U.S SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-33134
Save On Energy, Inc.
(Exact Name Of Registrant As Specified In Its Charter)
Georgia 58-2267238
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4851 Georgia Highway 85
Suite 211
Forest Park, Georgia 30050
(Address of Principal Executive Offices)
(404) 765-0131
(Registrant's Telephone Number)
Check whether the issuer (1) filed all reports required 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 10, 2001, the registrant
had outstanding 5,899,894 shares of common stock.
SAVE ON ENERGY, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
For the quarter ended June 30, 2001
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or 9
Plan of Operation
PART II OTHER INFORMATION 13
Item 2 Changes in Securities and Use of Proceeds 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
ASSETS
December 31,
June 30, 2001 2000
-------------------- --------------------
(Unaudited)
Current assets:
Cash $ 29,828 $ 14,207
Accounts receivable, net 39,210 28,688
Inventories 152,111 158,335
-------------------- --------------------
Total current assets 221,149 201,230
Property, plant and equipment:
Equipment and leasehold improvements 130,334 130,334
Less: accumulated depreciation 89,104 78,437
-------------------- --------------------
Net fixed assets 41,230 51,897
-------------------- --------------------
Total assets $ 262,379 $ 253,127
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of notes and loans payable $ 153,282 $ 572,618
Accounts payable 194,447 250,826
Taxes payable 227,959 216,838
Accrued loss on litigation 125,000 125,000
Accrued expenses 46,548 181,784
-------------------- --------------------
Total current liabilities 747,236 1,347,066
Notes and loans payable 19,270 21,996
Commitments and contingencies (Note 3) - -
Stockholders' deficit:
Preferred stock, $.01 par value,
authorized 5,000,000 shares, none issued - -
Common stock, $.001 par value, authorized 20,000,000
shares, 7,446,146 and 3,406,000 shares issued and
outstanding at June 30, 2001 and December 31, 2000,
respectively 7,446 3,406
Additional paid in capital 2,870,874 1,421,223
Deficit accumulated during the development stage (3,382,447) (2,540,564)
-------------------- --------------------
Total stockholders' deficit (504,127) (1,115,935)
-------------------- --------------------
Total liabilities and stockholders' deficit $ 262,379 $ 253,127
==================== ====================
3
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
------------------- -------------------
Sales $ 130,304 $ 105,392
Cost of sales 60,926 60,511
------------------- -------------------
Gross profit 69,378 44,881
Consulting, professional and outside services 621,683 160,442
Other operating expenses 120,868 202,707
Salaries and wages 39,861 83,408
Travel 26,274 49,714
------------------- -------------------
Operating loss (739,308) (451,390)
Interest and other expense (163,745) (31,710)
Income tax benefit - -
------------------- -------------------
Loss before extraordinary item (903,053) (483,100)
Extraordinary gain 61,170 -
------------------- -------------------
Net loss ($841,883) ($483,100)
=================== ===================
Net loss per share, basic ($.16) ($.14)
=================== ===================
Net loss per share, diluted ($.16) ($.14)
=================== ===================
Weighted average shares, basic 5,228,925 3,394,444
=================== ===================
Weighted average shares, diluted 5,228,925 3,394,444
=================== ===================
4
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
------------------- -------------------
Sales $ 49,711 $ 52,665
Cost of sales 24,323 35,694
------------------- -------------------
Gross profit 25,388 16,971
Consulting, professional and outside services 548,431 79,976
Other operating expenses 72,995 104,891
Salaries and wages 15,239 42,465
Travel 11,599 22,093
------------------- -------------------
Operating loss (622,876) (232,454)
Interest and other expense (7,818) (19,774)
Income tax benefit - -
------------------- -------------------
Net loss ($630,694) ($252,228)
=================== ===================
Net loss per share, basic ($.10) ($.07)
=================== ===================
Net loss per share, diluted ($.10) ($.07)
=================== ===================
Weighted average shares, basic 6,278,310 3,403,111
=================== ===================
Weighted average shares, diluted 6,278,310 3,403,111
=================== ===================
5
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
-------------------- --------------------
Cash flows from operating activities:
Net loss ($841,883) ($483,100)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 10,667 9,862
Common stock issued for services 557,171 -
Charge for debt conversion rate change 139,000 -
Extraordinary gain (61,170) -
Changes in assets and liabilities:
(Increase) in accounts receivable, net (10,522) (9,204)
Decrease (increase) in inventory 6,224 (10,349)
(Decrease) increase in accounts payable (42,899) 45,410
Increase in taxes payable 11,121 26,339
(Decrease) increase in accrued expenses (85,025) 10,187
-------------------- --------------------
Net cash used in operating activities (317,316) (410,855)
Cash flows used in investing activities:
Purchase of fixed assets - (37,338)
-------------------- --------------------
Cash flows from financing activities:
Proceeds from convertible note payable - 230,000
Payment of notes payable (7,062) (153,500)
Net proceeds from equipment loan - 29,195
Issuance of capital stock 1,560 1,270
Increase in additional paid in capital 338,439 232,648
-------------------- --------------------
Net cash provided by financing activities 332,937 339,613
-------------------- --------------------
Net increase (decrease) in cash 15,621 (108,580)
Cash, at beginning of period 14,207 135,766
-------------------- --------------------
Cash, at end of period $ 29,828 $ 27,186
==================== ====================
6
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes necessary for a comprehension presentation of financial position and
results of operations. 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 30,2001.
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 in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000.
2. GOING CONCERN AND MANAGEMENT'S PLANS
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. However, the Company has incurred
operating losses and has not generated sufficient cash flows to sustain
operations since its inception, and currently has a significant working capital
deficiency. In addition, the Company does not have sufficient funds to operate
its business in its current form through June 30, 2002. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management is taking actions to conserve the Company's existing cash
flow from operations, while actively addressing possible funding sources.
Management of the Company is developing a plan to reduce its liability by
restructuring its debts and converting a substantial portion into equity and
issuance of additional stock to shareholders. This plan has been partially
completed in the current period; with the exception of the bank line of credit
and an equipment loan, all outstanding debt has been converted to equity. While
management is aggressively pursuing additional funding sources, there can be no
assurance that the Company will be able to obtain additional funding on
acceptable terms. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
might arise from the outcome of this uncertainty.
3. COMMITMENTS AND CONTINGENCIES
Royalties
Pursuant to a 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 by one thousand
units each year through the eighth year. In the ninth year and thereafter a
minimum of 110,000 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.
7
The quotas have been removed from the license agreement
effective January 3, 2000 in return for further territorial restrictions and
issuance of voting stock.
Industrial Lease
The lease on the Company's office and warehouse space expired
on December 31, 2000. The Company has negotiated for a new one-year lease
beginning May 1, 2001.
Penalties
The Company is in arrears for payroll and sales taxes as set forth below:
Payroll taxes $115,040
Sales tax 27,902
Penalties
and interest 85,017
---------
$227,959
Litigation
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, the Company has accrued the loss as prescribed by Statement of
Financial Accounting Standards No. 5, Accounting for Contingencies.
4. STOCKHOLDERS' EQUITY
Sales of Common Stock
During the six month period ended June 30, 2001 the Company sold 1,560,000
shares of common stock for $480,500.
Conversion of Debt to Common Stock
During the six months ended June 30, 2001, the holders of $415,000 in
convertible notes exercised an improved conversion offer by the Company.
The conversion offers provided for a conversion price lower than that
stipulated in the underlying debt agreements and the payment with stock
of accrued interest. Pursuant to this offer, the Company issued 1,164,786
shares of common stock to convert $460,324 of debt and accrued interest.
The fair value of the additional shares issued under induced conversion
amounted to $139,000 which was charged to interest expense in the first
fiscal quarter.
Common Stock Issued for Services and Payables
During the six months ended June 30, 2001, the Company issued 2,724,786
shares of common stock valued at $557,171 for professional services and
certain accounts payable. The value of the common stock used represented
the closing market price on the date of service or execution. Included
in this amount are 282,000 shares, valud at $70,500 that were used in the
first fiscal quarter as payment for accounts payable with a book value of
$131,670. The gain from extinguishment of this liability has been
reported as an extraordinary item in the accompanying six month period
ended June 30, 2001 financial statements.
Supplementary disclosure of cumulative stock issuances required for
development stage enterprises is as follows:
Common Stock Issued: Shares Par Value Paid-in Capital
------------ ------------ ---------------
Par Value 1,536,000 $ 1,536 $ -
Services 2,201,360 2,201 614,190
Offerings 3,708,786 3,709 2,256,684
------------ ------------ ---------------
7,446,146 $ 7,446 $2,870,874
============ ============ ===============
5. NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board issued Statement
141 "Business Combinations" and Statement 142 "Goodwill and Other
Intangible Assets." Statement 141 is effective for any business combination
accounted for under the purchase method of accounting that is completed
after June 30, 2001. Statement 142 will not be effective until the
Company's fiscal year ended December 31, 2002, although early adoption for
the fiscal year ended December 31, 2001 is permissible. While management of
the Company is currently reviewing the impending effects of these newly
issued standards, the standards will eliminate the pooling-of-interests
method of business
8
combinations, disallow the periodic recording of amortization expense on
goodwill, and require new methods of reviewing all intangible assets for
impairments.
6. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 18,184 $ 10,787
Income taxes - -
Additional disclosure for development stage enterprise:
Cumulative amounts since inception:
Net cash used in operating activities ($ 2,019,256) ($1,644,915)
Net cash used in investing activities (132,536) (131,163)
Net cash provided by financing activities 2,181,620 1,803,264
------------- -------------
$ 29,828 $ 27,186
============= =============
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward-looking statements and risk factors
The following discussion should be read together with the reviewed financial
statements of the Company which are included as Item 1 in this Form 10-QSB. The
following discussion contains certain forward-looking statements regarding our
expectations for the business and capital resources of the Company. When used in
this discussion, the words "expect(s)", "feel(s)", "believe(s)", "will", "may",
"anticipate(s)", "intend(s)", and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Factors that might cause or contribute to such differences include,
but are not limited to, (i) As of June 30, 2001, our current liabilities exceed
our current assets by $526,087 and our auditors have included a "going concern"
footnote in our audited financial statements, (ii) our limited operating
history, (iii) our need for additional financing, (iv) our lack of revenues and
anticipated continued losses, (v) our dependence on the success of our Dealers
to achieve revenues, (vi) the uncertainty of the acceptance of our products, and
(vii) our ability to retain and attract qualified personnel. In addition,
readers should carefully consider the risk factors that are incorporated by
reference herein from our annual report on Form 10-KSB/A, which was filed with
the Securities and Exchange Commission (the "SEC") on April 30, 2001as well as
the risks and uncertainties disclosed in the Company's other filings with the
SEC. Except as required by law, we undertake no obligation to update any of the
forward-looking statements in this Form 10-QSB after the date of this report.
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
9
the flip of a switch. Since the engine can then use either a mixture of
alternative fuel and diesel fuel or diesel fuel alone, the system is referred to
as a "duel fuel system." To a much lesser degree, 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 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.
As of June 30, 2001, we engaged three employees. We are not subject to any
collective bargaining agreements and believe that our relationships with our
employees are good. The need for additional employees and their availability
will be addressed in connection with management's decision to enter into
acquisitions or new business opportunities.
Results of Operations for the Three Months Ended June 30, 2001 and 2000
The following table sets forth certain statement of operation items as a
percentage of net sales for the period indicated:
Three months Ended June 30,
2001 2000
Net Sales........... $49,711 $52,665
Cost of Sales....... 24,323 35,694
Gross Profit........ 25,388 16,971
Operating Expenses.. 648,264 249,425
Other Expenses...... 7,818 19,774
----- ------
Net Loss............ $630,694 $252,228
Sales
Our revenues during the second quarter resulted primarily from sales of our Dual
Fuel Diesel conversion kits. Our remaining revenues resulted from the sale of
replacement parts, forklift conversions and consulting fees. Net Sales
decreased by $2,954 as compared to the prior year period as a result of
decreased sales of diesel kits and replacement parts to our installed base of
customers.
10
Cost of Sales
Our cost of sales consists primarily of purchases of components or inventory
used in assembling kits and parts for sale. Our cost of sales decreased from
$35,694 during the second quarter of 2000 to $24,323 during the same period in
2001 due to decreased sales of kits and replacement parts.
Operating and Other Expenses
Our operating expenses increased by $398,839 in the second quarter 2001 as
compared to the same period in 2000. Such increase was primarily the result of
an increase of $468,455 in consulting and professional fees and other outside
services (including $853,360 of non-cash charges relating to the issuance of
404,090 shares of the Company's common stock in exchange for services) partially
offset by a decrease in salaries and wages and certain other operating expenses.
The increase in consulting and professional fees and other outside services is
primarily a result of the fact that we have engaged additional professional and
consultants as compared to the comparable quarter in 2000 as we have attempted
to grow and expand our business and have incurred additional expenses as a
public reporting company. As a result of our shortage in capital, we have
attempted, where possible to satisfy our obligations with shares of our common
stock. Our interest and other expense of $7,818 consisted of $4,638 in interest
on our bank line of credit and $3,180 in penalties on our tax deficiencies.
Net Loss
Our net loss for the second quarter 2001 increased to $343,694 as compared to
$252,228 for the comparable quarter in 2000. The increase was primarily due to
increased operating expenses as discussed above.
Results of Operations for the Six Months Ended June 30, 2001 and 2000
Six Months Ended June 30, 2001
2001 2000
---- ----
Net Sales........ $130,304 $105,392
Cost of Sales...... 60,926 60,511
Gross Profit....... 69,378 44,881
Operating Expenses. 808,686 496,271
Other Expenses..... 102,575 31,710
------ ------
Net Loss........... $841,883 $483,100
Sales
Our revenues during the six months ended June 30, 2001 resulted primarily from
sales of our Dual Fuel Diesel conversion kits. Our remaining revenues resulted
from the sale of replacement parts, forklift conversions and consulting fees.
Net Sales increased by $24,912 as a result of increased sales of diesel kits
and replacement parts.
Cost of Sales
Our cost of sales for the six months ended June 30, 2001 was approximately the
same as the comparable period for the prior period.
11
Operating and Other Expenses
Our operating expenses increased by $312,415 in the six months ended June 30,
2001 as compared to the same period in 2000. Such increase was primarily the
result of an increase of $461,241 in consulting and professional fees and other
outside services which was partially offset by a decrease in certain other
operating expenses, including salaries and wages. Our interest and other
expense increased by approximately 132,037. Such increase was due to the fact
that, in exchange for the waiver of certain payment defaults by the holders of
certain of the Company's notes, the Company agreed to aloow such notes to
convert into a greater number os shares than they would have otherwise been
entitled. The fair market value of such additional shares ($139,000) was
charged to the Company's interest expense.
Net Loss
Our net loss for the six moth period ended June 30, 2001 increased to $841,883
as compared to $483,100 for the comparable period in 2000. The increase was
primarily due to increased operating expenses and interest expenses as
discussed above, partially offset by a $61,700 extraordinary gain relating to
the extinguishment of certain of the Company's accounts payables in exchange
for shares of the Company's common stock.
Liquidity and Capital Resources
To date, we have financed our operations primarily through private sales of
common stock, borrowings under our revolving line of credit with Peachtree
National Bank, and, to a limited extent, revenues derived from the sale of our
products. During the six months ended June 30, 2001, we received an aggregate of
$480,500 in proceeds from the sale of 1,560,000 shares of our common stock.
As of June 30, 2001, we had outstanding borrowings under our line of credit of
$148,000. Such borrowings bear interest at a rate of prime plus two percent.
In addition, we have borrowed $24,500 pursuant to a secured note which is
payable in 2005 and bears interest at a rate 13% interest per annum.
As of June 30, 2001, we had $29,828 in cash. As shown in the accompanying
financial statements, and as of June 30, 2001, our current liabilities
exceeded our current assets by $526,087 and our total liabilities exceeded
our total assets by $504,127. These factors continue to create an uncertainty
about our ability to continue as a going concern.
In order to maintain the current level of operations and fund future growth, we
will need to secure additional financing sources to meet our operating needs.
Such funding sources may include, but are not limited to, private placements of
equity or debt, and borrowings from banks, private or public investors, or other
lending institutions.
12
We believe that we will be able to raise sufficient additional capital in order
to meet our operating needs. However, any substantial delays in receipt of or
failure to obtain such financing will prevent us from operating as a going
concern, given our limited capital resources.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The following were private issuances of securities by the Company in
transactions not involving a public offering and which were exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
Each of these sales was made without the use of an underwriter.
In April 2001, we sold 80,000 shares of Common Stock to Vulcan Petroleum Metals
& Equipment, Inc. and its designees for aggregate consideration of $20,000.
In May 2001, we sold 100,000 shares of Common Stock to Isle-Steel, Ltd. for
aggregate consideration of $25,000.
In May, 2001, we issued 78,360 shares of Common Stock to Network Financial
Printing, Inc. in exchange for financial printing services rendered and valued
at $19,590.
In May 2001, we sold 100,000 shares of Common Stock to Robin Smith for aggregate
consideration of $25,000.
In June 2001, we sold 80,000 shares of Common Stock to Hans Beyer for aggregate
consideration of $20,000.
In June 2001, we sold 100,000 shares of Common Stock to Scott Wilding for
aggregate consideration of $25,000.
In June 2001, we sold 100,000 shares of Common Stock to William F. Donovan for
aggregate consideration of $25,000.
In July 2001, we sold 100,000 shares of Common Stock to CM Investments, LP for
aggregate consideration of $25,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
13
None.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the SEC on August 8, 2001 disclosing
the Company's change in its independent auditor.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SAVE ON ENERGY, INC.
Date: August 17, 2001 By: /s/ Robby E. Davis
-------------------------
Robby E. Davis, President
(Principal Executive Officer)
Date: August 17, 2001 By: /s/ Ricky Davis
-------------------------
Ricky Davis, Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
14