U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 1-12350
FuelNation Inc.
---------------
(Formerly Regenesis Holdings, Inc,)
-----------------------------------
(Name of Small Business Issuer in its Charter)
Florida 65-0827283
----------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1700 North Dixie Highway, Suite 125, Boca Raton, Florida 33432
------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(561) 391-5883
--------------
(Issuer's Telephone Number)
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, par value $.01
per share as of November 17, 2000 was 150,066,466
<PAGE>
FuelNation Inc.
(Formerly Regenesis Holdings, Inc.)
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(UNAUDITED)
PAGE
----
<S> <C>
Condensed Balance Sheets at September 30, 2000 and December 31, 1999 3
Condensed Statements of Operations for the Three and Nine Months ended September 30,
2000 and 1999 4
Condensed Statement of Changes in Stockholders'Deficit for Nine Months ended
September 30, 2000 5
Condensed Statements of Cash Flows for the Nine Months ended September 30, 2000,
and 1999 6 - 7
Notes to Condensed Financial Statements 8 - 17
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 18 - 22
PART II OTHER INFORMATION 23 - 26
-----------------------------------
SIGNATURES 27
</TABLE>
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,109 $ 101,835
Prepaid expenses 10,000 --
------------ ------------
Total Current Assets 11,109 101,835
Furniture, equipment & leashold inprovements, net of
accumulated depreciation of $3,670 in 1999 -- 23,028
Other assets, net of accumulated amortization
of $2,126 and $-0- 1,162 18,922
Advances toward proposed acquisition -- 155,492
Excess of cost over fair value of net assets acquired,
net of accumulation amortization of $74 in 1999 -- 556
------------ ------------
Total Assets $ 12,271 $ 299,833
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Refund payable $ 200,000 $ --
Accounts payable 134,672 81,495
Accrued payroll -- 402,168
Due to officers and stockholders -- 175,835
Due to Triad Petroleum, LLC 60,107 --
Other current liabilities 130,008 109,693
Loans Payable 130,000 150,000
Convertible demand loan -- 100,000
------------ ------------
Total Current Liabilities 654,787 1,019,191
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; none issued and outstanding -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized; 6,066,466 and 6,388,974 shares issued
and outstanding, respectively 60,665 63,890
Additional paid-in capital 14,946,734 13,369,831
Accumulated deficit (15,649,915) (14,153,079)
------------ ------------
Total Stockholders' Deficit (642,516) (719,358)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 12,271 $ 299,833
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE>
FuelNation INC.
(FORMERLY REGENESIS HOLDINGS, INC.)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------- -----------
<S> <C> <C> <C> <C>
Revenue $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Operating expenses:
Salaries and wages including related taxes 93,725 152,856 450,219 431,455
Consulting fees 11,466 66,640 196,466 189,215
Legal and professional 43,499 22,334 173,951 99,084
Travel 1,651 75,353 65,858 102,287
Rent 8,734 8,383 57,776 29,533
Office expense 916 20,369 35,129 32,888
Depreciation and amortization 8,507 1,618 21,204 3,150
Marketing and promotion -- 24,412 13,573 132,054
Other general and administrative expenses 69,226 21,423 137,947 86,721
Provision for advances toward proposed acquisition 29,796 -- 454,444 --
----------- ----------- ----------- -----------
Total operating expenses 267,520 393,388 1,606,567 1,106,387
----------- ----------- ----------- -----------
Operating Loss (267,520) (393,388) (1,606,567) (1,106,387)
Other Income (Expense):
Gain on settlement of payables and other income 131,540 6,900 131,540 12,900
Interest expense (6,372) -- (21,809) --
----------- ----------- ----------- -----------
Total other income (expense), net 125,168 6,900 109,731 12,900
----------- ----------- ----------- -----------
Net Loss $ (142,352) $ (386,488) $(1,496,836) $(1,093,487)
=========== =========== =========== ===========
Basic and Diluted Net Loss per Common Share $ (0.02) $ (0.09) $ (0.19) $ (0.31)
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding 7,775,939 4,389,490 7,704,639 3,573,064
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE>
FuelNation INC.
(FORMERLY REGENESIS HOLDINGS, INC.)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances, December 31, 1999 -- $ -- 6,388,974 $ 63,890
Issuance of common shares in private placement transactions -- -- 300,000 3,000
Issuance of common shares to officer pursuant to the
amendment of an employment agreement -- -- 50,000 500
Issuance of common shares in payment of deferred consulting fees -- -- 1,050,000 10,500
Issuance of common shares to acquire Internet Domain name -- -- 250,000 2,500
Issuance of warrants to purchase common stock -- -- -- --
Issuance of common shares in payment of expenses -- -- 64,974 650
Cancellation of a private placement transaction -- -- (200,000) (2,000)
Cancellation of common shares issuable to officers and directors,
former officers and directors and certain consultants in connection
with cancellation of employment agreements and consulting
agreements -- -- (1,837,482) (18,375)
Net Loss -- -- -- --
---- ------ ------------ ------------
Balances, September 30, 2000 -- $ -- 6,066,466 $ 60,665
-=== ====== ============ ============
</TABLE>
[RESTUBBED]
<TABLE>
<CAPTION>
Additional
Paid-In
Capital Deficit Total
<S> <C> <C> <C>
Balances, December 31, 1999 $ 13,369,831 $(14,153,079) $ (719,358)
Issuance of common shares in private placement transactions 447,000 -- 450,000
Issuance of common shares to officer pursuant to the
amendment of an employment agreement 2,000 -- 2,500
Issuance of common shares in payment of deferred consulting fees 42,000 -- 52,500
Issuance of common shares to acquire Internet Domain name 10,000 -- 12,500
Issuance of warrants to purchase common stock 8,999 -- 8,999
Issuance of common shares in payment of expenses 2,598 -- 3,248
Cancellation of a private placement transaction (198,000) -- (200,000)
Cancellation of common shares issuable to officers and directors,
former officers and directors and certain consultants in connection
with cancellation of employment agreements and consulting
agreements 1,262,306 -- 1,243,931
Net Loss -- (1,496,836) (1,496,836)
------------ ------------ ------------
Balances, September 30, 2000 $ 14,946,734 $(15,649,915) $ (642,516)
============ ============ ------------
</TABLE>
See Accompanying Notes
5
<PAGE>
FuelNation INC.
(FORMERLY REGENESIS HOLDINGS, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,496,836) $(1,093,487)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,204 3,150
Provision for advances toward proposed acquisition 454,444 --
Expenses paid by issuance of common stock, options and warrants 11,462 170,050
Other non cash charges 68,969 --
Changes in operating assets and liabilities:
Deposits and other assets (45,585) (21,593)
Accounts payable, accrued expenses, and
other current liabilities 420,507 332,959
----------- -----------
Net cash used in operating activities (565,835) (608,921)
----------- -----------
Cash Flows from Investing Activities:
Advances toward pending acquisition (298,952) --
Purchase of equipment (10,101) (26,698)
----------- -----------
Net cash used in investing activities (309,053) (26,698)
----------- -----------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock 450,000 511,730
Proceeds from convertible demand loan -- 100,000
Repayment of loans payable (20,000) --
Proceeds of loans from officers and stockholders 442,210 26,025
Repayment of loans to officers and stockholders (98,048) (2,800)
----------- -----------
Net cash provided by financing activities 774,162 634,955
----------- -----------
Net Decrease in Cash (100,726) (664)
Cash, Beginning of Period 101,835 20,748
----------- -----------
Cash, End of Period $ 1,109 $ 20,084
----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest: $ -- $ --
=========== ===========
Supplemental Schedule of Non Cash Investing and Financing Activities:
Nine Months Ended September 30, 2000:
Issuance of 250,000 shares of common stock to acquire the URL
address Music 411.com, valued at $12,500.
Issuance of an aggregate of 1,050,000 shares of common stock in
connection with three consulting agreements, valued at $52,500.
</TABLE>
See Accompanying Notes
6
<PAGE>
FuelNation INC.
(FORMERLY REGENESIS HOLDINGS, INC.)
CONDENSED STATEMENTS OF CASH FLOWS, Continued
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
Issuance of an aggregate of 50,000 shares of common stock in
connection with the amendment of an employment agreement with.
an officer, valued at $2,500.
Cancellation of 1,837,482 shares of common stock issuable to officers
and directors, former officers and directors and certain
consultants in connection with cancellation of employment
agreements and consulting agreements, valued at $1,243,931.
Nine Months Ended September 30, 1999:
Issuance of 10,000 shares of common stock to acquire the assets of
NetDisc, Inc., valued at $630.
Issuance of 48,000 shares of Series C Preferred Stock valued at
$57,180.
Issuance of 1,000,000 shares of common stock to an officers and
directors in connection with their employment agreements,
valued at $63,000.
Excess of estimated fair market value of 950,000 shares of common stock
over the aggregate selling price of $9,500.
See Accompanying Notes
7
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On October 13, 2000, the Company (formerly Regenesis Holdings,
Inc.) announced that it closed on a transaction whereby Triad
Petroleum, LLC ("Triad"), a privately held provider of e-commerce
and management services to the petroleum industry and owners of the
trademark FuelNation, acquired controlling interest in the Company
through a stock purchase agreement (see Note 8). In connection with
the closing of the transaction Regenesis Holdings, Inc, changed its
name to FuelNation Inc.
Basis of Presentation
In 1997, the Company sold all of its existing operations, which
consisted of Domino's Pizza franchises in Poland and Medical
Centers located in Southeast Florida, and became a holding company,
with no operating subsidiaries. In 1999, the Company acquired the
assets of NetDisc, Inc. ("NetDisc") for the purpose of pursuing
internet advertising opportunities, although to date, the Company
has generated no revenues from such activities. In connection with
the completion of the transaction with Triad, the Company has
ceased pursuing Net Disc's operations.
The presentation 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 at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
The accompanying unaudited condensed financial statements, which
are for interim periods, do not include all disclosures provided in
the annual financial statements. These unaudited condensed
financial statements should be read in conjunction with the
financial statements and the footnotes thereto contained in the
Annual Report on Form 10-KSB for the year ended December 31, 1999,
as filed with the Securities and Exchange Commission. The December
31, 1999 condensed balance sheet was derived from audited financial
statements, but does not include all disclosures required by
generally accepted accounting principles.
In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the
financial statements. The results of operations for the three and
nine months ended September 30, 2000, are not necessarily
indicative of the results to be expected for the full year.
8
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
Going Concern
The report of the Company's independent certified public
accountants on their audit of the Company's December 31, 1999
financial statements contained uncertainties relating to the
Company's ability to continue as a going concern. As shown in the
accompanying financial statements, the Company incurred a loss of
$1,496,836 for the nine months ended September 30, 2000, and had a
working capital deficiency and a stockholders' deficiency of
$643,678 and $642,516, respectively, at September 30, 2000. These
factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern for a reasonable period of
time. The accompanying financial statements do not include any
adjustments relating to the outcome of this uncertainty.
Liquidity and Plan of Operations
As of September 30, 2000, the Company had cash of $1,109 and a
working capital deficiency of $643,678.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on
a timely basis. The Company's primary source of liquidity has been
from the cash generated through the private placement of equity
and/or debt securities and from advances from its officers and
directors. The Company has completed the transaction with Triad
Petroleum LLC (see Note 8) in order to eventually achieve
profitable operations. However, there can be no assurance that the
Company will be successful in achieving profitable operations or
acquiring additional capital or that such capital, if available,
will be on terms and conditions acceptable to the Company.
Reclassifications
Certain reclassifications have been made in the 1999 financial
statements to conform to the 2000 presentation.
Restatement of September 30, 1999
Results of operations for the nine months ended September 30, 1999,
have been restated to include the adjustments as outlined below:
Net loss as originally reported $ (1,057,332)
Accrual of unpaid salaries and wages including
related taxes ( 36,155)
------------
Net loss as restated $( 1,093,487)
============
9
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 2. ADVANCES TOWARD PROPOSED ACQUISITION
The Company entered into a preliminary letter of intent in 1999
(the "Preliminary LOI") to acquire all of the assets and assume
certain liabilities of the entity formerly known as Red Ant
Entertainment ("Red Ant").
In accordance with the terms of the Preliminary LOI both the
Company and the seller each loaned $75,000 to MCCC Acquisition, LLC
("MCCC") the owner of the assets and such funds were simultaneously
advanced to Management West International, Inc. ("Management West")
which is the entity that was managing the assets until completion
of the acquisition by the Company. In addition, through September
30, 2000, the Company advanced $379,444 to Management West to cover
a portion of their operating expenses.
Pursuant to the terms of the Preliminary LOI, the purchase price
was to be comprised of $300,000 of cash, 300,000 shares of
restricted common stock of the Company, a three year warrant to
purchase 100,000 shares of common stock of the Company at an
exercise price of $3.00 per share, plus the liabilities assumed.
The Company's $75,000 loan to MCCC was to be forgiven. All
operating advances made by the Company through the date of closing
of the purchase were to be considered as part of the purchase price
for financial reporting purposes. Accordingly, such advances were
capitalized as advances toward proposed acquisition in the
accompanying financial statements. During the nine months ended
September 30, 2000, the Board of Directors of the Company
determined that completion of the proposed acquisition would not be
in the best interests of the Company. Accordingly, the $454,444
balance of advances toward proposed acquisition were charged to
operations during the nine months ended September 30, 2000.
NOTE 3. LOANS PAYABLE
On August 12, 1999 and December 30, 1999, the Company borrowed an
aggregate of $100,000 from a third party, a principal of whom is
also a shareholder of the Company. The loan was payable in full on
or before July 1, 2000 and bore interest at 2% above the base rate
of the Bank of England, compounded daily and all interest was
payable at maturity.
Effective September 29, 2000, the Company reached an agreement with
the lender whereby all principal and accrued interest due under the
loan was satisfied in full by payment of $100,000, which payment
was made on October 25, 2000, from funds advanced to the Company by
Triad.
On October 31, 1999, the Company borrowed $75,000 from a third
party. The loan was payable in full on its extended due date of
April 14, 2000. The unpaid principal balance on the loan as of
September 30, 2000, was $30,000. The loan bears interest at 12% per
annum and all interest is payable at maturity. In accordance with
the terms of the loan agreement, the Company granted the lender an
aggregate of 19,000 shares of the Company's common stock and
further agreed to issue the lender an additional 2,500 shares of
the Company's common stock for each seven day period beginning on
December 16, 1999 through the date of final
10
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
payment of all principal and accrued interest. For the nine months
ended September 30, 2000, the Company recorded as issuable an
aggregate of 64,974 shares of common stock to the lender in
accordance with the terms of the loan agreement, which were valued
at $3,248. The value of the shares issued is included in interest
expense in the accompanying financial statements. At September 30,
2000, the unpaid principal balance on the loan was $30,000. The
number of shares of common stock to be issued is presently in
dispute. The Company is presently negotiating with the lender to
reach agreement on the method of repayment of the outstanding
balance of principal and accrued interest, as well as the number of
shares of common stock to be issued.
NOTE 4. CONVERTIBLE DEMAND LOAN
On September 8, 1999, the Company borrowed $100,000 from a third
party. The loan bore interest at the rate of 12% per annum and all
interest was payable at maturity. The loan was payable in full
within 60 days after receiving a notice of demand from the lender.
At the option of the lender the loan was convertible into 75,000
shares of the Company's common stock at a per share price of $1.33.
In connection with the loan, the Company issued to the lender a two
year warrant to purchase 20,000 shares of the Company's common
stock at an exercise price of $2.50 per share and a one year option
to purchase an additional 100,000 shares of the Company's common
stock at a price to be determined by negotiation between the
parties. The warrant and the option were valued at an aggregate of
$2,333. Effective September 29, 2000, the Company reached agreement
with the lender whereby all principal and accrued interest due
under the loan was satisfied by the issuance of 100,000 shares of
common stock of the Company, which will be made available from
shares placed into escrow by certain shareholders in connection
with the terms of the Share Sale and Contribution Agreement between
the Company and Triad ( see Note 8). As a condition of the
agreement the lender relinquished all rights to the warrant and
option to purchase 20,000 and 100,000, shares of the Company's
common stock, respectively. The warrant and option have been
cancelled.
NOTE 5 . RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2000, the Company
received an aggregate of $442,210 of advances from officers, former
officers and stockholders and made payments to such individuals
aggregating $98,048.
During the quarter ended September 30, 2000, all amounts due to
such individuals (net of offsets for assets transferred at net book
value) aggregating $473,423, was waived by such individuals
pursuant to the terms of letter agreements, whereby such
individuals waived all of their rights to receive any amounts due
and such amounts were contributed to paid in capital in the
accompanying condensed balance sheet as of September 30, 2000.
In addition, pursuant to the terms of the aforementioned letter
agreements such individuals relinquished all of their rights to
receive unpaid accrued compensation, as well as future compensation
pursuant to the terms of their respective employments agreements.
As a result,
11
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
$656,093 of amounts due to such individuals was contributed to paid
in capital in the accompanying condensed balance sheet as of
September 30, 2000.
As of September 30, 2000, the Company had received $60,107 in
working capital advances from Triad. Subsequent to September 30,
2000, Triad advanced an additional $340,000 to the Company, which
was used to satisfy the terms of settlement agreements with regard
to outstanding liabilities of the Company (see Note 8).
NOTE 6. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 2000, the Company sold
300,000 shares of common stock (which includes the 200,000 shares
discussed in the following paragraph) at prices ranging from $1.00
to $3.00 per share and received an aggregate of $450,000 of cash.
On January 20, 2000, the Company entered into an agreement to sell
200,000 shares of common stock at a price of $1.00 per share in a
private placement transaction. The purchaser of the shares
deposited the $200,000 purchase price with the Company's counsel
for the benefit of the Company until completion of the proposed
acquisition described in Note 2. On June 15, 2000, counsel for the
Company released the funds to the Company and $145,000 of such
funds were advanced in connection with the proposed acquisition and
$55,000 of such funds were utilized for general working capital
purposes. The 200,000 shares were recorded as issuable in the
Company's financial statements as of June 15, 2000. Effective
September 29, 2000, pursuant to the terms of an Agreement of
Settlement and Release, the Company agreed to repay the $200,000 of
cash proceeds received and was released from all claims of any kind
that could be asserted by the purchaser of the shares. At September
30, 2000, the $200,000 liability is reflected as a refund payable
in the accompanying condensed balance sheet. The amount was paid in
full on October 25, 2000, with funds advanced to the Company by
Triad.
In January 2000, the Company purchased the URL address Music
411.com from the father of the former Chairman of the Board of
Directors in exchange for 250,000 restricted shares of the
Company's common stock, which was valued at $ 12,500. In September
2000, the address was sold to the father of the former Chairman of
the Board of Directors for $10.00 and the balance of $12,490 was
charged to operations in the accompanying condensed statement of
operations.
On January 5, 2000, the Company granted options to three officers
to purchase up to an aggregate of 800,000 shares of common stock at
an exercise price of $.25 per share. Pursuant to the terms of the
letter agreements with these individuals described in Note 7, the
options were cancelled during the quarter ended September 30, 2000.
On January 5, 2000 the Company granted 50,000 shares of Common
Stock to its Executive Vice President of Entertainment / Music
Development in connection with a one year extension of his
employment agreement. The shares were recorded at their established
fair market value of $2,500. Pursuant to the terms of the letter
agreement with this individual described in Note 7, the 50,000
shares were cancelled during the quarter ended September 30, 2000.
12
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
In January 2000, the Company entered into three consulting
agreements which provided for an aggregate of $20,000 per month in
consulting fees and the issuance of an aggregate of 1,050,000
shares of common stock valued at $.05 per share. Based upon quoted
prices between dealers the $.05 per share was considered to be
equivalent to the estimated fair market value per share of the
Company's common stock on the date of the transaction. The
agreements are for a period of three years. The $52,500 value
associated with the common stock was recorded as deferred
consulting fees and was amortized through September 30, 2000, using
a three year term. Effective September 29, 2000, pursuant to the
terms of a settlement agreement, two of the consultants agreed to
accept an aggregate of 400,000 shares of the Company's common stock
in full settlement of all of the Company's obligations under the
terms of two of the three consulting agreements and such agreements
were cancelled. The 400,000 shares of common stock to be issued
will be made available from shares placed in escrow by certain
shareholders in connection with the terms of the Share Sale and
Contribution Agreement between the Company and Triad (see Note 8).
The 1,000,000 shares of common stock previously issuable by the
Company have been reflected as a reduction in common shares
outstanding in the accompanying condensed financial statements as
of September 30, 2000.
At September 30, 2000, the Company had reserved 4,466,000 shares of
common stock for issuance pursuant to the terms of its stock option
plan and other outstanding options and warrants.
The Company's Stock Option Plan (the "Plan") provides for the
issuance of options to purchase a maximum of 4,000,000 shares of
common stock.
A summary of the status of all options outstanding under the Plan
as of September 30, 2000, and changes during the nine months ended
September 30, 2000, are presented below (see Notes 3 and 4):
Option Market Average
Price Price Remaining
at Date at Date Term
Shares of Grant of Grant in Years
------ -------- -------- --------
Balance at
Beginning
of Period 50,000 $1.00 $.07 1.8
Options
Granted 800,000 $.25 $.05 3.4
Options
Exercised - - - -
Options
Forfeited (850,000) $.25 - $1.00 $.05-$.07 3.0
Balance at
End of
Period - - - -
Options
Exercisable
At End of
Period - - - -
13
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 7 . COMMITMENTS AND CONTINGENCIES
Litigation
In December, 1998 the Company filed a Complaint in the Circuit
Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida entitled Shulman & Associates, Inc., Manny J.
Shulman, Franklyn B. Weichselbaum, Mitchell Rubinson and Regenesis
Holdings, Inc. v. Elizabeth Shwiff, Fincross, Ltd., Elpoint
Corporation, Elpoint Co., L.L.C., Russian Securities Co., Gennady
Yakovlev, Oleg Pavlioutchouk and Maxim Shishlyannikov, for
defamation and liable in connection with certain information
released about the Company. On August 21, 2000, Regenesis dismissed
the action without prejudice as to all defendants.
In a collateral action, the Company was named in a lawsuit
involving several of the same parties in the United States District
Court for the Northern District of California in the matter
entitled Elpoint Co., L.L.C., et al. v. Mitchell Rubinson, et al.
Although the Company was named as a indispensable party, the
allegations were in the nature of a shareholder derivative claim
and no relief was sought against the Company by the plaintiffs.
On May 19, 1999, a majority of the parties named in the
aforementioned lawsuits, including another California state court
action entitled Elpoint, L.L.C., et al. v. Mitchell Rubinson, et
al., filed in the Superior Court, attended mediation which resulted
in a settlement which required, among other things, the dismissal
of all three lawsuits. The Company was not a named party in the
California state court action. Additionally, the Company is not
obligated to contribute financially to the settlement. Although,
the Company did not attend the mediation, the Company was an
intended beneficiary of the settlement. Mitchell Rubinson and Larry
Rutstein, former officers of the Company, alleged certain
indemnification rights against the Company as part of the
settlement and notified the Company of such a reservation
subsequent to their execution of the settlement agreement. The
Company cannot opine upon the validity of such claims as no action
has been filed against the Company in that regard. However, the
Company believes the probability that Messrs. Rubinson and Rutstein
could sustain a claim against the Company based upon the settlement
agreement is remote, accordingly, no provision for any potential
claims associated with these matters has been recorded in the
accompanying condensed financial statements. The Company would
vigorously defend any such claims in the event they are filed.
Mitchell Rubinson has notified the Company of alleged
indemnification rights as to any funds paid for settlement and any
attorney's fees incurred in the above mentioned actions.
On December 16, 1999, the Judge presiding over the Superior Court
of California state court action entered an order granting the
plaintiff's motion to enforce the settlement under California Code
of Civil Procedure ss. 664.6.
At September 30, 2000, the Company was not a party to any pending
litigation.
14
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
Operating Leases
The Company leased office space in Miami, Florida pursuant to the
terms of a sublease agreement expiring by its original terms in May
2002. On October 25, 2000, the Company and the landlord entered
into an agreement of Surrender and Termination of Sublease (the
"Agreement") whereby the Company agreed to forfeit its lease
deposit of $8,733 and make a settlement payment of $40,000 in
exchange for termination of all of the Company's obligations under
the sublease. The $40,000 payment was made on October 25, 2000,
from funds advanced to the Company by Triad. Results of operations
for the nine months ended September 30, 2000, reflect a charge of
$48,733 with respect to forfeiture of the lease deposit and accrual
of the $40,000 settlement payment.
On June 16, 2000, the Company entered into an office lease in New
York City for a period of five years and three months which
provided for rental payments aggregating approximately $448,000.
The lease required a security deposit of $45,585. On September 11,
2000, the Company, with the consent of the lessor, assigned all of
its rights and interests in the lease to its former president who
assumed all of the Company's obligations under the lease. The
$45,585 security deposit under the lease was applied against
amounts due to the former president at the date of his resignation
on August 28, 2000.
Employment Agreements
As of September 30, 2000, all of the Company employment agreements
with its officers and former officers have been cancelled and the
parties to such agreements have relinquished their rights to any
accrued unpaid compensation, future compensation and their rights
to receive certain shares of common stock and options to purchase
common stock. The Company has no continuing obligations under any
of these agreements and all of the agreements have been cancelled.
The Company is currently negotiating an employment agreement with
its Chairman, Chief Executive Officer and President. Such agreement
is expected to provide an annual salary of $240,000, and will
include as yet undetermined stock based compensation and customary
change of control provisions.
Other
In November 1999, the Company entered into an agreement with JW
Genesis Capital Markets, Inc. ("JW Genesis"), whereby JW Genesis
will act as a financial advisor to the Company and as its exclusive
placement agent in connection with any proposed offering or private
placement by the Company of any equity or debt securities. Pursuant
to the terms of the agreement, JW Genesis will be paid a
nonrefundable fee of $6,250 upon execution of the agreement and a
monthly fee of $6,250 for each month following the date of
execution of the agreement for a minimum period of three months. In
addition, the Company issued to JW Genesis a five year warrant to
purchase 250,000 shares of the Company's common stock at an
exercise price of $2.50 per share. The agreement provides, among
other things, that JW Genesis would be paid an investment banking
fee and would be fully reimbursed for all out-of-pocket expenses in
connection with the completion of any securities offerings
contemplated by the agreement. The warrant was recorded at its
estimated fair market value of $11,558.
15
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
As of September 30, 2000, other current liabilities in the
accompanying condensed balance sheet include $25,000 due to JW
Genesis pursuant to the agreement.
On March 7, 2000, the Company entered into a three year consulting
agreement which provides for a monthly fee of $3,000, $5,000 and
$7,000 in years one through three, respectively. In addition, the
agreement provides for the issuance of three Common Stock Purchase
Warrants to purchase an aggregate of 216,000 shares of common
stock. Each warrant is exercisable for a period of five years and a
warrant to purchase 72,000 shares is immediately exercisable at an
exercise price of $2.50 per share; a warrant to purchase 72,000
shares is exercisable in one year at an exercise price of $5.00 per
share; and a warrant to purchase 72,000 shares is exercisable in
two years at an exercise price of $7.50 per share. The agreement
may be terminated by either party on the first or second
anniversary date of the contract and warrants not exercisable as of
the termination date are forfeited. The warrants were recorded at
their estimated fair market value of $8,999. At September 30, 2000,
other current liabilities in the accompanying condensed balance
sheet included $20,466 due to the consultant pursuant to this
agreement.
At September 30, 2000, the Company was party to a total of two
consulting agreements both of which are for terms of three years
and require minimum future payments as follows:
Twelve Months Ending September 30,
2001 $ 48,000
2002 72,000
2003 42,000
----------
Total $ 162,000
===========
NOTE 8 . SUBSEQUENT EVENTS
On October 13, 2000, Triad acquired 96% of the voting equity of the
Company pursuant to the terms of a Share Sale and Contribution
Agreement ("the Agreement") dated as of September 14, 2000, whereby
the Company agreed to issue a total of 94,000,000 shares of common
stock and 5,000,000 shares of newly designated Series D Preferred
stock, convertible into 50,000,000 shares of common stock, in
exchange for the assignment to the Company by Triad of its
exclusive 50 year license and distribution rights under a
Technology License and Marketing Agreement with E-Mation, LLC (an
affiliate of Triad) which provides for the exclusive rights to make
market and sell products and services using E-Mation's proprietary
technology which integrates all aspects of the business operations
for both wholesale distribution and retail sale of fuel. In
November 2000, 5,000,000 shares of Series D Preferred Stock were
converted into 50,000,000 shares of common stock. The Company
believes the exclusive license will afford it a number of revenue
generating opportunities in the petroleum industry, although there
can be no assurance that any such opportunities will materialize or
any significant revenues will be generated. There is no significant
operating history with respect to this asset.
16
<PAGE>
FuelNation Inc.
(FORMERLY REGENESIS HOLDINGS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
Subsequent to September 30, 2000, the Company filed amendments to
its Articles of Incorporation changing the name of the Company to
FuelNation Inc. and increasing the number of authorized shares to
350,000,000 shares from 100,000,000 shares and increasing the
number of authorized shares of preferred stock to 20,000,000 shares
from 10,000,000 shares. No changes were made to the par value per
share of the common or preferred stock.
In connection with the closing of the Triad transaction, Mr. Adler
placed approximately 1,260,000 shares of the Company's common
stock, owned by him, into an escrow account. The purpose of the
escrow account was to ensure the satisfaction of certain of the
Company's pre-closing liabilities, as well as any claims asserted
against the Company for the issuance of shares of the Company's
common stock (provided that such pre-closing liabilities or claims
arise out of Company transactions entered into prior to October 13,
2000). As of such date, approximately $640,000 of such liabilities
remained outstanding. On October 25, 2000, the Company used all the
proceeds of a $340,000 loan from Triad to satisfy a portion of such
liabilities and, pursuant to the terms of the escrow agreement with
Mr. Adler, the Company received 340,000 shares of the Company's
common stock for cancellation. Mr. Adler has the right to use any
of these shares held in escrow to settle creditors claims at any
time prior to the Company settling such claims. In addition, prior
to the Company selling Mr. Adler's shares to a third party or using
Mr. Adler's shares to settle claims, Mr. Adler has forty eight
hours to purchase such shares on the same terms and conditions as
such third party sale, except for the $340,000 of claims that have
been settled. As of November 15, 2000, an additional 410,000 shares
have been released from escrow in order to satisfy third party
claims for Company common stock. Approximately 500,000 shares
remain in escrow in order to satisfy certain existing Company
obligations to issue common stock or make cash payments.
Subsequent to September 30, 2000, Triad has advanced a total of
$1,083,865 to the Company, $340,000 of which was used to pay
outstanding liabilities as of September 30, 2000, and $743,865 of
which was used for current working capital purposes.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. The
forward-looking statements contained in this Report are subject to
certain risks and uncertainties. Actual results could differ
materially from current expectations. Among the factors that could
affect the Company's actual results and could cause results to
differ from those contained in the forward-looking statements
contained herein is the Company's ability to implement its business
strategy successfully, which will depend on business, financial,
and other factors beyond the Company's control, including, among
others, prevailing changes in customer preferences. There can be no
assurance that the Company will be successful in implementing its
business strategy. Other factors could also cause actual results to
vary materially from the future results covered in such
forward-looking statements. Certain of these risks and
uncertainties are described from time to time in the Company's
filings with the Securities and Echange Commission, including
without limitation, as set forth under the heading "Factors
Affecting Future Performance" below. The Company accepts no
obligation to update these forward-looking statements and does not
intend to do so. Words used in this Report such as "expects,"
"believes," "estimates" and "anticipates" and variations of such
words and similar expressions are intended to identify such
forward-looking statements.
FACTORS AFFECTING FUTURE PERFORMANCE
A Market for the Company's Products and Services May Not Materialize
The Company's inventory management system is a development stage
technology. Whether, and the manner in which, the market for its
products and services will grow is uncertain. The market for its
products and services may be inhibited for a number of reasons,
including:
o the reluctance of businesses to adopt the its
products and services;
o alternative, competitive models to the Company's
products and services;
o the Company's failure to successfully market its
products and services to new customers; and
o the Company's inability to maintain and
strengthen its brand awareness.
Early Stage of Development; Technological Uncertainty
The Company's inventory management technology is at an early stage
of development. All of the Company's potential products and
services are in development, and no revenues have been generated
from sales. There can be no assurance that any of the Company's
potential products and services can be successfully developed.
Need for Additional Funds; Risk of Insolvency
The Company's operations to date have consumed substantial amounts
of cash. The Company's independent auditors have included an
explanatory paragraph in their opinion with respect to the
Company's ability to continue as a going concern. The Company will
need to raise substantial additional funds to continue its
operations. The Company intends to seek additional funding through
public or private financings and including equity financings.
Adequate funds for these purposes, whether obtained through
financial markets, collaborative agreements or other arrangements
with corporate partners or from other sources, may not be
available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company: to delay, scale back
or eliminate some or all of its product and services development
programs; to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop
itself; to sell itself to a third party; to cease operations; or
to declare bankruptcy. The Company's future cash requirements will
be affected by results of product development.
Limited Sales, Marketing and Distribution Experience
The Company has very limited experience in sales, marketing and
distribution. In order to market and sell certain products and
services directly, the Company will have to develop or subcontract
a sales force and a marketing group.
Potential Adverse Effect of Technological Change and Competition
The inventory management industry is competitive. The Company has
numerous competitors in the United States and other countries for
their respective technologies products and services under
development. There can be no assurance that the Company's
competitors will not succeed in developing products and services
that are more effective than any which have been or are being
developed by the Company which would render the Company's
technology and products non-competitive. Many of the Company's
competitors have substantially greater financial, technical,
marketing and human resources than the Company.
Management of Growth; Dependence on Senior Management and Other Key
Employees
The Company's ability to effectively manage its future growth, if
any, will require it to develop, and continue to improve, the
Company's operational, financial and management controls,
accounting and reporting systems, and other internal processes.
There can be no assurance that the Company will be able to make
improvements in an efficient or timely manner or that any such
improvements will be sufficient to manage its growth, if any. If
the Company is unable to manage growth effectively, its business,
operating results and financial condition would be materially
adversely affected.
The Company's success depends to a significant extent upon its
senior management and certain other key employees of the Company.
The loss of the service of senior management or other key
employees could have a material adverse effect on the Company.
Furthermore, the Company believes that its future success will
also depend to a significant extent upon its ability to attract,
train and retain highly skilled technical, management, sales and
marketing personnel. Competition for such personnel is intense,
and the Company expects that such competition will continue for
the foreseeable future. The failure to attract or retain such
personnel could have a material adverse effect on the Company's
business, operating results and financial condition.
Technological Change
The market for the Company's products and services is
characterized by a high degree of technological change, frequent
new product introductions, evolving industry standards and changes
in customer demands. The introduction of competitive products
embodying new technologies and the emergence of new industry
standards could render the Company's existing products and
services obsolete and unmarketable. The Company's future success
will depend in part on its ability to enhance existing products
and services, to develop and introduce new products and services
to meet diverse and evolving customer requirements, and to keep
pace with technological developments and emerging industry
standards such as new inventory management systems, hardware
platforms, user interfaces and storage media. The development of
new products and services or enhanced versions of existing
products and services entails significant technical risks. There
can be no assurance that the Company will be successful in
developing and marketing product and service enhancements or that
new products will respond to technological change or evolving
industry standards, or that the Company will not experience
difficulties that could delay or prevent the successful
development, introduction, implementation and marketing of these
products and enhancements, or that any new products and services
and product and service enhancements the Company may introduce
will achieve market acceptance.
International Sales and Operations
The Company believes that future revenues, if any, and future
operating results will depend in part on its ability to establish
sales in international markets. There can be no assurance that the
Company will be able to establish international market demand for
its products and services or hire additional qualified personnel
who will successfully be able to market its products
internationally. The Company's international sales may be subject
to the general risks inherent in doing business abroad, including
unexpected changes in regulatory requirements, tariffs and other
trade barriers, costs and difficulties of localizing products and
services for foreign countries, lack of acceptance of localized
products and services in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international
operations, potentially adverse tax consequences, restrictions on
the repatriation of earnings, the burdens of complying with a wide
variety of foreign laws and economic instability. There can be no
assurance that such factors will not have a material adverse
effect on the Company's future international revenues and,
consequently, on its business, operating results and financial
condition.
Assuming the Company develops international sales, an increase in
the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive, and, therefore,
potentially less competitive in those markets. To the extent that
the U.S. dollar strengthens against foreign currencies in
international markets in which the Company maintains operations,
its net assets that are denominated in such foreign currencies
will be devalued, resulting in a foreign currency translation
loss.
Protection of Intellectual Property
The Company's success may depend upon its confidential and
proprietary intellectual property. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of its products or obtain and use
information that the Company regards as proprietary. In addition,
the laws of some foreign countries do not protect Intellectual
Property rights to as great an extent as do the laws of the United
States. There can be no assurance that the Company's means of
attempting to protect it's proprietary rights will be adequate or
that its competitors will not independently develop similar or
competitive technology.
The Company is not aware that any of its products infringe on the
proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim infringement by the
Company with respect to current or future products. Defense of any
such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment and service
delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all,
which could have a material adverse effect on its business,
operating results and financial condition.
Dependence on Licensed Technology
The Company relies on certain technology that it licenses from
third parties, including technology that is used to perform
certain functions in its products and services. Any significant
interruption in the availability of such third-party technology
could have a material adverse impact on its sales unless and until
the Company can replace the functionality provided by these
technologies. In addition, the Company is to a certain extent
dependent upon such third parties' abilities to enhance their
current products, to develop new products on a timely and
cost-effective basis and to respond to emerging industry standards
and other technological changes. There can be no assurance that
the Company would be able to replace the functionality provided by
the third party technology currently offered in conjunction with
its products and services in the event that such technology
becomes obsolete or incompatible with future versions of its
products and services or is otherwise not adequately maintained or
updated. The absence of or any significant delay in the
replacement of that functionality could have a material adverse
effect on its business, operating results and financial condition.
The following should be read in conjunction with the Financial
Statements of the Company and the notes thereto included elsewhere
in this report on Form 10-QSB, as well as the information contained
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, as filed with the Securities and Exchange
Commission on June 23, 2000.
General
The report of the Company's independent certified public
accountants on their audit of the Company's December 31, 1999
financial statements contained uncertainties relating to the
Company's ability to continue as a going concern. As shown in the
accompanying financial statements the Company incurred a loss of
$1,496,836 for the nine months ended September 30, 2000, and had a
working capital deficiency and a stockholders' deficiency of
$643,678 and $642,516, respectively, at September 30, 2000. These
factors among others raise substantial doubt about the Company's
ability to continue as a going concern for a reasonable period of
time. The accompanying financial statements do not include any
adjustments relating to the outcome of this uncertainty.
As of September 30, 2000, the Company had cash of $1,109 and a
working capital deficiency of $643,678.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on
a timely basis. The Company's primary source of liquidity has been
from the cash generated through the private placement of equity
and/or debt securities and from advances from its officers and
directors. The Company has completed the transaction with Triad
Petroleum LLC (see "Managements Discussion and Analyses or Plan of
Operations-General") in order to eventually achieve profitable
operations. However, there can be no assurance that the Company
will be successful in achieving profitable operations or acquiring
additional capital or that such capital, if available, will be on
terms and conditions acceptable to the Company.
18
<PAGE>
In 1999, the Company acquired the assets of NetDisc, Inc.
("NetDisc") for the purpose of pursuing Internet advertising
opportunities, although to date, the Company has generated no
revenues from such activities. In connection with the completion of
the transaction with Triad the Company has ceased pursuing Net
Disc's operations. In addition, during 1999, the Company entered
into a preliminary letter of intent (the "Preliminary LOI") to
acquire all of the assets and assume certain liabilities of the
entity formerly known as Red Ant Entertainment ("Red Ant"). In
accordance with the terms of the Preliminary LOI both the Company
and the seller each loaned $75,000 to MCCC Acquisition, LLC
("MCCC") the owner of the assets and such funds were simultaneously
advanced to Management West International, Inc. ("Management West")
which is the entity that was managing the assets until completion
of the acquisition by the Company. In addition, through September
30, 2000, the Company advanced $379,544 to Management West to cover
a portion of their operating expenses.
Pursuant to the terms of the Preliminary LOI, the purchase price
was to be comprised of $300,000 of cash, 300,000 shares of
restricted common stock of the Company, a three year warrant to
purchase 100,000 shares of common stock of the Company at an
exercise price of $3.00 per share, plus the liabilities assumed.
The Company's $75,000 loan to MCCC was to be forgiven. All
operating advances made by the Company through the date of closing
of the purchase were to be considered as part of the purchase price
for financial reporting purposes, accordingly, such advances were
capitalized as advances toward pending acquisition in the
accompanying financial statements. During the nine months ended
September 30, 2000, the Board of Directors of the Company
determined that completion of the acquisition would not be in the
best interests of the Company. Accordingly, the $454,444 balance of
advances toward pending acquisition was charged to operations
during the quarter ended September 30, 2000.
On December 15, 1998, the Company's common stock was delisted from
the OTC Bulletin Board for failure to comply with Rule 15c-211. On
June 30, 2000, the common stock resumed trading on the OTC Bulletin
Board.
On October 13, 2000, Triad acquired 96% of the voting equity of the
Company pursuant to the terms of a Share Sale and Contribution
Agreement ("the Agreement") dated as of September 30, 2000, whereby
the Company agreed to issue a total of 94,000,000 shares of common
stock and 5,000,000 shares of newly designated Series D Preferred
stock, convertible into 50,000,000 shares of common stock, in
exchange for the assignment to the Company by Triad of its
exclusive 50 year license and distribution rights under a
Technology License and Marketing Agreement with E-Mation, LLC (an
affiliate of Triad) which provides for the exclusive rights to make
market and sell products and services using E-Mation's proprietary
technology which integrates all aspects of the business operations
for both wholesale distribution and retail sale of fuel. In
November 2000, the 5,000,000 shares of Series D Preferred Stock
were converted into 50,000,000 shares of common stock. The Company
believes the exclusive license will afford it a number of revenue
generating opportunities in the petroleum industry, although there
can be no assurance that any such opportunities will materialize or
any significant revenues will be generated. There is no significant
operating history with respect to this asset.
Subsequent to September 30, 2000, the Company filed amendments to
its Articles of Incorporation changing the name of the Company to
FuelNation Inc. and increasing the number of authorized shares to
350,000,000 shares from 100,000,000 shares and increasing the
number of authorized shares of preferred stock to 20,000,000 shares
from 10,000,000 shares. No changes were made to the par value per
share of the common or preferred stock.
19
<PAGE>
In connection with the closing of the Triad transaction, Mr. Adler
placed approximately 1,260,000 shares of the Company's common
stock, owned by him, into an escrow account. The purpose of the
escrow account was to ensure the satisfaction of certain of the
Company's pre-closing liabilities as well as any claims asserted
against the Company for the issuance of shares of Company Common
Stock (provided that such pre-closing liabilities or claims arise
out of Company transactions entered into prior to October 13). As
of such date, approximately $640,000 of such liabilities remained
outstanding. On October 25, 2000, the Company used all the proceeds
of a $340,000 loan from Triad to satisfy a portion of such
liabilities and, pursuant to the terms of the escrow agreement with
Mr. Adler, received 340,000 shares of the Company's common stock
for cancellation. Mr. Adler has the right to use any of these
shares held in escrow to settle creditors claims at any time prior
to the Company settling such claims. In addition, prior to the
Company selling Mr. Adler's shares to a third party or using Mr.
Adler's shares to settle claims; Mr. Adler has forty eight hours to
purchase such shares on the same terms and conditions as such third
party sale, except for the $340,000 of claims that have been
settled. As of November 15, 2000, an additional 410,000 shares have
been released from escrow in order to satisfy third party claims
for Company Common Stock. Approximately 500,000 shares remain in
escrow in order to satisfy certain existing Company obligations to
issue Common Stock or make cash payments.
Results of Operations
For the nine months ended September 30, 2000 and 1999 the Company
generated no revenues, and incurred net losses of $1,496,836 and
$1,093,487, respectively.
Operating expenses for the nine months ended September 30, 2000 and
1999 aggregated $1,606,567 and $1,106,387, respectively and were
comprised as follows:
2000 1999
---- ----
Salaries and wages including related taxes $ 450,219 $ 431,455
Legal and professional 173,951 99,084
Marketing and promotion 13,573 132,054
Travel 65,858 102,287
Consulting fees 196,466 189,215
Rent 57,776 29,533
Office expense 35,129 32,888
Depreciation and amortization 21,204 3,150
Other general and administrative 137,947 86,721
Write-off of advances toward pending
acquisition 454,444 -
----------- -----------
Total $ 1,606,567 $ 1,106,387
========= ==========
Salaries and wages including related taxes increased $18,764 in the
nine months ended September 30, 2000, as a result of employment of
five executive officers, as well as employment of administrative
and support staff, some of which were not employed by the Company
during the full nine months ended September 30, 1999.
20
<PAGE>
Legal and professional fees increased $74,867 in 2000 when compared
to 1999, primarily as a result of expenses associated with the
engagement of outside professionals to assist the Company in
preparing its financial statements, as well as additional legal
fees associated with the proposed acquisition, and other general
corporate matters.
The $132,054 of marketing and promotion costs in 1999, relates to
the initial marketing launch of the Company's NetDisc products,
including the cost of producing the CD Rom discs. The $13,573 of
marketing and promotion costs in 2000 relates to continued efforts
to market the NetDisc products. In connection with the completion
of the transaction with Triad the Company has ceased Net Disc's
operations.
Travel expense decreased by $36,429 in 2000 as a result of a
decrease in travel costs associated with the raising of capital, as
well as the pursuit of potential acquisitions and the cost
associated with the initial marketing and promotion of the NetDisc
CD Rom product in 1999.
Consulting fees of $196,466 in 2000 consist of $164,212 related to
the proposed acquisition, $32,254 of investment banking and public
relations expenses relating to pursuit of additional capital for
the Company. Consulting fees of $189,215 in 1999 consist of
$170,050 of compensation expense associated with the issuance of
common stock to various individuals in exchange for services
performed, as well as $19,165 of consulting fees paid in connection
with general corporate matters.
Rent expense in 2000 aggregated $57,776 and related to the opening
of corporate offices in Miami, Florida and New York City in late
1999. The $29,533 in 1999 related primarily to sub lease costs for
temporary office space The $28,243 increase in 2000 compared to
1999 is primarily attributable to costs associated with both the
Miami and New York City offices for a full nine months in 2000 as
compared to a lesser period in 1999.
Office expenses and other general and administration expenses
increased by $53,467 as a result of the opening of corporate
offices in Miami, Florida and New York City and the overall
increase in administrative activity in 2000 as compared to 1999,
including settlement costs in connection with liabilities settled
during the nine months ended September 30, 2000.
Depreciation and amortization aggregated $21,204 in 2000, a
significant increase over the $3,150 in 1999 due to the acquisition
of a total of approximately $27,000 of furniture and equipment in
the forth quarter of the year ended December 31, 1999, and $10,101
of assets purchased during the nine months ended September 30,
2000, as well as the amortization of the excess of costs over the
fair value of net assets acquired associated with NetDisc and the
amortization of deferred consulting fees incurred in late 1999 and
the nine months ended September 30, 2000.
Gain on settlement of payables and other income increased by
$118,640 in the nine months ended September 30, 2000, as compared
with the nine months ended September 30, 1999. The $131,540 for the
nine months ended September 30, 2000, consists of gains from
settlement of payables for less than their carrying value. The
$12,900 of other income for the nine months ended September 30,
1999, consists of the collection of an account receivable, which
was written off in a prior period.
21
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Interest expense in 2000 aggregated $21,809 resulting from $275,000
of borrowings during the fourth quarter of 1999. There were no
borrowings during the nine months ended September 30, 2000.
During the nine months ended September 30, 2000, the Board of
Directors of the Company determined that completion of the proposed
acquisition of the entity formerly known as Red Ant Entertainment
would not be in the best interests of the Company. Accordingly, the
$454,444 balance of advances toward the proposed acquisition, were
charged to operations during the nine months ended September 30,
2000.
Liquidity and Capital Resources
For the nine months ended September 30, 2000 and 1999, net cash
used in operating activities was $565,835 and $608,921,
respectively. The decrease of $43,086 was primarily attributable to
a higher level of non-cash charges incurred in the nine months
ended September 30, 2000, as compared to the nine months ended
September 30, 1999.
Net cash used in investing activities for the nine months ended
September 30, 2000 was $309,053, which was attributable to $298,952
of advances in connection with the proposed acquisition along with
an aggregate $10,101 relating to payments for furniture and
equipment. In 1999, net cash used in investing activities of
$26,698, was attributable to payments for furniture and equipment.
Net cash provided by financing activities for the nine months ended
September 30, 2000 was $774,162 which was comprised of an aggregate
of $250,000 relating to the sale of common stock in private
placements and $442,210 of loans from officers and stockholders.
During the nine months ended September 30, 2000, the Company made
principal payments of $20,000 on outstanding loans payable and
repaid $98,048 of advances to officers and stockholders. Net cash
provided by financing activities for 1999 was $634,955, which was
primarily attributable to proceeds received from the sale of common
stock of $511,730, proceeds from the convertible demand loan of
$100,000 and $23,225 of net advances from officers and
stockholders.
As of September 30, 2000, the Company had cash of $1,109 and a
working capital deficiency of $643,678.
Subsequent to September 30, 2000, Triad has advanced a total of
$1,030,865 to the Company, $340,000 of which was used to pay
outstanding liabilities as of September 30, 2000, and $743,065 of
which was used for current working capital purposes.
The Company's ability to meet its future obligations in relation to
the orderly payment of its recurring obligations on a current basis
is totally dependent on its ability to attain a profitable level of
operations; receive required working capital advances from Triad or
obtain capital from outside sources. The Company may raise capital
from other sources, including secured or unsecured borrowings from
financial institutions and other lenders or the private or public
sale of debt or equity securities.
22
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PART II OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
In December, 1998 the Company filed a Complaint in the Circuit
Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida entitled Shulman & Associates, Inc., Manny J.
Shulman, Franklyn B. Weichselbaum, Mitchell Rubinson and Regenesis
Holdings, Inc. v. Elizabeth Shwiff, Fincross, Ltd., Elpoint
Corporation, Elpoint Co., L.L.C., Russian Securities Co., Gennady
Yakovlev, Oleg Pavlioutchouk and Maxim Shishlyannikov, Case No. CL
98-11409 AD, for defamation and liable in connection with certain
information released about the Company. On August 21, 2000,
Regenesis dismissed the action without prejudice as to all
defendants.
In a collateral action, the Company was named in a lawsuit
involving several of the same parties in the United States District
Court for the Northern District of California in the matter
entitled Elpoint Co., L.L.C., et al. v. Mitchell Rubinson, et al.,
Case No. 99-1107 CRB. Although the Company was named as a
indispensable party, the allegations were in the nature of a
shareholder derivative claim and no relief was sought against the
Company by the plaintiffs.
On May 19, 1999, a majority of the parties named in the
aforementioned lawsuits, including another California state court
action entitled Elpoint, L.L.C., et al. v. Mitchell Rubinson, et
al., Case No. 301428, filed in the Superior Court, attended
mediation which resulted in a settlement which required, among
other things, the dismissal of all three lawsuits. The Company was
not a named party in the California state court action.
Additionally, the Company is not obligated to contribute
financially to the settlement. Although, the Company did not attend
the mediation, the Company was an intended beneficiary of the
settlement. Mitchell Rubinson and Larry Rutstein, former officers
of the Company, alleged certain indemnification rights against the
Company as part of the settlement and notified the Company of such
a reservation subsequent to their execution of the settlement
agreement. The Company cannot opine upon the validity of such
claims as no action has been filed against the Company in that
regard. However, the Company would vigorously defend any such
claims in the event they are filed. Mitchell Rubinson has notified
the Company of alleged indemnification rights as to any funds paid
for settlement and any attorney's fees incurred in the above
mentioned actions.
On December 16, 1999, the Judge presiding over the Superior Court
of California state court action entered an order granting the
plaintiff's motion to enforce the settlement under California Code
of Civil Procedure ss. 664.6.
As of September 30, 2000, the Company was not a party to any
pending litigation.
ITEM 2. CHANGES IN SECURITIES
On January 5, 2000, the Company granted options to three officers
to purchase an aggregate of 800,000 shares of common stock at an
exercise price of $0.25 per share. Inasmuch as the purchasers were
officers of the Company and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder. Pursuant to the terms of the letter agreements with the
individuals, the options were cancelled during the quarter ended
September 30, 2000.
23
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On January 5, 2000, the Company issued 50,000 shares of common
stock to Gustavo Rodriquez (Vice President of Entertainment/Music
Development) in connection with a one year extension of his
employment agreement. Inasmuch as the purchaser was an officer and
had access to relevant information concerning the Company,
including financial information, the issuance of such securities
was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of such Act and
the rules and regulations thereunder. Pursuant to the terms of the
letter agreement with this individual the 50,000 shares were
cancelled during the quarter ended September 30, 2000.
On January 20, 2000, the Company agreed to sell 200,000 shares of
common stock for a purchase price of $200,000 to Edward McCabe. The
purchaser deposited the $200,000 purchase price with the Company's
counsel for the benefit of the Company until completion of the
acquisition of the assets of the entity formerly known as Red Ant
Entertainment. On June 15, 2000, counsel for the Company released
the funds to the Company and $145,000 of such funds were advanced
in connection with the proposed acquisition and $55,000 of such
funds were utilized for general working capital purposes. The
200,000 shares were recorded as issuable in the Company's financial
statements as of June 15, 2000. Effective September 29, 2000,
pursuant to the terms of an Agreement of Settlement and Release,
the Company agreed to repay the $200,000 of cash proceeds received
and was released from all claims of any kind that could be asserted
by the purchaser of the shares. At September 30, 2000, the $200,000
liability is reflected as a refund payable in the accompanying
condensed balance sheet. The amount was paid in full on October 25,
2000, with funds advanced to the Company by Triad. Inasmuch as the
purchaser was an accredited investor and had access to relevant
information concerning the Company, including financial
information, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of such Act and the rules and
regulations thereunder.
On January 25, 2000, the Company issued 250,000 shares of common
stock to Mel Adler, the father of the former Chairman of the Board
of Directors, in connection with the purchase of the URL address
Music 411.com. Inasmuch as the purchaser was an accredited investor
and had access to relevant information concerning the Company,
including financial information, the issuance of such securities
was exempt from the registration requirements of the Securities Act
pursuant to the exemption set forth in Section 4(2) of such Act and
the rules and regulations thereunder.
On January 28, 2000, the Company issued 500,000 shares of common
stock to Les Garland in connection with the terms of his three year
consulting agreement. Inasmuch as the purchaser was an accredited
investor and had access to relevant information concerning the
Company, including financial information, the issuance of such
securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2)
of such Act and the rules and regulations thereunder. Effective
September 29, 2000, pursuant to the terms of a settlement
agreement, the consultant agreed to accept an aggregate of 200,000
shares of the Company's common stock in full settlement of all of
the Company's obligations under the terms of consulting agreement
and such agreement was cancelled. The 200,000 shares of common
stock to be issued will be made available from shares placed in
escrow by certain shareholders in connection with the terms of the
Share Sale and Contribution Agreement between the Company and
Triad. The 500,000 shares of common stock previously issuable by
the Company have been reflected as a reduction in common shares
outstanding in the accompanying condensed financial statements.
24
<PAGE>
On January 28, 2000, the Company issued 500,000 shares of common
stock to Brandon Phillips in connection with the terms of his three
year consulting agreement. Inasmuch as the purchaser was an
accredited investor and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder. Effective September 29, 2000, pursuant to the terms of
a settlement agreement, the consultant agreed to accept an
aggregate of 200,000 shares of the Company's common stock in full
settlement of all of the Company's obligations under the terms of
the consulting agreement and such agreement was cancelled. The
200,000 shares of common stock to be issued will be made available
from shares placed in escrow by certain shareholders in connection
with the terms of the Share Sale and Contribution Agreement between
the Company and Triad. The 500,000 shares of common stock
previously issuable by the Company have been reflected as a
reduction in common shares outstanding in the accompanying
condensed financial statements.
On January 28, 2000, the Company issued 50,000 shares of common
stock to Edwin Ruh in connection with the terms of his three year
consulting agreement. Inasmuch as the purchaser was an accredited
investor and had access to relevant information concerning the
Company, including financial information, the issuance of such
securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2)
of such Act and the rules and regulations thereunder.
On January 31, 2000, the Company consummated the sale of 50,000
shares of its common stock for a purchase price of $100,000, or
$2.00 per share, to an institutional investor. Inasmuch as the
purchaser was an accredited investor and had access to relevant
information concerning the Company, including financial
information, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2) of such Act and the rules and
regulations thereunder.
On March 2, 2000, the Company consummated the sale of 50,000 shares
of its common stock for a purchase price of $150,000, or $3.00 per
share, to an institutional investor. Inasmuch as the purchaser was
an accredited investor and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder.
On March 7, 2000, the Company issued three Common Stock Purchase
Warrants to The Equity Group, Inc., in connection with their three
year consulting agreement. The warrants entitled the purchaser to
purchase an aggregate of 216,000 shares of the Company's common
stock, 72,000 shares at an exercise price of $2.50 per share;
72,000 shares at an exercise price of $5.00 per share and 72,000
shares at an exercise price of $7.50 per share. Warrants for 72,000
shares are exercisable immediately; warrants for 72,000 shares are
exercisable in one year and warrants for 72,000 shares are
exercisable in two years. Inasmuch as the purchaser was an
accredited investor and had access to relevant information
concerning the Company, including financial information, the
issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations
thereunder.
No underwriters were involved in any of the transactions described
above, and no commissions were paid in connection therewith.
In connection with the completion of the transaction with Triad and
the cancellation of various agreements with former officers,
employees, consultants and shareholders, the Company cancelled a
total of 2,037,482 shares of previously issued or issuable common
stock, including 1,300,000 shares relating to the issuances
described above.
25
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ITEM 3. DEFAULTS UPON SENIOR SECURITITES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a.) Index to Exhibits
Exhibits Description of Documents
3.7 Articles of Amendement to the Articles of
Incorporation of Regenesis Holdings, Inc.
3.8 Articles of Amendement to the Articles of
Incorporation of Fuelnation Inc. (formerly Regenesis
Holdings, Inc.)
10.19 Share Sale and Contribution Agreement, dated as of
September 14, 2000, and related side letter thereto,
by and among Regenesis Holdings, Inc., Russell Adler
for Himself and his Nominees, and Triad Petroleum
LLC, incorporated by this reference to Exhibit 10.19
to the Company's 10-QSB for the period ended June 30,
2000, filed with the Securities and Exchange
Commission on September 22, 2000.
27 Financial Data Schedule
(b.) Reports on Form 8-K.
(i) On August 28, 2000, the Company reported the
termination of two consulting agreements, the
resignation of two Officers and Directors of the
Board and the appointment of two new members to the
Board of Directors.
(ii) On October 13, 2000, the Company reported changes in
control pursuant to a Share Sale and Contribution
Agreement dated as of September 30, 2000, among Triad
Petroleum LLC and Russell Adler.
26
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SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities
Exchange Act of 1934, FuelNation Inc. has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FuelNation Inc.
DATE: November 20, 2000 By: /s/ Christopher Salmonson
----------------- -------------------------------
Christopher Salmonson
Chairman of the Board
Chief Executive Officer and President
(Principal Executive Officer)
DATE: November 20, 2000 By: /s/ Joel Brownstein
----------------- ---------------------------------
Joel Brownstein
Chief Financial Officer
(Principal Financial Officer)
27
