officers and Directors 1,071,000 31.5%
1. Robby F. Davis, Jeffrey Davis, Ricky Davis and Kerry Davis are
siblings and children of Frank Davis (see Significant Consultant) and each
disavows beneficial ownership of, or control over, the shares of Common Stock
owned by the other siblings.
2. All members of the Davis family associated with Save disclaim
beneficial ownership or control over this trust.
27
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
----------------------
The following table sets forth the names, age, and position of each
director and executive officer of the Company.
Name Age Position and Office Held
---- --- ------------------------
Robby E. Davis 31 President, Chief Executive Officer and Director
Jeffrey F. Davis 36 Vice President, Secretary and Director
Ricky Davis 38 Treasurer and Chief Financial Officer
Edward C. Kramer 48 Director
----------------
Each of the above individuals, became an officer and director of the
Company in connection with its organization, except Edward C. Kramer who became
a director in 1998. The term of office of each officer and director is one year
and until his successor is elected and qualified.
BIOGRAPHICAL INFORMATION
------------------------
Set forth below is biographical information for each of the Company's
officers and directors.
Robby E. Davis. President, Chief Executive Officer and Director since 1996.
Prior to the formation of SAVE, Mr. Davis was employed by Combustion Labs, Inc.
for 10 years as a senior technician installing natural gas and dual fuel
conversion kits in diesel and gasoline vehicles. He is an ASSE Certified Natural
Gas Technician and has attended numerous business and technical seminars. Davis
studied Business Administration at Clayton State College.
28
<PAGE>
Jeffrey F. Davis. Vice President, Secretary and Director since 1996. Prior to
joining SAVE, Mr. Davis was employed by Clayton (Georgia) County, working
primarily in the Transportation and Development group. He holds an AA degree in
Business Administration from Clayton State College where he was named to the
Deans List.
Ricky Davis. Treasurer and Chief Financial Officer since 1996. Prior to joining
SAVE, Mr. Davis was employed by Combustion Labs, Inc. for three years as a
technician working with gasoline to natural gas conversions, for four years as
the Office Manager of a large mechanical contractor and ran his own
mechanical/electrical contracting business for 6 years. He studied Business
Management and Marketing at Griffin Area Tech, and has attended many seminars on
computer operations and accounting.
Edward C. Kramer. Director since 1998. Mr. Kramer is a partner of the New York
law firm of Kramer & Kramer. He received an A.B. degree from the University of
Pennsylvania in 1973 and a J.D. degree from the Columbia University School of
Law in 1996. He first became admitted to the New York Bar in 1997 and is
admitted to practice in the Southern and Eastern Districts of New York, the
Second Circuit Court of Appeals and the Supreme Court. Since 1991, Mr. Kramer
has practiced law as a partner of Kramer & Kramer.
REMUNERATION OF OFFICERS AND DIRECTORS
--------------------------------------
Robby E. Davis /1 $40,000/yr
Jeffrey Davis /1 $40,000/yr
Ricky Davis /1 $40,000/yr
1. These officers' remuneration has been the same for the past 3 fiscal years,
except that each of these officers received $2,000 bonuses in 1999. No officers
receive any benefits and have not received any benefits for the past 3 fiscal
years. For the past 3 fiscal years, there have not been, and currently there are
no, remuneration plans, deferred benefits plans, employment contracts, deferred
compensation plans, retirement plans, active stock option plans or other
compensation related plans in effect for the officers.
SIGNIFICANT CONSULTANT
----------------------
Frank Davis. Director of Product Research and Development since 1996. Mr. Davis
presently serves the Company in a consulting capacity responsible for
development of the Drive-By-Wire engine conversion kits and also providing
assistance in other business matters as necessary. In 1980, he founded and until
1996 served as Chief Executive Officer of Combustion Labs, Inc., where he
conducted research and development related to converting gasoline and diesel
engines to run on natural gas or bifuel. Frank Davis is the father of Robby F.
Davis, Jeffrey Davis and Ricky Davis. In the first quarter of 2000, Frank Davis
received 100,000 shares of common stock in satisfaction of over $100,000 in
consulting fees we owed him.
29
<PAGE>
RELATED PARTY TRANSACTIONS
All of the technology, know_how, devices and apparatus embodied in the
Patents and incorporated into the various products sold by us were developed and
patented by Frank Davis or Frank Davis and Robby E. Davis and assigned to the
Davis Family Trust (the "Trust"), an irrevocable trust established by Mr. Davis
for the benefit of his family and which is administered by an independent third
party. The Patents thereafter were assigned to the Trust, which such assignments
were recorded with the United States Patent and Trademark Office. Pursuant to an
agreement dated May 13, 1996 (the "License"), the Trust granted a license to us
to exploit the Patents for the life thereof (each Patent has a life of seventeen
years from the date of issue) plus any extension thereof, including the right to
market and sell any and all products developed therefrom or to grant, licenses
to others to manufacture and sell any such products, subject to the approval of
the trustee of the Trust. Our territory, though, was limited by the License to
the Continental United States, Mexico and Canada. In consideration of the
license, we are required to pay the Trust a license fee equal to $150,000 and a
royalty equal to $21 per unit sold during the life of the Patents, adjusted
annually to reflect increases in the consumer price index for the prior twelve
month period, except as hereinafter provided. Under the terms of the License,
the royalty shall be increased by an amount equal to $79. Said additional sum
shall be payable until such time as the amount generated from the sale of units
shall aggregate $150,000 plus accrued interest calculated at the rate of 12% per
annum. When said sum is paid, the royalty shall revert to the original royalty
as adjusted to reflect increases in the consumer price index.
On June 18, 1998, the License was amended to provide that the $150,000
promissory note would be satisfied by the payment of $42,576.10 on July 31, 1998
and the delivery to the Trust of 108,000 shares of our common stock.
On January 3, 2000, the License was amended, among other things, to
extend our licensed territory to include the continental United States of
America, Mexico, Canada, Egypt as of its borders on January 3, 2000, and South
America in exchange for 250,000 shares.
--------------------------------------------------------------------------------
Indemnification of Officers and Directors
Our certificate of incorporation provides that to the fullest extent permitted
by law, no director or officer personally liable to SAVE or its stockholders for
damages for breach of any duty owed to SAVE or its stockholders and that SAVE
may, in its by_laws or in any resolution of its stockholders or directors,
undertake to indemnify the officers and directors of SAVE against any
contingency or peril as may be determined to be in the best interests of SAVE,
and in conjunction therewith, to procure, at SAVE's expense, policies of
insurance. Georgia law, under which SAVE is incorporated, allows a corporation
30
<PAGE>
to indemnify its directors and officers if such director or officer acted in
good faith and in a manner such director or officer reasonably believed to be in
, or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. We intend to obtain a director and officer liability
insurance policy covering each of our directors and executive officers.
DESCRIPTION OF SECURITIES
General
Authorized Capital Stock.
We are authorized to issue an aggregate of 25,000,000 shares of capital
stock, consisting of 20,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. As of
the date hereof, 3,386,000 shares of Common Stock are outstanding and no shares
of Preferred Stock are outstanding.
Common Stock.
The shares of Common Stock outstanding are, and the Shares issued
hereby will be, legally issued, fully paid and non_assessable. Holders of the
Common Stock are entitled to one vote per share with respect to all matters that
are required by law to be submitted to a vote of stockholders. Holders of the
Common Stock are not entitled to cumulative voting. The Common Stock has no
preemptive, or sinking fund rights.
We have not paid any dividends on its Common Stock and do not intend to
pay dividends in the foreseeable future. Any earnings will be retained by us for
working capital. Future dividend policy will be determined by the Board of
Directors in light of financial need and earnings, if any, and other relevant
factors.
In the event of our liquidation, dissolution or winding up, holders of
Common Stock, subject to the rights of any series of Preferred Stock which may
be designated and issue in the future, are entitled to share ratably all our
remaining assets, after satisfaction of our liabilities.
Preferred Stock.
As of yet, the Preferred Stock has not been designated and no shares of
Preferred Stock have been issued. We have reserved the right for the Board of
Directors to designate the Preferred Stock into such classes or series as it
deems necessary. Any such series or classes of Preferred Stock which may be
designated by the Board of Directors in the future may effect the rights of the
class of Common Stock.
31
<PAGE>
Transfer Agent
The Transfer Agent for our Common Stock is Interwest Transfer Company,
located at 1981 East Murray, Holladay Road, Suite 100, Salt Lake City, Utah
84117.
Reports to Stockholders.
We intend to furnish to our stockholders, after the close of each
fiscal year, an annual report containing audited financial statements. In
addition, we will furnish our stockholders with quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
PLAN OF DISTRIBUTION
We will not be selling any of our shares through this registration,
since the main purpose of this registration is to register already issued
shares. Accordingly, we will not receive any funds or proceeds from this
registration. No privately held shares of the Company are being offered for sale
as part of this registration as well. However, individuals or entities, upon
this registration becoming effective, may sell all or part of their shares on
the open market from time to time. These individuals and entities substantially
are Lanier Davenport - 200,000 Shares (see Section 26 (v)), Davis Family Trust -
250,000 Shares (see Section 26(xi)), Bressner Group, Ltd. - 100,000 Shares (see
Section 26(xiii)) and Frank Davis - 100,000 Shares (see Section 26(xii)).
However, if the holders of warrants to purchase common stock, at some point in
time, exercise the warrants, the holders will pay an exercise price to us. We
are required to pay all fees and expenses incident to the registration of the
shares.
LEGAL MATTERS
On November 24, 1999 a lawsuit was served against us in the State Court
of Clayton County, State of Georgia, File No.99-CV-04454-E, entitled Roger
Shugart v. Save On Energy, Inc. f/k/a Electronic Fuel Control, Inc.. The
Plaintiff seeks $120,000 plus interest stemming from a personal services
agreement between Plaintiff and us for certain services to be rendered in
connection with a fuel conversion project in Uzbekistan in 1997 and 1998. We
intend to bring into the lawsuit or arbitration, as the case may be, as a
third-party defendant, American Engineering Corporation, on a claim for
indemnification. See, Management's Discussion and Analysis and Footnote 10 to
the attached financial statements for 1998 and 1999.
32
<PAGE>
EXPERTS
The financial statements for the fiscal years ended December 31, 1999 and
December 31, 1998 included in this prospectus have been so included in reliance
on the report of Jack Kane & Company, P.C., independent accountants, given on
the authority of such firm as experts in auditing and accounting.
WHERE YOU CAN GET MORE INFORMATION
This prospectus is part of a registration statement filed with the Securities
and Exchange Commission. At your request, we will provide you, without charge, a
copy of any exhibits to the registration statement. If you would like more
information, write or call us at:
SAVE ON ENERGY, INC.
Ste. 211 4851 Georgia Hwy 85
Forest Park Georgia 30050
(404) 765-0131
We intend to provide to our stockholders annual reports containing audited
financial statements and other appropriate reports. In addition, we file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any reports,
statements or other information we file at the Securities and Exchange
Commission's public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing to the Securities
and Exchange Commission. Please call the Securities and Exchange Commission at
1_800_SEC_0330 for further information on the operation of the public reference
rooms. Our Securities and Exchange Commission filings are also available to the
public free of charge on the Securities and Exchange Commission's Internet site
at http:\\www.sec.gov.
Save On Energy, Inc.
Index to Consolidated Financial Statements
Audited
-------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accounts....................................................F_1
Balance Sheets as of December 31, 1999 and December 31, 1998.......................................F_5
Statement of Operations for the fiscal years ended
December 31, 1999 and December 31, 1998...................................................F_6
Statement of Stockholders' Equity for the
fiscal years ended December 31, 1999 and December 31, 1998................................F_7
Statement of Cash Flows for the fiscal years ended
December 31, 1999 and December 31, 1998...................................................F_8
Notes to Financial
Statements.........................................................................................F_10
Supplementary
Schedules..........................................................................................F-17
33
<PAGE>
Unaudited
---------
Balance Sheets as of March 31, 2000................................................................FU_3
Statement of Operations for period ended March 31, 2000............................................FU_5
Statement of Stockholders' Equity for the period ended March 31, 2000..............................FU_6
Statement of Cash Flows for the period ended March 31, 2000........................................FU_7
Notes to Financial Statements......................................................................FU-8
</TABLE>
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
DECEMBER 31, 1999
F-1
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Report of Independent Accountants
Financial Statements
Balance Sheets Exhibit "A"
Statement of Operations Exhibit "B"
Statement of Stockholders' Equity Exhibit "C"
Statement of Cash Flows Exhibit "D"
Notes to Financial Statements
Supplementary Information
Cost of Sales Schedule "1"
Operating Expenses Schedule "2"
Other Deductions Schedule "3"
F-2
<PAGE>
To the Stockholders of
Save On Energy, Inc.
4851 Georgia Highway 85
Forest Park, Georgia 30050
Report of Independent Accountants
---------------------------------
We have audited the accompanying balance sheets of Save on Energy,
Inc.,(Formerly Electronic Fuel Control, Inc.), a development stage company as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Save on Energy, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
F-3
<PAGE>
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in Note 7 of the
financial statements, the company has suffered recurring losses from operations
in its developmental stage. This condition raises substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 7. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of cost of sales and
operating expenses are presented for the purpose of additional analysis and are
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
JACK KANE & COMPANY, P.C.
January 21, 2000
F-4
<PAGE>
EXHIBIT "A"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash $ 135,766 $ 21,914
Accounts receivable, net (Note 2) 22,773 92,168
Inventory 110,830 214,949
---------- ----------
Total current assets 269,369 329,031
---------- ----------
Property, plant and equipment
Equipment and leasehold improvements 91,624 91,624
Less: accumulated depreciation 58,578 41,261
---------- ----------
Net fixed assets 33,046 50,363
---------- ----------
Other assets
Long term notes receivable 22,500 88,728
Licenses, net (Note 3) 106,324 117,785
---------- ----------
Total other assets 128,824 206,513
---------- ----------
Total assets $ 431,239 $ 585,907
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and loans payable (Note 4) $ 443,500 $ 203,500
Accounts payable 83,145 151,031
Taxes payable 80,558 47,874
Accrued loss on litigation (Note 11) 125,000 -
Accrued expenses 44,507 40,914
---------- ----------
Total current liabilities 776,710 443,319
---------- ----------
Commitments and contingencies (Note 8)
Stockholders' equity (Note 7)
Preferred stock, $.01 par value,
authorized 5,000,000 shares,
none issued $ - $ -
Common stock, $.001 par value,
authorized 20,000,000 shares,
2,136,000 shares issued 2,136 2,136
Additional paid-in capital 1,164,349 1,031,349
Deficit accumulated during the
development stage (1,511,956) (890,897)
---------- ----------
Total stockholders' (deficit) equity (345,471) 142,588
---------- ----------
Total liabilities and
stockholders' equity $ 431,239 $ 585,907
========== ==========
The accompanying notes to the financial statements are an integral part of these
statements.
F-5
<PAGE>
EXHIBIT "B"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
1999 1998
---------- ----------
Sales $ 560,124 $ 539,443
Cost of sales (Schedule "1") 329,791 194,701
---------- ----------
Gross profit 230,333 344,742
Operating expenses (Schedule "2") 693,379 687,420
---------- ----------
Operating loss (463,046) (342,678)
Other income and expense (Schedule "3") 158,013 14,483
---------- ----------
Net loss $ (621,059) $ (357,161)
========== ==========
Net loss per weighted average share,
basic $(.17) $(.13)
===== =====
Net loss per weighted average share,
diluted $(.16) $(.12)
===== =====
Weighted average shares, basic 2,972,400 2,841,367
Weighted average shares, diluted 3,033,530 2,858,405
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-6
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31,
<TABLE>
<CAPTION>
Common
Stock
Shares Amount
------ ------
<S> <C> <C>
Balance, January 1, 1998 2,136,000 $ 2,136
Increase in additional paid in capital - -
Net loss - -
--------- -------
Balance, December 31, 1998 2,136,000 2,136
Increase in additional paid in capital - -
Net loss - -
--------- -------
Balance, December 31, 1999 2,136,000 $ 2,136
========= =======
Additional disclosure for development stage companies
Common stock issued:
At par 1,536,000 $ 1,536
For services 416,000 416
From private offering 184,000 184
--------- -------
2,136,000 $ 2,136
========= =======
The accompanying notes to the financial statements are an integral part of these
statements.
</TABLE>
F-7
<PAGE>
EXHIBIT "C"
Deficit
<TABLE>
<CAPTION>
Accumulated
Additional During
Paid-in Development
Capital Stage
------- -----
<S> <C> <C>
$ 830,849 $ (533,736)
200,500 -
- (357,161)
---------- -----------
1,031,349 (890,897)
133,000 -
- (621,059)
---------- -----------
$1,164,349 $(1,511,956)
========== ===========
$ -0-
20,384
1,143,965
$1,164,349
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-8
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SUPPLEMENTARY INFORMATION
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
SCHEDULE "1": COST OF SALES
Inventory at beginning $214,949 $ 98,901
Purchases and freight 225,672 310,749
-------- --------
440,621 409,650
Inventory at end 110,830 214,949
-------- --------
Cost of sales $329,791 $194,701
======== ========
SCHEDULE "2": OPERATING EXPENSES
Salaries and wages $175,679 $210,088
Payroll taxes 13,007 14,313
Employee benefits 3,211 13,374
Consulting fees
and outside services 108,053 81,238
Rent 25,950 26,053
Light, heat and power 14,395 14,812
Repairs and maintenance 1,461 3,149
Factory supplies and expenses 10,067 6,842
Research and product testing 3,155 10,103
Insurance 22,841 38,393
Depreciation 17,316 22,699
Amortization of license 11,461 11,462
Provision for doubtful accounts 141,156 67,818
Licenses and permits 358 2,136
Royalties and patents 15,978 12,286
Auto and truck expense 2,996 9,387
Sales promotion, advertising
and public relations 5,847 19,367
Professional fees 35,910 55,567
Travel and transportation 47,931 33,121
Telephone 13,556 14,943
Entertainment 4,398 2,675
Office supplies and expense 14,602 10,551
Dues and subscriptions 2,814 2,253
Sundry taxes 1,061 2,445
Miscellaneous expense 176 2,345
-------- --------
Total operating expenses $693,379 $687,420
======== ========
SCHEDULE "3": INCOME AND EXPENSE
Loss on litigation $125,000 $ -
Interest expense 35,489 21,398
Interest income (2,476) (6,915)
-------- --------
Total other income
and expense $158,013 $ 14,483
======== ========
</TABLE>
F-9
<PAGE>
EXHIBIT "D"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss $(621,059) $(357,161)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 28,778 34,161
Changes in assets and liabilities:
Decrease in accounts receivable,
net 69,395 15,771
Decrease (increase) in inventory 104,119 (116,048)
Decrease in other current assets - 1,118
Decrease (increase) in
long term notes receivable 66,228 (24,967)
(Decrease) increase in
accounts payable (67,886) 108,993
Increase in taxes payable 32,684 27,684
Increase in accrued
litigation loss 125,000 -
Increase (decrease) in
accrued expenses 3,593 (61,007)
-------------------------------
Net cash used in
operating activities (259,148) (371,456)
--------- ---------
Cash flows from investing activities
Purchase of fixed assets - (10,193)
Proceeds from sale of fixed assets - 8,800
--------- --------------------
Net cash used in
investing activities - (1,393)
--------- ---------
</TABLE>
<PAGE>
EXHIBIT "D"
(Continued)
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from financing activities
Net proceeds from line of credit 90,000 50,000
Proceeds from convertible
notes payable 150,000 153,500
Reduction of notes payable in
debt for equity exchange - (124,226)
Increase in additional
paid in capital 133,000 200,500
----------- ----------
Net cash provided by
financing activities 373,000 279,774
----------- ----------
Net increase decrease
in cash 113,852 (93,075)
Cash, at beginning 21,914 114,989
----------- ----------
Cash, at end $ 135,766 $ 21,914
=========== ==========
Supplementary information
Cash paid during the year for:
Interest $ 29,290 $ 9,688
Income taxes - -
Additional disclosure for development state companies
Cumulative amounts since inception:
Net cash used in
operating activities $(1,209,834) $ (950,686)
Net cash used in
investing activities (93,825) (93,825)
Net cash provided by
financing activities 1,439,425 1,066,425
----------- ----------
$ 135,766 $ 21,914
=========== ==========
</TABLE>
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Save on Energy, Inc. ("the Company") was incorporated in Georgia on April
1, 1996 to manufacture and market retrofit systems for the conversion of
gasoline and diesel engines to non-petroleum based fuels such as compressed
natural gas. The Company acquired the exclusive right in North America to
exploit the patents relating to the retrofit devices pursuant to a license
("the License) acquired on June 1, 1996. On January 3, 2000, the license
was restricted to the United States, Canada, Mexico and the Nation of Egypt
in exchange for a modification of the appertaining royalty agreement and an
issuance of 250,000 shares of additional stock.
The Company is a Development Stage Company as defined in Financial
Accounting Standards Board Statement No. 7. During 1999 and 1998, the
Company devoted substantially all of its efforts to establishing a new
business.
Basis of Presentation
---------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and results of operations for the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
----------------------------
The Company occasionally maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No. 105 identifies
these items as a concentration of credit risk requiring disclosure,
regardless of the degree of risk. The risk is managed by maintaining all
deposits in high quality financial institutions.
F-10
<PAGE>
Cash and Cash Equivalents
-------------------------
For the purpose of reporting cash flows, cash includes cash on hand and
savings accounts.
Inventory
---------
Inventory is stated at the lower of cost, determined on the first-in,
first-out, (FIFO) method, or market.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation is provided
for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives principally by the straight
line method. Maintenance, repairs and minor improvements are charged to
operations as incurred. Renewals and betterments, which materially increase
the value of property, are capitalized.
Income Taxes
------------
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes. Deferred taxes are recognized for differences between the basis of
assets and liabilities for financial statements and income tax purposes.
The differences related primarily to allowance for doubtful receivables
(deductible for financial statement purposes but not for income tax
purposes). The deferred tax assets and liabilities represent the future tax
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes are also recognized for operating losses and tax credits
that are available to offset future taxable income, and reduced by the
portion of deferred taxes not likely to be realized
2. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
1999 1998
-------- --------
Accounts receivable $ 23,218 $158,794
Interest receivable 4,180 7,499
Other receivables 375 2,375
-------- --------
27,773 168,668
Less: allowance for
doubtful accounts 5,000 76,500
-------- --------
$ 22,773 $ 92,168
==========================
<PAGE>
3. LICENSES
The License gives the Company the exclusive North American rights to
utilize and exploit five patents including marketing and selling products
and granting sublicenses to others. In addition, the Company has the first
option to acquire the license for the same patents in other countries where
it has not yet been granted. The underlying patents were developed by the
Company's President or the Company's Chief Consultant and have since been
assigned to a trust ("the Trust" or "Licensor"). the beneficiaries of which
are all related to the Chief Consultant. In consideration for the License,
the Company executed a promissory note for $150,000 and is required to pay
a royalty of $21 per patent per unit sold during the life of four of the
patents and $150 per unit sold on a fifth patent for a dual fuel control
system, adjusted annually to reflect changes in the consumer price index.
Substantially all of the units sold require payments under two patents.
Under the terms of the License, the royalty shall be increased by an amount
equal to $79 (the "Additional Royalty") per patent per unit. The Additional
Royalty shall be payable until such time as the amount of Additional
Royalty generated from the sale of units shall aggregate $150,000 plus
accrued interest calculated at the rate of 12% per annum. When said sum is
paid, the royalty shall revert to the original royalty as adjusted to
reflect increases in the consumer price index.
The promissory note was marked paid and returned on June 18, 1998 in
consideration of an issuance of 108,000 shares of the company's stock.
The license agreement was amended on January 3,2000. The amendment
restricts the license rights to the United States, Canada, Mexico and
Egypt, and eliminates all quotas as specified in the original agreements.
In exchange for this amendment the company will issue 250,000 shares of
voting stock to the trust.
<PAGE>
4. NOTES AND LOANS PAYABLE
An analysis of notes and loans payable is set forth below:
1999 1998
-------- --------
A. Revolving loan payable to Peachtree
National Bank, dated 1998 plus
interest at 8.75%, renewed in 1999
at 10.5% per annum, payable on
May 5, 2000. The bank holds
security interest in the company's
equipment, accounts receivable and
shares in company stock. $140,000 $ 50,000
B. Convertible notes payable to
holders of Warrants, dated 1998,
plus interest at 9% convertible
at $4.00 per share, payable in
18 months. 153,500 153,500
C. Convertible notes payable dated
1999 plus interest at 12%
convertible at $.75 per share,
payable in one year. 150,000 -
-------- --------
$443,500 $203,500
======== ========
5. INCOME TAXES
DEFERRED TAX ASSETS ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
Net
Allowance Operating
For Loss
Bad Debts Carryforwards Total
--------- ------------- -----
<S> <C> <C> <C>
Balance at December 31, 1997:
As previously reported $ 4,000 $209,600 $213,600
Change during 1998 26,600 140,700 167,300
-------- -------- -------
Balance at
December 31, 1998 30,600 350,300 380,900
Change during 1999 (28,600) 248,500 219,900
-------- ------- --------
2,000 598,800 600,800
Valuation allowance 2,000 598,800 600,800
-------- ------- -------
Balance at
December 31, 1999 $ -0- $ -0- $ -0-
======== ======== ========
</TABLE>
<PAGE>
The Company's net operating loss carry forwards of approximately $1,372,200
expire as follows:
Year Amount
2011 $ 246,200
2012 277,800
2013 351,900
2014 496,300
----------
$1,372,200
6. EARNINGS (LOSS) PER SHARE
Basic net earnings per share is computed by dividing net earnings available
to common stockholder (numerator) by the weighted average number of common
shares outstanding (demoninator) during the period and excludes the
dilutive effect of stock options. Diluted net earnings (loss) per share
gives effect to all potentially dilutive common shares outstanding during
the period.
7. STOCKHOLDERS' EQUITY
Compensation Plans
------------------
The Board of Directors and stockholders of the Company have ratified and
approved the Electronic Fuel Control, Inc. 1996 Stock Option Plan (the
"Plan" for which the Company has reserved 500,000 shares of Common stock
for issuance upon the exercise of qualified and non-qualified stock options
granted under the Plan to employees, advisors, consultants and Directors of
the Company at prices and on terms which have not been determined. As of
December 31, 1999 no options have been issued under the Plan.
On April 29, 1998, as consideration for consulting services with regard to
raising capital from sales in the United States and abroad, the Company
issued warrants which entitle the holders thereof, subject to the
provisions of the warrants, to purchase an aggregate of 252,500 shares of
the Company's Common Stock for $1.00 per share. These warrants expire on
April 29, 2003.
<PAGE>
In June, 1998, in conjunction with a convertible debt offer (Note 4), the
Company issued warrants which entitle the holders thereof, subject to the
provisions of the warrants, to purchase 60,000 shares of the Company's
Common Stock for $1.50 per share. These warrants expire in June, 2000.
In December 1998, in conjunction with a convertible debt offer (Note 4),
the Company issued warrants which entitle the holders thereof, subject to
the provisions of the warrants, to purchase 24,400 shares of the Company's
Common Stock for $1.50 per share. These warrants expire in December, 2000.
On April 29, 1998, the Company filed Articles of Amendment of Certificate
of Incorporation in the office of the Secretary of State of Georgia
changing its name to Save On Energy, Inc.
8. COMMITMENTS AND CONTINGENCIES
Minimum Royalties
-----------------
Pursuant to the License (Note 3), the Company had committed to sell a
minimum number of units each license year ending on May 31. The License
provides for a minimum number of units to be sold and royalties to be paid
each year beginning with 2,500 units in the first year and increasing one
thousand units each year through the eighth year. In the ninth year and
thereafter a minimum of 110,000 units were to be sold.
In June, 1997, the Licensor agreed to add the quotas shortfall from the
first year to the second year, increasing the second year quota to 5,882
units. In June, 1998, the Licensor agreed to suspend the quotas for a
period of three (3) years, i.e. there would be no quotas for the Company to
meet until the license year beginning June 1, 2001 at which time the quotas
would start at 2,500 units per year and continue as is now set forth in the
License Agreement. The licensor had the right to terminate the License if
the quota in any year was not met.
<PAGE>
As per Note 3, the quotas have been stricken from the license agreement in
return for further territorial restrictions and issuance of voting stock.
Consulting Agreement
--------------------
The Company had a three-year consulting agreement with its Chief Consultant
commencing June 1, 1996. The agreement provides for compensation of $75,000
in the first year, $80,000 in the second year and $85,000 in the final year
of the agreement. Inasmuch as the Company has been unable to maintain the
agreement, the Chief Consultant has waived the arrears. The agreement
lapsed during 1999 and a further contract has yet to be signed.
Industrial Lease
----------------
The lease on the Company's office and warehouse space expires February 29,
2000.
Going Concern
-------------
As shown in the accompanying financial statements, the Company incurred a
net loss of $496,059 during the year ended December 31, 1999, and as of
that date, the Company's current liabilities exceeded its current assets by
$382,341 and its total liabilities exceeded its total assets by $220,471.
These factors create an uncertainty about the Company's ability to continue
as a going concern. Management of the Company is developing a plan to
reduce its liabilities by restructuring its debts and converting a
substantial portion into equity, and issuance of additional stock to
shareholders. The ability of the Company to continue as a going concern is
dependent on the plan's success. The financial statements do not include
any adjustments that might be necessary if the Company is unable to
continue as a going concern.
9. RELATED PARTY TRANSACTIONS
During 1998 and 1999, the Company shared general overhead with Combustion
Labs, Inc., a prior licensee, controlled by the Davis Family Trust and its
beneficiaries who are officers of the Company. In addition, the Company
licenses proprietary technology from the Davis Family Trust.
<PAGE>
10. PRIOR PERIOD ADJUSTMENTS
The Company's previously issued 1998 financial statements have been
corrected in the current year as a result of certain disclosures. This
resulted in the following changes to accumulated deficit and the related
operating results.
Also corrected was a misstatement of capital stock issued to a prospective
key employee as an inducement to join the Company. The stock was recorded
but never issued inasmuch as the employee reneged and was never hired.
Accumulated
Deficit Net Loss
------- --------
As previously reported,
December 31, 1998 $(859,583) $(325,607)
Underaccrual of professional fees
and consultant fees (26,256) (26,256)
Underaccrual of royalty fees
payable to licensor (5,298) (5,298)
Cancellation of unissued
capital stock 240 -
--------- ---------
As restated, December 31, 1998 $(890,897) $(357,161)
========= =========
The Company's 1998 balance sheet has been corrected to reflect an agreement
with the Davis Family Trust whereby the trust agreed to reduce the
Company's liability by $80,650 in exchange for 108,000 shares.
11. LITIGATION LOSS
In 1999 an independent consultant filed suit against the Company to recover
fees and damages of $125,000 inclusive of interest to December 31, 1999.
The consultant's complaint originated from a contract to provide personal
services and expertise, in the field of diesel and gasoline to natural gas
conversions, on a project that occured in 1997 and 1998 in the country of
Uzbekistan. The Company contracted with the consultant at the direction and
benefit of another party who was the primary contractor of the project.
Although the Company has defenses against the plaintiff and will have a
recovery claim against the primary contractor, it is management's opinion,
supported by counsel, that a loss has been sustained in the period.
Accordingly, they have accrued the loss as prescribed by Statement of
Financial Accounting Standards No. 5, Accounting for Contingencies.
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
INDEX TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
Financial Statements
Balance Sheets Exhibit "A"
Statement of Operations Exhibit "B"
Statement of Stockholders' Equity Exhibit "C"
Statement of Cash Flows Exhibit "D"
Notes to Financial Statements
Supplementary Information
Cost of Sales Schedule "1"
Operating Expenses Schedule "2"
Other Deductions Schedule "3"
The accompanying notes to the financial statements are an integral part of these
statements.
EXHIBIT "A"
<TABLE>
<CAPTION>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
(Unaudited) (Audited)
3/31/00 12/31/99
------- --------
ASSETS
<S> <C> <C>
Current assets
Cash $ 71,722 $ 135,766
Accounts receivable, net 33,764 22,773
Inventory 98,703 110,830
---------- ----------
Total current assets 204,189 269,369
---------- ----------
Property, plant and equipment
Equipment and leasehold improvements 98,104 91,624
Less: accumulated depreciation 62,576 58,578
---------- ----------
Net fixed assets 35,528 33,046
---------- ----------
Other assets
Long term notes receivable 22,500 22,500
Licenses, net 127,653 106,324
---------- ----------
Total other assets 150,153 128,824
---------- ----------
Total assets $ 389,870 $ 431,239
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and loans payable $ 390,000 $ 443,500
Accounts payable 46,512 83,145
Taxes payable 93,880 80,558
Accrued loss on litigation (Note 5) 125,000 125,000
Accrued expenses 26,998 44,507
---------- ----------
Total current liabilities 682,390 776,710
---------- ----------
Commitments and contingencies (Note 3)
Stockholders' equity
Preferred stock, $.01 par value,
authorized 5,000,000 shares,
none issued - -
Common stock, $.001 par value,
authorized 20,000,000 shares, issued
3,386,000 and 2,136,000 shares 3,386 2,136
Additional paid-in capital 1,431,046 1,164,349
Deficit accumulated during the
development stage (1,726,952) (1,511,956)
---------- ----------
Total stockholders' (deficit) equity (292,520) (345,471)
---------- ----------
Total liabilities and
stockholders' equity $ 389,870 $ 431,239
========== ==========
</TABLE>
<PAGE>
EXHIBIT "B"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Sales $ 47,274
Cost of sales (Schedule "1") 24,817
----------
Gross profit $ 22,457
Operating expenses (Schedule "2") 225,518
----------
Operating loss (203,061)
Other income and expense (Schedule "3") (11,935)
----------
Net loss $ (214,996)
==========
Net loss per weighted average share, basic $(.05)
Net loss per weighted average share, diluted $(.05)
Weighted average share, basic 4,165,500
Weighted average share, diluted 4,365,500
The accompanying notes to the financial statements are an integral part of
these statements
</TABLE>
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Common
Stock
Shares Amount
------ ------
<S> <C> <C>
Balance, January 1, 2000 2,136,000 $ 2,136
Proceeds from issuance of common stock 1,250,000 1,250
Net loss - -
---------- -------
Balance, March 31, 2000 3,386,000 $ 3,386
========== =======
Additional disclosure for development stage companies
Common stock issued:
At par 1,536,000 $ 1,536
For services 866,000 866
From private offering 984,000 984
---------- -------
3,386,000 $ 3,386
========== =======
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements
<PAGE>
EXHIBIT "C"
Deficit
Accumulated
Additional During
Paid-in Development
$1,164,349 $(1,511,956)
266,697 -
- (214,996)
---------- -----------
$1,431,046 $(1,726,952)
========== ============
$ -0-
133,964
1,297,082
$1,431,046
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SUPPLEMENTARY INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
SCHEDULE "1": COST OF SALES
Inventory at beginning $110,830
Purchases and freight 12,690
--------
123,520
Inventory at end 98,703
--------
Cost of sales $ 24,817
========
SCHEDULE "2": OPERATING EXPENSES
Salaries and wages $ 40,943
Payroll taxes 4,904
Employee benefits 438
Consulting fees
and outside services 61,240
Rent 6,938
Light, heat and power 2,995
Repairs and maintenance 215
Factory supplies and expenses 3,110
Research and product testing 4,476
Insurance 10,901
Depreciation 3,997
Amortization of license 3,672
Bad debts 10,362
Royalties 666
Auto and truck expense 175
Sales promotion, advertising
and public relations 6,850
Professional fees 19,226
Travel and transportation 27,621
Telephone 4,494
Entertainment 3,148
Office supplies and expense 2,385
Dues and subscriptions 324
Bank fees and credit card charges 2,998
Miscellaneous expense 3,440
--------
Total operating expenses $225,518
========
SCHEDULE "3": INCOME AND EXPENSE
Interest expense $ 12,279
Interest income (344)
--------
Total other income
and expense $ 11,935
========
</TABLE>
<PAGE>
EXHIBIT "D"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities
Net loss $(214,996)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 7,669
Changes in assets and liabilities:
Increase in accounts receivable,
net (10,991)
Decrease in inventory 12,127
Decrease in accounts payable (36,633)
Increase in taxes payable 13,322
Decrease in accrued expenses (17,509)
---------
Net cash used in
operating activities $(247,011)
---------
Cash flows from investing activities
Purchase of fixed assets (6,480)
---------
Cash flows from financing activities
Proceeds from convertible
notes payable 100,000
Payment of notes payable (153,500)
Increase in additional
paid in capital 241,947
Issuance of capital stock 1,000
-----------
Net cash provided by
financing activities 189,447
--------
Net decrease in cash (64,044)
Cash, at beginning 135,766
----------
Cash, at end $ 71,722
==========
<PAGE>
EXHIBIT "D"
(Continued)
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Supplementary information
Cash paid during the year for:
Interest $ 6,194
Income taxes -
Additional disclosure for development state companies
Cumulative amounts since inception:
Net cash used in
operating activities $(1,456,845)
Net cash used in
investing activities (100,305)
Net cash provided by
financing activities 1,628,872
-----------
$ 71,722
===========
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our certificate of incorporation provides that to the fullest extent permitted
by law, no director or officer shall be personally liable to SAVE or its
stockholders for damages for breach of any duty owed to SAVE or its stockholders
and that SAVE may, in its by_laws or in any resolution of its stockholders or
directors, undertake to indemnify the officers and directors of SAVE against any
contingency or peril as may be determined to be in the best interests of SAVE,
and in conjunction therewith, to procure, at SAVE's expense, policies of
insurance. Georgia law, under which SAVE is incorporated, allows a corporation
to indemnify its directors and officers if such director or officer acted in
good faith and in a manner such director or officer reasonably believed to be in
, or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. We intend to maintain a director and officer liability
insurance policy covering each of our directors and executive officers.
Item 25. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all expenses
payable by the Registrant in connection with the registration of the shares of
common stock offered hereby, other than underwriting discounts and commissions:
Registration Fee__Securities and Exchange Commission $ 2,182
*Accountants' fees and expenses .............................$20,000
*Legal fees and expenses ....................................$20,000
*Printing and EDGAR expenses ................................$10,000
*Miscellaneous ..............................................$ 1,000
-------
Total ..............................................$53,182
=======
34
<PAGE>
* Estimate
Item 26. Recent Sales of Unregistered Securities
Pursuant to Section 4(2) of the Securities Act, SAVE issued the following:
(i) In June 1998, two qualified investors, made loans to us of $55,000,
$110,000, total. Each investor received a promissory note convertible for common
stock at $4.00 per share, along with 20,000 warrants, each warrant entitling the
holder to purchase 1 share of common stock at a price of $1.50. The warrants
expire in June 2000. As of the date of this filing, the promissory notes have
been satisfied and will not be converted into common stock. Commissions were
paid in the form of 20,000 warrants, total, each warrant entitling the holder to
purchase 1 share of common stock at a price of $1.50. The warrants expire in
June 2000. There was no principal underwriter.
(ii) In December 1998, a qualified investor made a loan to us of $43,500. The
investor received a promissory note convertible for common stock at $4.00 per
share, along with 17,400 warrants, each warrant entitling the holder to purchase
1 share of common stock at a price of $1.50. The warrants expire in December
2000. As of the date of this filing, the promissory note has been satisfied and
will not be converted into common stock. Commissions were paid in the form of
7,000 warrants, total, each warrant entitling the holder to purchase 1 share of
common stock at a price of $1.50. The warrants expire in December 2000. There
was no principal underwriter.
(iii) In 1999, qualified investors made loans to us of $150,000. Each investor
received a 1 year promissory note convertible for common stock at $0.75 per
share. There was no principal underwriter.
(iv) In January 2000, Lanier Davenport, a qualified investor, as well as a
consultant to us, received (Mr. Davenport and his designees) 600,000 common
shares in exchange for services directly to us, services in connection with
International Fuel Systems, Inc. and for direct investments of $233,500 made in
1998 and 1999. There was no principal underwriter.
(v) In January and February 2000, Lanier Davenport, a qualified investor, as
well as a consultant to us, purchased 200,000 shares of common stock for an
investment of $150,000, i.e., $0.75 per share. Such funds were used to retire
the promissory notes discussed in (i) and (ii), above. There was no principal
underwriter.
(vi) In 2000, qualified investors made loans to us of $229,900. Each investor
received a 1 year promissory note convertible for common stock at $0.75 per
share. Commissions were paid in the amount of $20,000 (See Exhibit 10.4).
(vii) In 1996 and 1997, we issued 580,000 shares of common stock to qualified
investors under Rule 504 of Regulation D the Securities Act of 1933, as amended.
Russo Securities, Inc. was the placement agent. The underwriter's discount was
10% of the $5.00 per share selling price.
35
<PAGE>
(viii) In 1996, 20,000 shares of common stock were issued to John I. Davis for
services.
(ix) In 1997, 1,428,000 shares of common stock were issued to Robby E. Davis,
Ricky Davis, Jeffrey Davis and Kerry Davis for services, each receiving 357,000
shares.
(x) In 1997, the Davis Family Trust, in connection with a license agreement
respecting certain patents, received 108,000 shares of common stock.
(xi) In 2000, the Davis Family Trust, in connection with an amendment to a
license agreement respecting certain patents, received 250,000 shares of common
stock.
(xii) In 2000, 100,000 shares of common stock were issued to Frank Davis or his
designee in lieu of past salary.
(xiii) In 2000, 100,000 shares of common stock were issued to the Bressner
Group, Ltd. For services.
(xiv) In 1998, 27,000 warrants were issued for commissions with respect to items
(i) and (ii), above, each warrant entitling the holder to purchase 1 share of
common stock at a price of $1.50 per share. These warrants expire in 2000.
(xv) In 1998, 252,500 warrants were issued for services, each warrant entitling
the holder to purchase 1 share of common stock at a price of $1.00 per share.
These warrants expire in 2003.
(xvi) In 2000, 62,500 warrants were issued for services, each warrant entitling
the holder to purchase 1 share of common stock at a price of $1.00 per share.
These warrants expire in 2005.
II_1
Item 27. Exhibits
The following exhibits are filed as part of this registration
statement. Exhibit numbers correspond to the exhibit requirements of Regulation
S_B.
36
<PAGE>
Number Description
------ -----------
3.1 Articles of Incorporation of Save On Energy , Inc.
3.2 Amendment to Articles of Incorporation of Save On Energy , Inc.
3.3 By_laws of Save On Energy, Inc.
4.1 Specimen common stock certificate.
10.1 May 13, 1996 License Agreement By and Between the Davis Family Trust
and Electronic Fuel Control, Inc. ("License Agreement").
10.2 June 18, 1998 Amendment to License Agreement.
10.3 January 3, 2000 Amendment to License Agreement.
10.4 November 23, 1999 Consulting Agreement between Save on Energy, Inc.
and MBO, Inc.
10.5 April 29, 1996 Exclusive Supply Agreement between Ambac International
Corporation and Electronic Fuel Control, Inc.
10.6 Agreement re: IFS and Davenport
23.2 Consent of Certified Public Accountant
II_2
Item 28. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post_effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10 (a) (3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information set forth in the Registration Statement,
and (iii) include any additional or changed material information with respect to
the plan of distribution.
2. That for the purpose of determining any liability under the Securities Act,
each post_effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post_effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4. That for the purpose of determining any liability under the Securities Act,
to treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant under Rule 424(b)(1) or (4), or 497(h)
under the Securities Act as part of this Registration Statement as of the time
the Commission declared it effective.
37
<PAGE>
Insofar as indemnification for liabilities under the Securities Act 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 issuer.
II_3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB_2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Atlanta,
State of Georgia, on June 23, 2000.
SAVE ON ENERGY, INC.
By: /s/ Robby E. Davis
------------------
President and Directors and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jeffrey Davis and Ricky Davis, and either
of them, his true and lawful attorneys_in_fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post_effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys_in_fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming all
that said attorneys_in_fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on June 23, 2000.
Signature Title
----------- -----
/s/ Robby E. Davis President, Chief Executive Officer and Director
---------------------------
Robby E. Davis
/s/ Jeffrey Davis
---------------------------
Jeffrey Davis Vice President, Secretary and Director
/s/ Ricky Davis
---------------------------
Ricky Davis Principal Financial Officer, Principal
Accounting Officer, Treasurer and
Chief Financial Officer
39
