As filed with the Securities and Exchange Commission on January 16, 2001.
Registration No. 333-33134
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2 AMENDMENT 6
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SAVE ON ENERGY, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 336300 58-2267238
--------------------------------------------------------------------------------
(State or Other Jurisdiction of (Primary Standard (IRS Employer
Incorporation or Organization Classification Identification Number)
Code Number)
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)
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. |_|
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 share (1) price (2) fee
=======================================================================================================================
<S> <C> <C> <C> <C>
Common Stock 900,000(1) $1.75(2) $1,575,000 $415
=======================================================================================================================
</TABLE>
(1) Based on the highest sales price of the registrant's common stock as
quoted on the Nasdaq OTC Bulletin Board on March 17, 2000,
representing the most recent sales, 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.
<PAGE>
PROSPECTUS
SAVE ON ENERGY, INC.
Up to 900,000 Shares
of Common Stock
Save on Energy, Inc. is registering an aggregate of 900,000 shares of
our common stock under this prospectus out of 3,406,000 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.
-------------------------
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 .
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TABLE OF CONTENTS
Page
SUMMARY....................................................................3
RISK FACTORS...............................................................3
FORWARD LOOKING STATEMENTS.................................................6
THE SELLING SHAREHOLDERS...................................................7
USE OF PROCEEDS............................................................7
MARKET FOR COMMON STOCK....................................................7
DIVIDEND POLICY............................................................8
THE COMPANY................................................................8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................21
PRINCIPAL STOCKHOLDERS....................................................24
MANAGEMENT................................................................26
RELATED PARTY TRANSACTIONS................................................28
DESCRIPTION OF SECURITIES.................................................29
PLAN OF DISTRIBUTION......................................................32
LEGAL MATTERS.............................................................33
EXPERTS .................................................................33
WHERE YOU CAN GET MORE INFORMATION........................................33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................F-1
2
<PAGE>
SUMMARY
To understand the stock offering fully, you should carefully read
this entire prospectus. References in this prospectus to "we," "us," "our" and
"Save" refer to Save on Energy, Inc.
SAVE ON ENERGY, INC.
Ste. 211 4851 Georgia Hwy 85
Forest Park, Georgia 30050
(404) 765-0131
Fax (404) 765-0171
Save on Energy, Inc., formerly known as Electronic Fuel Control,
Inc., 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.
We market 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 Offering
This is an offering of 900,000 shares for the benefit of the selling
stockholders. They may elect from time to time to sell their shares but are not
required to do so. We will not receive any of the sale proceeds. We are paying
all the expenses of the offering.
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. Our Limited Operating History Makes it Difficult to Access or
Analyze Our Prospects for Success. We were organized on April 1, 1996 and have
conducted only limited operations to date, consisting of negotiating the license
to use the patents, further research and development and limited sales
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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. There is No Assurance of Sales or Acceptance of Products, Which
Involve New Technologies and Which Have Only Been Sold on a Limited Basis. 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. Technological Change May Make Our Products Obsolete or Difficult
to Sell at a Profit. 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 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.
4. The Limited Availability of Alternative Fuels Can Hinder Our
Ability to Market Our Products. 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.
5. The Lack of Distributorships Limits Our Ability to Market Our
Products. 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.
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6. Competition from Companies with Already Established Marketing
Links to Our Potential Customers May Adversely Effect Our Ability to Market Our
Products. 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.
7. Competition Utilizing Other Energy Sources May Adversely Affect
Our Ability to Market Our Products. 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.
8. Resistance to Our Products by Major Oil Companies May Adversely
Affect Our Ability to Market Our Products. 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.
9. Safety Concerns in Connection with Alternative Fuels and Our
Limited Insurance May Adversely Affect Our Ability to Conduct Business.
Liquefied natural gas is highly flammable and may present risk in the event of a
collision involving the storage tanks. These concerns may make marketing our
products more difficult at any point in time. Further, an accident or
catastrophe could adversely affect our ability to conduct business in view of
our limited insurance. 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. 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.
10. Our Business is Dependent Upon a Key Employee and a Key
Consultant. Our future success will be largely dependent on the personal efforts
of Robby Davis, an officer and director of Save, and Frank Davis, a consultant
to Save 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.
11. The Fact That We Currently Have a Single Supplier for Certain Key
Components May Adversely Affect Our Ability to Manufacture Our Products.
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
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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.
12. We Are Subject to Risks in Our International Transactions and
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. 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. Thus, 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.
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.
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SELLING STOCKHOLDERS
The following table sets forth the number of shares of common stock
beneficially owned by each of the selling stockholders as of the date hereof,
the number of shares owned by them covered by this prospectus and the amount and
percentage of shares to be owned by each selling stockholder after the sale of
all of the shares offered by this prospectus. None of the selling stockholders
has had any position, office or other material relationship with us within the
past three years other than as a result of the ownership of the shares or other
securities of ours or as a consultant. All of the selling stockholders, except
for Bresner Partners, Ltd., are shareholders of International Fuel Systems,
Inc., which has a consulting and distribution agreement with us. The information
included below is based on information provided by the selling stockholders.
Because the selling stockholders may offer some or all of their shares, no
definitive estimate as to the number of shares that will be held by the selling
stockholders after such offering can be provided and the following table has
been prepared on the assumption that all shares of common stock offered hereby
will be sold.
Shares
Owned Percentage of
Shares of After Shares Owned
Beneficially Shares Offering After Offering
Name Owned Offered (1) (1)
-------------------------- --------- ------- -------- -------------
Lanier M. Davenport 300,000 300,000 0 0.00%
Lanier M. Davenport, Jr.,
UTMA 40,000 40,000 0 0.00%
Steven Ray Davenport, UTMA 40,000 40,000 0 0.00%
Sarah Byrd Davenport, UTMA 40,000 40,000 0 0.00%
Carol Espinosa 65,000 65,000 0 0.00%
Jonathan P. Hoover 65,000 65,000 0 0.00%
Dennis L. Knight 40,000 40,000 0 0.00%
Kota Suttle 20,000 20,000 0 0.00%
Daryl Powell 40,000 40,000 0 0.00%
Gerald B. Andrews 150,000 150,000 0 0.00%
Bresner Partners, Ltd. 100,000 100,000 0 0.00%
----------
(1) Assumes sale of all shares offered by the selling stockholders.
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 and
enable the selling stockholders to sell their shares. Accordingly, we will not
receive any funds or proceeds from this registration.
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 December 15, 2000:
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2000 Low Bid High Ask
---- ------- --------
Fourth Quarter (1) $0.12 $0.40
Third Quarter $0.25 $1.00
Second Quarter $0.25 $2.875
First Quarter $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 December 15, 2000.
Market quotations reflect inter-dealer prices, without retail markups, markdown
or commissions and may not necessarily reflect actual transactions. As of
December 15, 2000, there were 3,406,000 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. 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.
HISTORICAL OPERATIONS AND FUTURE PLANS
We became a publicly traded company in 1996 as a result of the sale of 195,000
shares at $5.00
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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. With appropriate financing we plan on marketing to
large engine manufacturers, municipalities and government entities, both
nationally and internationally.
During the first quarter of 1999, we entered into a written agreement with
International Fuel Systems, Inc., a Tennessee corporation, and Lanier Davenport,
its principal shareholder, reflecting their purchase of 600,000 shares. In
addition, the agreement provided for 600,000 additional shares to be issued to
International Fuel Systems, Inc. if it met certain marketing goals or made
certain payments. As of January 16, 2001, 200,000 of such additional 600,000
shares have been issued to International Fuel Systems, Inc. or its designees.
The 800,000 shares issued to International Fuel Systems, Inc. are being resold
in this offering. International Fuel Systems, Inc. established several business
relationships for the Save duel fuel system with organizations outside the US.
In particular, it 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
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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 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, 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.
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 nitrous oxide 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 compressed natural gas and liquified natural
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gas 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 - called 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.
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.
OUR CONVERSION KITS.
Our duel 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 was passed in 1970 to improve air quality nationwide. Congress
changed that law in 1990, passing the Clean Air Act Amendments of 1990 creating
several initiatives to reduce vehicle pollutants. These laws set emissions
standards for stationary and mobile pollutant sources and establish targets,
standards and procedures for reducing human and environmental exposure to a
range of pollutants generated by industry in general and transportation most
specifically. Importantly for us, the1990 Amendments to the Clean Air Act
require 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. These laws specifically include the diesel and natural gas
duel-fuel system as an alternative fuel and specify actions that fleet operators
must take and timetables for their completion.
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The Energy Policy Act of 1992 was created to accelerate the use of alternative
fuels in the transportation sector. With this law in place, the primary goal of
the Department of Energy became to decrease the nation's dependence on foreign
oil and increase our energy security through the use of domestically produced
alternative fuels. The Energy Policy Act of 1992 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 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.
Clean Cities Program. Created by the Department of Energy, 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 refueling infrastructure.
Alternative Fuel Vehicle Credits Program. Congress created this credits program
to encourage fleets to increase the number of alternative fuel vehicles in their
fleets early and aggressively. Credits are allocated to state fleet operators
and covered alternative fuel provider fleet operators when alterative fuel
vehicles 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 alternative fuel vehicles on the most cost- effective schedule.
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.
Department of Energy/Urban Consortium Funds. Department of Energy'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. 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 alternative fuel vehicles
projects have received funding from the Urban
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Consortium Energy Task Force.
Petroleum Violation Escrow Account. Oil overcharge funds, also known as
petroleum violation escrow 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 and the Weatherization Assistance Program, administered by the
Department of Energy, and the Low-Income Home Energy Assistance Program, which
is administered by the Department of Health and Human Services.
Congestion Mitigation and Air Quality Improvement Program. This program was
re-authorized in the recently enacted Transportation Equity Act for the 21st
Century. The primary purpose of the program remains to fund projects and
programs in non-attainment and maintenance areas that reduce transportation
related emissions.
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 alternative fuel vehicles, but the funds provided by
this program could be used to purchase alternative fuel buses. Most projects
funded through Section 3 will receive 80% of the total project costs.
The Clean Fuel Fleet Program. This is an initiative implemented by the
Environmental Protection Agency in response to the Clean Air Act Amendments of
1990. The Clean Fuel Fleet Program requires fleets in cities with significant
air quality problems to incorporate vehicles that will meet clean fuel emissions
standards.
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 high occupancy
vehicle 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 Environmental Protection Agency certifications for reduced
emissions, engines converted to the Save dual fuel operating system may qualify
for available tax incentives.
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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 United Nation's Economic and
Social Development Division. The United Nations 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.
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 we rely.
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 Davis Family Trust has granted us a license to use the
patents.
OUR DUAL FUEL SYSTEM
There are two types of dual fuel systems in use. Our 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.
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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 our 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 nitrous oxide, and reduced engine maintenance
costs.
Our duel fuel system has three main components.
The Controller. This electronic unit is the brain of the system. From sensors
that monitor key parameters of engine performance, such as speed and
temperature, and what it is being asked to do, such as 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 our duel 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 our duel
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 our 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.
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Our 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 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. Because the liquified natural gas
dealer brings the gas to the fleet site as frequently as needed, there is no
supply constraint.
However, as the future unfolds, compressed natural gas 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.
OUR SUPPLIER OF DUAL FUEL CONTROL SYSTEMS
On April 29, 1996, we entered into a supply agreement with Ambac
International Corporation to exclusively supply us with electronic duel fuel
control systems for a period of twenty years. The material terms of the supply
agreement are:
o Ambec was required to develop both an analog and digital duel fuel control
system and agreed to sell those components designed for us, only to us, for
20 years.
o We are required to purchase all our duel fuel control systems from Ambec as
long as the technology and prices are competitive, the components conform
to industry standards and are delivered timely.
o The duel fuel control systems are purchased under Ambec's then current
standard warranty.
o Unless the technology is covered under the patents owned by the Davis
Family Trust, Ambec retains the technological rights to the duel fuel
control systems.
o There are no minimum orders required.
o The supply agreement can only be terminated for good cause, which shall
include a material or repetitive breach of an obligation, policy, procedure
or requirement of the supply agreement.
o The supply agreement requires the resolution of all disputes before the
American Arbitration Association.
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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. 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." On June 23, 2000, we submitted to the Environmental Protection
Agency a Notification of Agreement with Conditions for Sale of Aftermarket
Alternative Fuel Conversion Systems in accordance with Memorandum 1A of the
Environmental Protection Agency and Option III contained in the Addendum. In
order to be compliant with the Environmental Protection Agency, we must meet 4
conditions as follows:
o Full compliance with either Option I - Environmental Protection Agency
Certification-, Option II -C A R B certification - or Option II -
before and after emission testing to demonstrate that there has been
no degradation of emissions -;
o Records to be kept for 5 years of all sales of kits under Option II,
including engine family identification, the vehicle identification
number of the converted vehicle, the date the conversion was
completed, and the appropriate emissions data adjusted by the
applicable deterioration factor;
o When total sales of all alternative fuel conversion kits have reached
200 units, a full certification plan must be presented to the
Environmental Protection Agency for each engine family intended to be
sold in model year 2002 and developmental testing in preparation for
certification will begin;
o If total sales of an alternative fuel conversion kit reach 600 for a
particular engine family in model year 2000 and the kit manufacturer
intends to sell that engine family in model year 2001, that engine
family must be certified under Option I for model year 2001.
Accordingly, we will initially qualify the Save duel fuel system on
several of the most common diesel engine families under Option III. 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.
Eventually, when full compliance with Option I - full certification - will be
required by conditions (3 ) and (4) above, we expect that the cost to certify an
engine will generally be between $50,000 and $75,000. Testing requires about 30
days, including set up and tear down. The Environmental Protection Agency
typically issues reports
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of the results and certifications within 60 days following the testing.
New York State Energy Research and Development Authority. The State of New York
provides funding for alternative fuel projects through this authority. 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 New York State
Energy Research and Development Authority grant, which may be as high as 50% of
the cost of the project.
MARKET SIZE
We believe 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 duel 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.
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 trucks 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.
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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 compressed natural gas 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.
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 and 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
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Original Equipment Manufacturer 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 original equipment manufacturer 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., 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
Alternative Fuel Systems, Inc.'s and our systems are believed to cost
approximately the same. Alternative Fuel Systems, Inc. is a publicly traded
company on the Canadian Stock Exchange under the symbol "ATF". Additional
information on the Alternative Fuel Systems, Inc.'s system is available at their
website, www.altfuelsys.com.
Original Equipment Manufacturer 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,
our dual fuel system can be set to change to full diesel operation either
manually or automatically.
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.
THE MARKET FOR OUR SHARES
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
December 11, 2000, the last reported sale price
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of our common stock was $0.20, and, as of March 6, 2000, 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 increased
over 400% in the several months prior to March 6, 2000, this increase was 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.
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. Since the engine can then use either a mixture of
alternative fuel and diesel fuel or diesel fuel alone, the system is a duel 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 our duel fuel system is the diesel
truck and bus market
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segments. Although we have completed development of our duel fuel system for
normally aspirated engines and turbocharged engines, we are still in the process
of developing our duel fuel system for drive-by-wire engines.
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
1st 9 mos. 1st 9 mos.
1999 1998 2000 1999 1998 2000
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Sales......... 100.0% 100.0% 100.0% 560,124 539,443 157,210
Cost of Goods
Sold.... 58.9 36.1 53.6 329,791 194,701 84,336
Gross Profit....... 41.1 63.9 46.4 230,333 344,742 72,874
Selling and
Administrative 121.7 125.3 401.7 681,918 675,958 631,488
Interest Expense. 5.9 1.7 31.1 33,013 9,030 48,884
Other Expense..... 22.3 - - 125,000 - -
Income Tax......... - - - - - -
------- -------- ------- ------- ------ ------
Income (Loss)..... (108.8) (63.1) (386.4) (609,598) (340,246) (607,488)
====== ===== ====== ======== ======== ========
</TABLE>
Our revenues resulted mostly from sales of the our dual fuel system
kits. About 60 duel fuel system kits, at prices ranging from about $4,000 to
over $5,000 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 $144,352 or 42%
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over 1998.
Including Losses for Litigation, the Loss for 1999 increased by
$269,352 or 79% 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 11 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 $675,958 to $681,918. 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
$9,030 in 1998 to $33,013 in 1999, a change of $23,983.
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. On December 15, 2000, we
defaulted in the payment of the $150,000 in promissory notes, although no demand
for payment or request for conversion has been made. 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 to raise up to $750,000 and
to assist in marketing our products, provide financial advice and help form
strategic alliances. Our agreement with MBO, Inc. was entered into as of
November 23, 1999 for a term of one year. MBO, Inc. was obligated to prepare a
business plan with financial projections; render advice on corporate goals,
strategy and organization; prepare and implement a marketing plan; direct public
relations; assist in preparing filings to become a reporting company; assist in
the preparation of interim and annual
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financial reports; consult on corporate finance; consult on corporate
acquisitions, mergers and sales; and consult on and assist in capital raising
activities. MBO, Inc. was to be compensated principally as follows: $10,000 on
receipt of the first $250,000 in funding; $15,000 upon completion of business
plan and financial model, which payments are deferred until a total of $500,000
in funding has been received; 10% of all equity money raised; up to 250,000
warrants for our common stock at an exercise price of $0.75 per share as
follows: 100,000 warrants upon receipt of $250,000, 50,000 warrants upon
completion of business plan and financial model, 50,000 warrants upon receipt of
a total funds of $500,000 and 50,000 Warrants upon receipt of total funds of
$750,000. In addition, MBO. Inc. was to receive a monthly retainer $5,000 per
month beginning January 1, 2000, but deferred until the $250,000 in funding is
received. The agreement with MBO, Inc. expired on November 23, 2000. It is our
position that MBO, Inc. is not entitled to the payment of any further monies or
warrants due to its failure to perform in accordance with the agreement.
During the first quarter of 1999, we entered into a written agreement
with International Fuel Systems, Inc., a Tennessee corporation, and Lanier
Davenport, its principal shareholder, reflecting their purchase of 600,000
shares. In addition, the agreement provided for 600,000 additional shares to be
issued to International Fuel Systems, Inc. if it met certain marketing goals or
made certain payments. As of December 19, 2000, 200,000 of such additional
600,000 shares have been issued to International Fuel Systems, Inc. or its
designees in exchange for the payment of $155,000.
During the first nine months of 2000, sales at an annual rate were
down by more than 62% from the previous year. This was mainly due to diverting
resources toward perfecting and certifying our technology and raising capital.
Annualized selling and administrative expenses increased by more than 24% over
the prior year. This was due to many factors, including increased efforts to
advertise our products, raise capital, perfect and certify our technology and
increased travel expenses to promote our products. The losses of $607,498 for
the first nine months of 2000 reflected the issuance of 470,000 shares in
consideration of services provided and licensing. On behalf of Frank Davis, a
consultant to us, 100,000 of such shares were issued to his wife, Patricia
Davis, who performs no services for us, and were expensed at $15,000. These
losses were also funded by loans totaling $230,000, represented by promissory
notes payable in 1 year, which bear interest at 12% and are convertible to
common stock at $0.75 per share.
PRINCIPAL SHAREHOLDERS
Our certificate of incorporation does not provide for cumulative
voting in the election of directors. Therefore, the holders of a majority of the
outstanding shares of common stock at any given time will be in a position to
elect our directors and otherwise control us. Currently, and in the foreseeable
future, it is expected that the principal shareholders listed below, acting in
whole or in part as a group, can exert such control.
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The following table sets forth certain information regarding the
beneficial ownership of the common stock of Save as of September 30, 2000, by
each of Save"s officers and directors; each person who is known by Save to own
beneficially 5% or more of Save's outstanding common stock; and all officers and
directors of Save as a group:
---------------------
Name and Address of 5% Number of Percent
Shareholders, Officers Shares
and Directors Owned(1)
-------- --------- --------
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
25
<PAGE>
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, a consultant to Save, 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.
MANAGEMENT
OFFICERS AND DIRECTORS
-----------------------
The following table sets forth the names, age, and position of each
director and executive officer of Save.
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 49 Director
------------------
Each of the above individuals, became an officer and director of Save 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
26
<PAGE>
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.
Jeffrey F. Davis. Vice President, Secretary and Director since 1996. Prior to
joining Save, Mr. Davis was employed by Clayton County, Georgia, 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.
27
<PAGE>
SIGNIFICANT CONSULTANT
---------------------
Frank Davis. Director of Product Research and Development since 1996. Mr. Davis
presently serves us 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, Patricia Davis, wife of
Frank Davis, received 100,000 shares of common stock in satisfaction of over
$100,000 in consulting fees we owed him.
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, 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 trust granted a license to us to exploit the
patents for the life of the patent, seventeen years, 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 changed 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 changed, 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.
------------------------------------------------------------------------------
28
<PAGE>
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
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, 3,406,000 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.
29
<PAGE>
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.
Warrants.
There are currently warrants outstanding to purchase 314,500 shares
of common stock at an exercise price of $1.00 per share. Warrants to purchase
252,000 shares expire in 2003. Warrants to purchase 62,500 shares expire in
2005.
Convertible Notes.
There are currently convertible notes outstanding in the amount of
$379,900, bearing interest at the rate of 10% per year, which may be converted
to common stock at the request of the note holder at a conversion rate of $0.75
per share. Notes totaling $150,000 were issued in 1999, which notes are in
default as of December 15, 2000, although no demand for either payment or
conversion has been made. A note totaling $229,900 was issued in 2000. We have
received a request to convert that note to common stock at the conversion rate
of $0.75 per share. However, at this time no stock has been issued.
Summary of Transactions
In 1996, shortly after incorporation, as part of the initial
organization, in reliance on Rule 4(2) of the Securities Act, 20,000 shares of
common stock were allotted to John I. Davis, who is an affiliate of Save and the
brother of Frank Davis and uncle of Robby E. Davis, Ricky Davis, Jeffrey Davis
and Kerry Davis for services valued at $4,700.
In April 1996, shortly after incorporation, as part of the initial
organization, in reliance upon Rule 4(2) of the Securities Act, 1,428,000 shares
of common stock were purchased by Robby E. Davis, Ricky Davis, Jeffrey Davis and
Kerry Davis, each receiving 357,000 shares for the purchase price of $357. Robby
E. Davis, Ricky Davis and Jeffrey Davis are insiders of Save and Kerry Davis,
who is employed by Save and is the brother of Robby E. Davis, Ricky Davis and
Jeffrey Davis, is an affiliate of Save.
In April 1996, shortly after incorporation, the Davis Family Trust, a
sophisticated investor and an affiliate of Save, in reliance upon Rule 4(2) of
the Securities Act, purchased 108,000 shares of common stock for the purchase
price of $108.
In 1996 and 1997, we issued 184,000 shares of common stock to fewer than
25 investors under Rule 504 of Regulation D of the Securities Act of 1933 for a
total consideration of $900,000.
30
<PAGE>
In 1998, in reliance upon Rule 4(2) of the Securities Act, 252,500
warrants, in consideration of consulting services on the part of Bresner
Partners, Ltd. and Jeffrey Langberg, were issued to Bresner Partners, Ltd.;
Jeffrey Langberg, as Custodian for Logan Langberg a minor under the Uniform Gift
To Minors Act; and Jeffrey Langberg, as Custodian for Harley Langberg a minor
under the Uniform Gift To Minors Act, 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.
In 1999, 4 sophisticated investors made loans to us of $150,000. In
reliance upon Rule 4(2) of the Securities Act, each investor received a 1 year
promissory note convertible for common stock at $0.75 per share.
In January 2000, Lanier M.. Davenport, a sophisticated investor, as well as
a consultant to us, and Lanier M. Davenport, Jr., UTMA; Steven Ray Davenport,
UTMA; Sarah Byrd Davenport, UTMA; Carol Espinosa; Jonathan P. Hoover; Dennis L.
Knight; Kota Suttle; Daryl Powell; and Gerald B. Andrews, in reliance upon Rule
4(2) of the Securities Act, received 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 by
International Fuel Systems, Inc.
In January and February 2000, Lanier M. Davenport, Lanier M. Davenport,
Jr., UTMA; Steven Ray Davenport, UTMA; Sarah Byrd Davenport, UTMA; Carol
Espinosa; Jonathan P. Hoover; and Gerald B. Andrews, all sophisticated investors
and shareholders of International Fuel Systems, Inc., in reliance upon Rule 4(2)
of the Securities Act, purchased 200,000 shares of common stock for an
investment of $150,000, i.e., $0.75 per share.
In 2000, 6 sophisticated investors made loans to us of $229,900. In
reliance upon Rule 4(2) of the Securities Act, each investor received a 1 year
promissory note convertible for common stock at $0.75 per share.
In 2000, the Davis Family Trust, a sophisticated investor and an
affiliate of Save, in connection with a change to the license agreement
respecting certain patents and technology, which change extended the license to
include the continental United States, Mexico, Canada, Egypt and South America,
in reliance upon Rule 4(2) of the Securities Act, received 250,000 shares of
common stock.
In 2000, in reliance upon Rule 4(2) of the Securities Act, 100,000 shares
of common stock were issued to Patricia Davis the wife of Frank Davis in lieu of
past consulting fees of $15,000 to Frank Davis. Frank Davis is a consultant to
us and a sophisticated investor.
31
<PAGE>
In 2000, in reliance upon Rule 4(2) of the Securities Act, 100,000 shares
of common stock were issued to the Bresner Partners, Ltd. for consulting
services valued at $75,000.
In 2000, in reliance upon Rule 4(2) of the Securities Act, 62,500 warrants
were issued to Dirks & Company, Inc.; Hugh and Rosemarie Deane; and Richard
Wells, all sophisticated investors, for financial consulting 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.
In 2000, 20,000 shares of common stock were issued to
Success-Unlimited.Net, Inc., a public relations company, for public relations
services. The services, which are to be performed in the future, after the
acceptance by the Securities and Exchange Commission of this filing and any
applicable quiet period, are valued at approximately $20,000.
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
The shares are being registered in order to facilitate their sale from
time to time by the selling stockholders in one or more transactions on the open
market. No underwriting arrangements have been entered into by the selling
stockholders. In addition, as none of the selling stockholders have advised us
whether or not they have any current intention of selling any of the shares, we
are unable to predict whether or when any of the selling stockholders will
determine to proceed with sales of the shares, as such determination will be
made solely at the discretion of each selling stockholder. The distribution of
the shares by the selling stockholders may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary brokers transactions, or through sales to one or more dealers for
resale of the shares as principals, or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The shares may be sold by one
or more of the following methods, without limitation: (a) a block trade in
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<PAGE>
which a broker or dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling stockholder may
arrange for other brokers or dealers to participate. Such brokers or dealers may
receive commissions or discounts from the selling stockholders in amounts to be
negotiated immediately prior to the sale.
We will receive no proceeds from any sales of the shares offered by the
selling stockholders. We have agreed to pay the filing fees, costs and expenses
associated with the registration statement excluding fees of counsel to the
selling stockholders, but including fees relating to compliance with state blue
sky requirements, commissions and discounts of underwriters, dealers or agents,
if any, and any stock transfer taxes.
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.
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:
33
<PAGE>
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
<TABLE>
<CAPTION>
Audited
--------
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
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
Balance Sheets as of June 30, 2000.................................................................................FU-9
34
<PAGE>
Statement of Operations for period ended June 30, 2000.............................................................FU-10
Statement of Stockholders' Equity for the period ended June 30, 2000...............................................FU-11
Statement of Cash Flows for the period ended June 30, 2000.........................................................FU-12
Notes to Financial Statements......................................................................................FU-13
Balance Sheets as of September 30, 2000............................................................................FU-14
Statement of Operations for period ended September 30, 2000........................................................FU-15
Statement of Stockholders' Equity for the period ended September 30, 2000..........................................FU-16
Statement of Cash Flows for the period ended September 30, 2000....................................................FU-17
Notes to Financial Statements......................................................................................FU-18
</TABLE>
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
=======
* Estimate
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
With respect to the following share transactions, excluding shares
issued under Rule 504 of Regulation D of the Securities Act of 1933, each stock
certificate issued contained a restrictive legend on the back of the
certificate, restricting its transfer.
In June 1998, two sophisticated investors, made loans to us of $55,000,
$110,000, total. In reliance upon Rule 4(2) of the Securities Act, 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 expired unexercised 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 to
two registered broker-dealers, as placement agents, 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 expired unexercised in June 2000. There
was no underwriter; nor was there a general solicitation or advertising. Each of
the purchasers represented that the purchaser was acquiring the securities for
the purchaser's own account, for investment only, and not with a view toward the
resale, fractionalization, division or distribution thereof, and further, the
investors each represented that they had no present plans to enter into any
contact, undertaking, agreement, or arrangement for any such resale,
distribution, division or fractionalization thereof.
In December 1998, a sophisticated investor made a loan to us of $43,500.
In reliance upon Rule 4(2) of the Securities Act, 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 to a registered broker-dealer, as
placement agent, 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
expired in December 2000. There was no underwriter; nor was there a general
solicitation or advertising. Each of the purchasers represented that the
purchaser was acquiring the securities for the purchaser's own account, for
investment only, and not with a view toward the resale, fractionalization,
division or distribution thereof, and further, the investors each represented
that they had no present plans to enter into any contact, undertaking,
agreement, or arrangement for any such resale, distribution, division or
fractionalization thereof.
In 1999, 4 sophisticated investors made loans to us of $150,000. In
reliance upon Rule 4(2) of the Securities Act, each investor received a 1 year
promissory note convertible for common
II-2
<PAGE>
stock at $0.75 per share. There was no underwriter; nor was there a general
solicitation or advertising. Each of the purchasers represented that the
purchaser was acquiring the securities for the purchaser's own account, for
investment only, and not with a view toward the resale, fractionalization,
division or distribution thereof, and further, the investors each represented
that they had no present plans to enter into any contact, undertaking,
agreement, or arrangement for any such resale, distribution, division or
fractionalization thereof.
In January 2000, Lanier M.. Davenport, a sophisticated investor, as well as
a consultant to us, and Lanier M. Davenport, Jr., UTMA; Steven Ray Davenport,
UTMA; Sarah Byrd Davenport, UTMA; Carol Espinosa; Jonathan P. Hoover; Dennis L.
Knight; Kota Suttle; Daryl Powell; and Gerald B. Andrews, in reliance upon Rule
4(2) of the Securities Act, received 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 by
International Fuel Systems, Inc.. The value of the services was approximately
$215,000, the shares being priced at $0.75 per share. Lanier M. Davenport, Jr.,
Steven Ray Davenport and Sarah Byrd Davenport are minor children of Lanier M.
Davenport and the shares were issued in their names under the Uniform Trust For
Minors Act. Carol Espinosa, a sophisticated investor, is the wife of Lanier
Davenport. Jonathan P. Hoover is a sophisticated investor, a management
consultant and acted as a consultant to International Fuel Systems, Inc. Dennis
L. Knight, Kota Suttle, Daryl Powell and Gerald B. Andrews are all sophisticated
investors and, along with Lanier M. Davenport, Jr., UTMA; Steven Ray Davenport,
UTMA; Sarah Byrd Davenport, UTMA; Carol Espinosa; and Jonathan P. Hoover,
shareholders of International Fuel Systems, Inc. The issuance of these shares
was considered by International Fuel Systems, Inc. as a distribution to its
shareholders. The $233,500 invested by International Fuel Systems, Inc. was
initially contributed by its shareholders for the operations of International
Fuel Systems, Inc. and not as an investment in our company. There was no
underwriter; nor was there a general solicitation or advertising. The investors
represented that they were acquiring the securities for their own accounts, for
investment only, and not with a view toward the resale, fractionalization,
division or distribution thereof, and further, the investors each represented
that they had no present plans to enter into any contact, undertaking,
agreement, or arrangement for any such resale, distribution, division or
fractionalization thereof.
In January and February 2000, Lanier M. Davenport, Lanier M. Davenport,
Jr., UTMA; Steven Ray Davenport, UTMA; Sarah Byrd Davenport, UTMA; Carol
Espinosa; Jonathan P. Hoover; and Gerald B. Andrews, all sophisticated investors
and shareholders of International Fuel Systems, Inc., in reliance upon Rule 4(2)
of the Securities Act, 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
promissory notes discussed above. There was no underwriter; nor was there a
general solicitation or advertising. Mr. Davenport represented that he was
acquiring the securities for his own account, for investment only, and not with
a view toward the resale, fractionalization, division or distribution thereof,
and further, represented that he had no present plans to enter into any contact,
undertaking, agreement, or arrangement for any such resale, distribution,
division or fractionalization thereof.
II-3
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In 2000, 6 sophisticated investors made loans to us of $229,900. In
reliance upon Rule 4(2) of the Securities Act, 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). There was no underwriter;
nor was there a general solicitation or advertising. Each of the purchasers
represented that the purchaser was acquiring the securities for the purchaser's
own account, for investment only, and not with a view toward the resale,
fractionalization, division or distribution thereof, and further, the investors
each represented that they had no present plans to enter into any contact,
undertaking, agreement, or arrangement for any such resale, distribution,
division or fractionalization thereof.
In 1996 and 1997, we issued 184,000 shares of common stock to fewer than
25 investors under Rule 504 of Regulation D of the Securities Act of 1933 for a
total consideration of $900,000. Russo Securities, Inc. was the placement agent.
The underwriter's discount was 10% of the $5.00 per share selling price or
$90,000.
In 1996, shortly after incorporation, as part of the initial
organization, in reliance on Rule 4(2) of the Securities Act, 20,000 shares of
common stock were allotted to John I. Davis, who is an affiliate of Save and the
brother of Frank Davis and uncle of Robby E. Davis, Ricky Davis, Jeffrey Davis
and Kerry Davis for services valued at $4,700.
In April1996, shortly after incorporation, as part of the initial
organization, in reliance upon Rule 4(2) of the Securities Act, 1,428,000 shares
of common stock were purchased by Robby E. Davis, Ricky Davis, Jeffrey Davis and
Kerry Davis, each receiving 357,000 shares for the purchase price of $357. Robby
E. Davis, Ricky Davis and Jeffrey Davis are insiders of Save and Kerry Davis,
who is employed by Save and is the brother of Robby E. Davis, Ricky Davis and
Jeffrey Davis, is an affiliate of Save.
In April 1996, shortly after incorporation, the Davis Family Trust, a
sophisticated investor and an affiliate of Save, in reliance upon Rule 4(2) of
the Securities Act, purchased 108,000 shares of common stock for the purchase
price of $108.
In 2000, the Davis Family Trust, a sophisticated investor and an
affiliate of Save, in connection with a change to the license agreement
respecting certain patents and technology, which change extended the license to
include the continental United States, Mexico, Canada, Egypt and South America,
in reliance upon Rule 4(2) of the Securities Act, received 250,000 shares of
common stock.
In 2000, in reliance upon Rule 4(2) of the Securities Act, 100,000 shares
of common stock were issued to Patricia Davis the wife of Frank Davis in lieu of
past consulting fees of $15,000 to Frank Davis. Frank Davis is a consultant to
us and a sophisticated investor. Patricia Davis represented that the shares were
acquired for her own account, for investment only, and not with a view toward
the resale, fractionalization, division or distribution thereof, and further,
that she had no present plans to enter into any contact, undertaking, agreement,
or arrangement for any such resale, distribution, division or fractionalization
thereof.
II-4
<PAGE>
In 2000, in reliance upon Rule 4(2) of the Securities Act, 100,000 shares
of common stock were issued to the Bresner Partners, Ltd. for consulting
services valued at $75,000. Bresner Partners Ltd. was not formed for the purpose
of this transaction and is an Isle of Jersey corporation, which was organized
approximately seven years ago, comprised of a group of foreign sophisticated
investors. Bresner Partners, Ltd. represented that the shares were acquired for
its own account, for investment only, and not with a view toward the resale,
fractionalization, division or distribution thereof, and further, that it had no
present plans to enter into any contact, undertaking, agreement, or arrangement
for any such resale, distribution, division or fractionalization thereof.
In 1998, in reliance upon Rule 4(2) of the Securities Act, 252,500
warrants, in consideration of consulting services on the part of Bresner
Partners, Ltd. and Jeffrey Langberg, were issued to Bresner Partners, Ltd.;
Jeffrey Langberg, as Custodian for Logan Langberg a minor under the Uniform Gift
To Minors Act; and Jeffrey Langberg, as Custodian for Harley Langberg a minor
under the Uniform Gift To Minors Act, 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. Bresner Partners, Ltd. was not formed for the purpose of this
transaction and is an Isle of Jersey corporation, which was organized
approximately seven years ago, comprised of a group of foreign sophisticated
investors. Logan Langberg and Harley Langberg are the minor children of Jeffrey
Langberg, a sophisticated investor. Each of the holders represented that the
acquisition of the securities for the acquirer's own account, for investment
only, and not with a view toward the resale, fractionalization, division or
distribution thereof, and further, that the acquirer's had no present plans to
enter into any contact, undertaking, agreement, or arrangement for any such
resale, distribution, division or fractionalization thereof.
In 1998, in reliance upon Rule 4(2) of the Securities Act, 60,000 warrants
were issued for services to Max Rockwell; and Hunter S. Singer, each a
sophisticated investor, each warrant entitling the holder to purchase 1 share of
common stock at a price of $1.00 per share. These warrants expired, unexercised
on April 30, 2000. Each of the holders represented that the acquisition of the
securities for the acquirer's own account, for investment only, and not with a
view toward the resale, fractionalization, division or distribution thereof, and
further, that the acquirer's had no present plans to enter into any contact,
undertaking, agreement, or arrangement for any such resale, distribution,
division or fractionalization thereof.
In 2000, in reliance upon Rule 4(2) of the Securities Act, 62,500 warrants
were issued to Dirks & Company, Inc.; Hugh and Rosemarie Deane; and Richard
Wells, all sophisticated investors, for financial consulting 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. Each of the holders represented
that the acquisition of the securities for the acquirer's own account, for
investment only, and not with a view toward the resale, fractionalization,
division or distribution thereof, and further, that the acquirer's had no
present plans to enter into any contact, undertaking, agreement, or arrangement
for any such resale, distribution, division or fractionalization thereof.
II-V
<PAGE>
In 2000, 20,000 shares of common stock were issued to
Success-Unlimited.Net, Inc., a public relations company, for public relations
services. The services, which are to be performed in the future, after the
acceptance by the Securities and Exchange Commission of this filing and any
applicable quiet period, are valued at approximately $20,000.
Success-Unlimited.Net, Inc., a sophisticated investor, represented that the
shares were acquired for its own account, for investment only, and not with a
view toward the resale, fractionalization, division or distribution thereof, and
further, that it had no present plans to enter into any contact, undertaking,
agreement, or arrangement for any such resale, distribution, division or
fractionalization thereof.
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.
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
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. *
10.2 June 18, 1998 Amendment to License Agreement By and Between the Davis Family
Trust and Electronic Fuel Control, Inc. *
10.3 January 3, 2000 Amendment to License Agreement By and Between the Davis Family
Trust and Electronic Fuel Control, Inc. *
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: International Fuel Systems, Inc. and Davenport *
23.2 Consent of Certified Public Accountant
</TABLE>
* Previously provided.
II-VI
<PAGE>
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.
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-8
<PAGE>
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
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 January 16, 2001.
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
<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 30297
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.
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
F-3
<PAGE>
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
---------- ----------
<S> <C> <C>
ASSETS
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, (Note 3) - -
---------- ----------
Total other assets 22,500 88,728
---------- ----------
Total assets $ 324,915 $ 468,122
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and loans payable (Note 4) $ 443,500 $ 203,500
Accounts payable 39,569 107,455
Taxes payable 80,558 47,874
Accrued loss on litigation (Note 11) 125,000 -
Accrued expenses 44,507 40,914
---------- ----------
Total current liabilities 733,134 399,743
---------- ----------
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 1,188,575 1,055,575
Deficit accumulated during the
development stage (1,598,930) (989,332)
---------- ---------
Total stockholders'
(deficit) equity (408,219) 68,379
---------- ----------
Total liabilities and
stockholders' equity $ 324,915 $ 468,122
========== ==========
F-5
The accompanying notes to the financial statements are an integral part of these
statements.
<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") 681,918 675,958
---------- ----------
Operating loss (451,585) (331,216)
Other income and expense (Schedule "3") 158,013 9,030
---------- ----------
Net loss $ (609,598) $ (340,246)
========== ==========
Net loss per weighted average share,
basic $ (.20) $ (.12)
========== ==========
Net loss per weighted average share,
diluted $ (.20) $ (.12)
========== ==========
Weighted average shares, basic 2,972,400 2,841,367
Weighted average shares, diluted 3,033,530 2,858,405
F-6
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "C"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31,
Deficit
Accumulated
Common Additional During
Stock Paid-in Development
Shares Amount Capital Stage
Balance, January 1, 1998 2,136,000 $ 2,136 $ 830,849 $ (649,086)
Increase in additional paid in capital - - 224,726 -
Net loss - - - (340,246)
--------- ------- ---------- -----------
Balance, December 31, 1998 2,136,000 2,136 1,055,575 (989,332)
Increase in additional paid in capital - - 133,000 -
Net loss - - - (609,598)
--------- ------- ---------- -----------
Balance, December 31, 1999 2,136,000 $ 2,136 $1,188,575 $(1,598,930)
========= ======= ========== ===========
Additional disclosure for development stage companies
Common stock issued:
At par 1,536,000 $ 1,536 $ -0-
For services 416,000 416 20,384
From private offering 184,000 184 1,168,191
--------- ------- ----------
2,136,000 $ 2,136 $1,188,575
========= ======= ===========
F-7
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "D"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1999 1998
-------- --------
Cash flows from operating activities
Net loss $(609,598) $(340,246)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 17,317 22,699
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) 65,417
Increase in taxes payable 32,684 27,684
Increase in accrued
litigation loss 125,000 -
Increase (decrease) in
accrued expenses 3,593 (47,110)
--------- ---------
Net cash used in
operating activities (259,148) (395,682)
--------- ---------
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)
--------- ---------
F-8
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "D"
(Continued)
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1999 1998
----------- ----------
Cash flows from financing activities
Net proceeds from line of credit 90,000 50,000
Proceeds from convertible
notes payable 150,000 153,500
Increase in additional
paid in capital 133,000 100,500
----------- ----------
Net cash provided by
financing activities 373,000 304,000
----------- ----------
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 $(1,234,060) $ (974,912)
Net cash used in
investing activities (93,825) (93,825)
Net cash provided by
financing activities 1,463,651 1,090,651
----------- ----------
$ 135,766 $ 21,914
=========== ==========
</TABLE>
F-9
The accompanying notes to the financial statements are an integral part of these
statements.
<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.
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
F-10
<PAGE>
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
======== ========
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
F-11
<PAGE>
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.
4. NOTES AND LOANS PAYABLE
An analysis of notes and loans payable is set forth below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
F-12
<PAGE>
5. INCOME TAXES
DEFERRED TAX ASSETS ARE SUMMARIZED AS FOLLOWS:
Net
Allowance Operating
For Loss
Bad Debts Carryforwards Total
--------- ------------- -----
Balance at December 31, 1997:
As previously reported
$ 4,000 $203,300 $207,300
Change during 1998 26,600 134,000 160,600
-------- -------- --------
Balance at
December 31, 1998 30,600 337,300 367,900
Change during 1999 (28,600) 237,700 209,100
-------- -------- --------
2,000 575,000 577,000
Valuation allowance 2,000 575,000 577,000
-------- -------- --------
Balance at
December 31, 1999 $ -0- $ -0- $ -0-
======== ======== ========
The Company's net operating loss carry forwards of approximately $1,329,000
expire as follows:
Year Amount
---- ------
2011 $ 246,500
2012 263,500
2013 339,000
2014 480,000
----------
$1,329,000
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 (denominator) 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.
F-13
<PAGE>
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.
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.
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
F-14
<PAGE>
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 $609,598 during the year ended December 31, 1999, and as
of that date, the Company's current liabilities exceeded its current
assets by $463,765 and its total liabilities exceeded its total assets
by $408,219. 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.
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.
In 1996 the Company acquired a license from the Davis Family Trust, the
licensor, at fair market value. Due to the relationship of the
officers/shareholders of the Company with he Trust, the value of the
license was reduced to the licensor's basis. Consequently, the accounts
presented herewith were restated to reflect the effect of that change.
F-15
<PAGE>
<TABLE>
<CAPTION>
Additional
Paid in Accumulated
Capital Deficit Net Loss
<S> <C> <C> <C>
As previously reported,
December 31, 1998 $ 931,349 $(859,583) $(325,607)
Underaccrual of professional
fees and consultant fees - (26,256) (26,256)
Effect of license
valuation restatement 124,226 (103,733) 11,617
Cancellation of unissued
capital stock - 240 -
---------- --------- ---------
As restated,
December 31, 1998 $1,055,575 $(989,332) $(340,246)
========== ========= =========
</TABLE>
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 occurred 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.
F-16
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SUPPLEMENTARY INFORMATION
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
-------- --------
SCHEDULE "1": COST OF SALES
<S> <C> <C>
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 17,317 22,699
Provision for doubtful accounts 141,156 67,818
Licenses and permits 357 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 $681,918 $675,958
======== ========
SCHEDULE "3": INCOME AND EXPENSE
Loss on litigation $125,000 $ -
Interest expense 35,489 15,945
Interest income (2,476) (6,915)
-------- --------
Total other income
and expense $158,013 $ 9,030
======== ========
</TABLE>
F-17
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
FU-1
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
INDEX TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
Accountants' Review Report
Financial Statements
Balance Sheets Exhibit "A"
Statements 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 Income and Expense Schedule "3"
FU-2
<PAGE>
To the Stockholders of
Save On Energy, Inc.
Airport Industrial Center Suite 210
4851 Georgia Highway 85
Forest Park, Georgia 30297
We have reviewed the accompanying balance sheet of Save On Energy, Inc as
of March 31, 2000 and the related statements of operations and stockholders'
equity and cash flows for the three months then ended, and the accompanying
supplementary information contained in Schedules 1-3. which are presented only
for supplementary analysis purposes, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Save On Energy, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to the financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted accounting
standards, the balance sheet as of December 31, 1999, and the related statements
of operations and stockholders' equity and cash flows for the year then ended
(not presented herein), and in our report dated January 21, 2000 we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31, 1999
is fairly presented in all material respects in relation to the balance sheet
from which it has been derived.
Jack Kane & Company, P.C.
May 23, 2000
FU-3
<PAGE>
EXHIBIT "A"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
3/31/00 12/31/99
<S> <C> <C>
ASSETS
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
---------- ----------
Total assets $ 262,217 $ 324,915
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and loans payable $ 390,000 $ 443,500
Accounts payable 46,512 39,569
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 682,390 733,134
---------- ----------
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 1,406,243 1,188,575
Deficit accumulated during the
development stage (1,829,802) (1,598,930)
---------- ----------
Total stockholders'
(deficit) equity (420,173) (408,219)
---------- ----------
Total liabilities and
stockholders' equity $ 262,217 $ 324,915
========== ==========
FU-4
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "B"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Sales $ 52,727
Cost of sales (Schedule "1") 24,817
----------
Gross profit $ 27,910
Operating expenses (Schedule "2") 246,846
----------
Operating loss (218,936)
Other income and expense (Schedule "3") (11,936)
----------
Net loss $ (230,872)
==========
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
FU-5
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "C"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Deficit
Accumulated
Common Additional During
Stock Paid-in Development
Shares Amount Capital Stage
Balance, January 1, 2000 2,136,000 $ 2,136 $1,188,575 $(1,598,930)
Proceeds from issuance of common stock 1,250,000 1,250 217,668 -
Net loss - - - (230,872)
---------- ------- ---------- -----------
Balance, March 31, 2000 3,386,000 $ 3,386 $1,406,243 $(1,829,802)
========== ======= ========== ============
Additional disclosure for
development stage companies
Common stock issued:
At par 1,536,000 $ 1,536 $ -0-
For services 866,000 866 84,934
From private offering 984,000 984 1,321,309
---------- ------- ----------
3,386,000 $ 3,386 $1,406,243
========== ======= ==========
</TABLE>
FU-6
The accompanying notes to the financial statements are an integral part of these
statements.
<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)
Cash flows from operating activities
Net loss $(230,872)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 3,997
Changes in assets and liabilities:
Increase in accounts receivable,
net (10,991)
Decrease in inventory 12,127
Increase in accounts payable 6,944
Increase in taxes payable 13,322
Decrease in accrued expenses (17,509)
---------
Net cash used in
operating activities $(222,982)
---------
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 217,668
Issuance of capital stock 1,250
-----------
Net cash provided by
financing activities 165,418
----------
Net decrease in cash (64,044)
Cash, at beginning 135,766
----------
Cash, at end $ 71,722
==========
FU-7
<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 $(1,457,042)
Net cash used in
investing activities (100,305)
Net cash provided by
financing activities 1,629,069
-----------
$ 71,722
============
FU-8
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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. Since its inception, the
Company has devoted substantially all of its efforts to establishing a new
business.
Accounting
The accompanying financial statements are unaudited and have been prepared in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in the Company's annual financial
statements have been condensed or omitted. The interim financial statements, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of the results for the
interim period ended March 31, 2000.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the entire fiscal
year. It is suggested that these interim financial statements be read in
conjunction with the audited financial statements for the year ended December
31, 1999.
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.
FU-9
<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. 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 (denominator) during the period and includes the dilutive effect of
stock options. Diluted net earnings (loss) per share gives effect to all
potentially dilutive common shares outstanding during the period.
FU-10
<PAGE>
3. COMMITMENTS AND CONTINGENCIES
Minimum Royalties
Pursuant to the License, 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.
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 expired February 29, 2001.
Going Concern
The Company incurred a net loss of $609,598 during the year ended December 31,
1999, and as of that date, the Company's current liabilities exceeded its
current assets by $463,765 and its total liabilities exceeded its total assets
by $408,219. 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 converting a substantial portion of its existing debts
into equity by the 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.
FU-11
<PAGE>
4. 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.
5. 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 occurred 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.
FU-12
<PAGE>
SUPPLEMENTARY INFORMATION
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SUPPLEMENTARY INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2000
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
Bad debts 10,362
Royalties 25,666
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 $246,846
========
FU-13
<PAGE>
SCHEDULE "3": OTHER INCOME AND EXPENSE
Interest expense $ 12,280
Interest income (344)
--------
Total other income
and expense $ 11,936
========
FU-14
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
FU-15
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
INDEX TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Accountants' Review Report
Financial Statements
Balance Sheets Exhibit "A"
Statements 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 Income and Expense Schedule "3"
FU-16
<PAGE>
To the Stockholders of
Save On Energy, Inc.
Airport Industrial Center Suite 210
4851 Georgia Highway 85
Forest Park, Georgia 30297
We have reviewed the accompanying balance sheet of Save On Energy, Inc as
of June 30, 2000 and the related statements of operations and stockholders'
equity and cash flows for the six months then ended, and the accompanying
supplementary information contained in Schedules 1-3. which are presented only
for supplementary analysis purposes, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Save On Energy, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to the financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted accounting
standards, the balance sheet as of December 31, 1999, and the related statements
of operations and stockholders' equity and cash flows for the year then ended
(not presented herein), and in our report dated January 21, 2000 we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31, 1999
is fairly presented in all material respects in relation to the balance sheet
from which it has been derived.
Jack Kane & Company, P.C.
September 5, 2000
FU-17
<PAGE>
EXHIBIT "A"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
6/30/00 12/31/99
<S> <C> <C>
ASSETS
Current assets
Cash $ 27,186 $ 135,766
Accounts receivable, net 31,977 22,773
Inventory 121,179 110,830
---------- ----------
Total current assets 180,342 269,369
---------- ----------
Property, plant and equipment
Equipment and leasehold improvements 128,962 91,624
Less: accumulated depreciation 68,440 58,578
---------- ----------
Net fixed assets 60,522 33,046
---------- ----------
Other assets
Long term notes receivable 22,500 22,500
---------- ----------
Total assets $ 263,364 $ 324,915
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and loans payable $ 523,027 $ 443,500
Accounts payable 84,979 39,569
Taxes payable 106,897 80,558
Accrued loss on litigation (Note 5) 125,000 125,000
Accrued expenses 54,694 44,507
---------- ----------
Total current liabilities 894,597 733,134
---------- ----------
Non-Current liabilities
Non-current portion of loans payable 26,168 -
---------- ----------
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
3,406,000 and 2,136,000 shares 3,406 2,136
Additional paid-in capital 1,421,223 1,188,575
Deficit accumulated during the
development stage (2,082,030) (1,598,930)
---------- ----------
Total stockholders'
(deficit) equity (657,401) (408,219)
---------- ----------
Total liabilities and
stockholders' equity $ 263,364 $ 324,915
========== ==========
FU-18
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "B"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the For the
3 months 6 months
ended ended
6/30/2000 6/30/2000
Sales $ 52,665 $ 105,392
Cost of sales (Schedule "1") 35,694 60,511
---------- ----------
Gross profit 16,971 44,881
Operating expenses (Schedule "2") 249,425 496,271
---------- ----------
Operating loss (232,454) (451,390)
Other income and expense
(Schedule "3") (19,774) (31,710)
---------- ----------
Net loss $ (252,228) $ (483,100)
========== ==========
Net loss per weighted average share,
basic $(.06) $(.11)
Net loss per weighted average share,
diluted $(.06) $(.11)
Weighted average share, basic 4,302,011 4,226,375
Weighted average share, diluted 4,788,141 4,564,910
FU-19
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "C"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE, 2000
(UNAUDITED)
Deficit
Accumulated
Common Additional During
Stock Paid-in Development
Shares Amount Capital Stage
Balance, January 1, 2000 2,136,000 $ 2,136 $1,188,575 $(1,598,930)
Proceeds from issuance of common stock 1,270,000 1,270 232,648 -
Net loss - - - (483,100)
---------- ------- ---------- -----------
Balance, June 30, 2000 3,406,000 $ 3,406 $1,421,223 $(2,082,030)
========= ======= ========== ============
Additional disclosure for development stage companies
Common stock issued:
At par 1,536,000 $ 1,536 $ -0-
For services 886,000 886 99,914
From private offering 984,000 984 1,321,309
---------- ------- ---------
3,406,000 $ 3,406 $1,421,223
========== ======= =========
</TABLE>
FU-20
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "D"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Cash flows from operating activities
Net loss $(483,100)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 9,862
Changes in assets and liabilities:
Increase in accounts receivable,
net (9,204)
Increase in inventory (10,349)
Increase in accounts payable 45,410
Increase in taxes payable 26,339
Increase in accrued expenses 10,187
---------
Net cash used in
operating activities $(410,855)
---------
Cash flows from investing activities
Purchase of fixed assets (37,338)
---------
Cash flows from financing activities
Proceeds from convertible
notes payable 230,000
Payment of notes payable (153,500)
Net proceeds from equipment loan 29,195
Increase in additional
paid in capital 232,648
Issuance of capital stock 1,270
-----------
Net cash provided by
financing activities 339,613
----------
Net decrease in cash (108,580)
Cash, at beginning 135,766
----------
Cash, at end $ 27,186
==========
FU-21
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
EXHIBIT "D"
(Continued)
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Supplementary information
Cash paid during the year for:
Interest $ 10,787
Income taxes -
Additional disclosure for development state companies
Cumulative amounts since inception:
Net cash used in
operating activities $(1,644,915)
Net cash used in
investing activities (131,163)
Net cash provided by
financing activities 1,803,264
-----------
$ 27,186
============
FU-22
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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. Since its inception, the
Company devoted substantially all of its efforts to establishing a new
business.
Accounting
The accompanying financial statements are unaudited and have been
prepared in accordance with generally accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary for
a fair statement of the results for the interim period ended June 30,
2000.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the entire
fiscal year. It is suggested that these interim financial statements be
read in conjunction with the audited financial statements for the year
ended December 31, 1999.
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.
FU-23
<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. 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 (denominator) during the period and
includes the dilutive effect of stock options. Diluted net earnings
(loss) per share gives effect to all potentially dilutive common shares
outstanding during the period.
FU-24
<PAGE>
3. COMMITMENTS AND CONTINGENCIES
Minimum Royalties
Pursuant to the License, 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.
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 expired February
29, 2001.
Going Concern
The Company incurred a net loss of $609,598 during the year ended
December 31, 1999, and as of that date, the Company's current liabilities
exceeded its current assets by $463,765 and its total liabilities
exceeded its total assets by $408,219. 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 converting a substantial portion of its existing debts into equity by
the 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.
FU-25
<PAGE>
4. 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.
5. 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 occurred 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.
FU-26
<PAGE>
SUPPLEMENTARY INFORMATION
FU-27
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
For the For the
3 months 6 months
ended ended
6/30/2000 6/30/2000
<S> <C> <C>
SCHEDULE "1": COST OF SALES
Inventory at beginning $ 98,703 $110,830
Purchases and freight 58,170 70,860
-------- --------
156,873 181,690
Inventory at end 121,179 121,179
-------- --------
Cost of sales $ 35,694 $ 60,511
======== ========
SCHEDULE "2": OPERATING EXPENSES
Salaries and wages $ 42,465 $ 83,408
Payroll taxes 5,840 10,744
Employee benefits 146 584
Consulting fees
and outside services 68,300 129,540
Rent 8,873 15,811
Light, heat and power 4,281 7,276
Repairs and maintenance 228 443
Factory supplies and expenses 1,013 4,123
Research and product testing 30,856 35,332
Insurance 9,946 20,847
Depreciation 5,865 9,862
Bad debts (501) 9,861
Royalties 2,329 27,995
Auto and truck expense 1,761 1,936
Sales promotion, advertising
and public relations 18,020 24,870
Professional fees 11,676 30,902
Travel and transportation 22,093 49,714
Telephone 3,105 7,599
Entertainment 2,639 5,787
Office supplies and expense 7,344 9,729
Dues and subscriptions 694 1,018
Bank fees and credit card charges 1,252 4,250
Miscellaneous expense 1,200 4,640
-------- --------
Total operating expenses $249,425 $496,271
======== ========
SCHEDULE "3": OTHER INCOME AND EXPENSE
Interest expense $ 19,886 $ 32,166
Interest income (112) (456)
-------- --------
Total other income
and expense $ 19,774 $ 31,710
======== ========
</TABLE>
FU-28
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000
FU-29
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC
INDEX TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
Accountants' Review Report
Financial Statements
Balance Sheets Exhibit "A"
Statements 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 Income and Expense Schedule "3"
FU-30
<PAGE>
To the Stockholders of
Save On Energy, Inc.
Airport Industrial Center Suite 210
4851 Georgia Highway 85
Forest Park, Georgia 30297
We have reviewed the accompanying balance sheet of Save On Energy, Inc as
of September 30, 2000 and the related statements of operations and stockholders'
equity and cash flows for the nine months then ended, and the accompanying
supplementary information contained in Schedules 1-3. which are presented only
for supplementary analysis purposes, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Save On Energy, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to the financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
FU-31
<PAGE>
We previously audited, in accordance with generally accepted accounting
standards, the balance sheet as of December 31, 1999, and the related statements
of operations and stockholders' equity and cash flows for the year then ended
(not presented herein), and in our report dated January 21, 2000 we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31, 1999
is fairly presented in all material respects in relation to the balance sheet
from which it has been derived.
Jack Kane & Company, P.C.
November 20, 2000
FU-32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT "A"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
(Unaudited) (Audited)
9/30/00 12/31/99
ASSETS
Current assets
<S> <C> <C>
Cash $ 8,646 $ 135,766
Accounts receivable, net 16,396 22,773
Inventory 182,480 110,830
---------- ----------
Total current assets 207,522 269,369
---------- ----------
Property, plant and equipment
Equipment and leasehold improvements 130,335 91,624
Less: accumulated depreciation 73,472 58,578
---------- ----------
Net fixed assets 56,863 33,046
---------- ----------
Other assets
Long term notes receivable 22,500 22,500
---------- ----------
Total assets $ 286,885 $ 324,915
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and loans payable $ 544,862 $ 443,500
Accounts payable 176,493 39,569
Taxes payable 120,997 80,558
Accrued loss on litigation (Note 5) 125,000 125,000
Accrued expenses 78,037 44,507
---------- ----------
Total current liabilities 1,045,389 733,134
---------- ----------
Non-Current liabilities
Non-current portion of loans payable 23,295 -
---------- ----------
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
3,406,000 and 2,136,000 shares 3,406 2,136
Additional paid-in capital 1,421,223 1,188,575
Deficit accumulated during the
development stage (2,206,428) (1,598,930)
---------- ----------
Total stockholders'
(deficit) equity (781,799) (408,219)
---------- ----------
Total liabilities and
stockholders' equity $ 286,885 $ 324,915
========== ==========
The accompanying notes to the financial statements are an integral
part of these statements.
FU-33
<PAGE>
EXHIBIT "B"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the For the
3 months 9 months
ended ended
9/30/2000 9/30/2000
Sales $ 51,818 $ 157,210
Cost of sales (Schedule "1") 23,825 84,336
---------- ----------
Gross profit 27,993 72,874
Operating expenses (Schedule "2") 135,217 631,488
---------- ----------
Operating loss (107,224) (558,614)
Other income and expense
(Schedule "3") (17,174) (48,884)
---------- ----------
Net loss $ (124,398) $ (607,498)
========== ==========
Net loss per weighted average share,
basic $(.03) $(.14)
Net loss per weighted average share,
diluted $(.03) $(.14)
Weighted average share, basic 4,247,500 4,233,403
Weighted average share, diluted 4,754,167 4,629,105
FU-34
<PAGE>
EXHIBIT "C"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
Deficit
Accumulated
Common Additional During
Stock Paid-in Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance, January 1, 2000 2,136,000 $ 2,136 $ 1,188,575 $(1,598,930)
Proceeds from issuance of
common stock 1,270,000 1,270 232,648 --
Net loss -- -- -- (607,498)
----------- ----------- -----------
Balance, September 30, 2000 3,406,000 $ 3,406 $ 1,421,223 $(2,206,428)
========== =========== =========== ===========
Additional disclosure for development stage companies
Common stock issued:
At par 1,536,000 $ 1,536
For services 886,000 886
From private offering 984,000 984
---------- -------
3,406,000 $ 3,406
========= =======
The accompanying notes to the financial statements are an integral part of these
statements.
FU-35
<PAGE>
EXHIBIT "D"
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
Cash flows from operating activities
Net loss $(607,498)
Adjustments to reconcile net loss
to net cash (used in)
operating activities:
Depreciation and amortization 14,894
Changes in assets and liabilities:
Decrease in accounts receivable,
net 6,377
Increase in inventory (71,650)
Increase in accounts payable 136,924
Increase in taxes payable 40,439
Increase in accrued expenses 33,530
---------
Net cash used in
operating activities $(446,984)
---------
Cash flows from investing activities
Purchase of fixed assets (38,711)
---------
Cash flows from financing activities
Proceeds from convertible
notes payable 230,000
Payment of notes payable
(153,500)
Net proceeds from equipment loan 28,089
Proceeds from loan 12,068
Increase in line of credit 8,000
Increase in additional
paid in capital 232,648
Issuance of capital stock 1,270
-----------
Net cash provided by
financing activities 358,575
----------
Net decrease in cash (127,120)
Cash, at beginning 135,766
Cash, at end $ 8,646
============
The accompanying notes to the financial statements are an integral part of these
statements.
FU-36
<PAGE>
EXHIBIT "D"
(Continued)
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
Supplementary information
Cash paid during the year for:
Interest $ 19,226
Income taxes ------
Additional disclosure for development state companies
Cumulative amounts since inception:
Net cash used in
operating activities $(1,681,044)
Net cash used in
investing activities (132,536)
Net cash provided by
financing activities 1,822,226
-----------
$ 8,646
============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
FU-37
<PAGE>
SAVE ON ENERGY, INC.
(FORMERLY ELECTRONIC FUEL CONTROL, INC.)
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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. Since its inception, the Company
devoted substantially all of its efforts to establishing a new business.
Accounting
The accompanying financial statements are unaudited and have been prepared
in accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in the Company's annual financial
statements have been condensed or omitted. The interim financial statements, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of the results for the
interim period ended September 30, 2000.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the entire fiscal
year. It is suggested that these interim financial statements be read in
conjunction with the audited financial statements for the year ended December
31, 1999.
FU-38
<PAGE>
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.
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. 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 (denominator) during the period and includes the dilutive
effect of stock options. Diluted net earnings (loss) per share gives effect to
all potentially dilutive common shares outstanding during the period.
FU-39
<PAGE>
3. COMMITMENTS AND CONTINGENCIES
Minimum Royalties
Pursuant to the License, 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.
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 28,
2001.
FU-40
<PAGE>
Going Concern
The Company incurred a net loss of $609,598 during the year ended December
31, 1999, and as of that date, the Company's current liabilities exceeded its
current assets by $463,765 and its total liabilities exceeded its total assets
by $408,219. 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 converting a substantial portion of its existing debts
into equity by the 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.
4. RELATED PARTY TRANSACTIONS
During 1999 and 2000, 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.
5. 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 occurred 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.
FU-41
<PAGE>
SUPPLEMENTARY INFORMATION
FU-42
<PAGE>
SAVE ON ENERGY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SUPPLEMENTARY INFORMATION
For the For the
3 months 9 months
ended ended
9/30/2000 9/30/2000
SCHEDULE "1": COST OF SALES
Inventory at beginning $ 121,179 $ 110,830
Purchases and freight 85,126 155,986
206,305 266,816
Inventory at end 182,480 182,480
Cost of sales $ 23,825 $ 84,336
========= =========
SCHEDULE "2": OPERATING EXPENSES
Salaries and wages $ 41,279 $ 124,687
Payroll taxes 5,160 15,904
Employee benefits -- 584
Consulting fees
and outside services 17,000 146,540
Rent 9,469 25,280
Light, heat and power 7,068 14,344
Repairs and maintenance 153 596
Factory supplies and expenses 1,817 5,940
Research and product testing (3,317) 32,015
Insurance 5,351 26,198
Depreciation 5,032 14,894
Bad debts (4,300) 5,562
Royalties 1,000 28,995
Auto and truck expense 669 2,604
Sales promotion, advertising
and public relations 379 25,249
Professional fees 19,519 50,421
Travel and transportation 5,333 55,047
Telephone 5,164 12,763
Entertainment 3,640 9,427
Office supplies and expense 1,440 11,169
Filing fee 4,239 4,239
Dues and subscriptions 477 1,495
Bank fees and
credit card charges 570 4,820
Miscellaneous expense 8,075 12,715
--------- ---------
Total operating expenses $ 135,217 $ 631,488
SCHEDULE "3": OTHER INCOME AND EXPENSE
Interest expense $ 18,890 $ 51,056
Interest income (1,716) (2,172)
--------- ---------
Total other income
and expense $ 17,174 $ 48,884
========= =========
FU-43
