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 quarterly period ended: September 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 November 13, 2001, the
registrant had outstanding 8,206,146 shares of common stock.
SAVE ON ENERGY, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
For the quarter ended September 30, 2001
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements 1
Item 2 Management's Discussion and Analysis or Plan of Operation 10
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 15
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
ASSETS
September December 31,
30, 2001 2000
(Unaudited)
Current assets:
Cash $ 9,611 $ 14,207
Accounts receivable, net 46,690 28,688
Inventories 153,600 158,335
-------------------- --------------------
Total current assets 209,901 201,230
Property, plant and equipment:
Equipment and leasehold improvements 134,334 130,334
Less: accumulated depreciation 94,637 78,437
-------------------- --------------------
Net fixed assets 39,697 51,897
-------------------- --------------------
Total assets $ 249,598 $ 253,127
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of notes and loans payable $ 153,516 $ 572,618
Accounts payable 232,457 250,826
Taxes payable 217,871 216,838
Accrued loss on litigation 125,000 125,000
Accrued expenses 233,922 181,784
-------------------- --------------------
Total current liabilities 962,766 1,347,066
Notes and loans payable 17,351 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, 8,386,000 and 3,406,000 shares issued and
outstanding at June 30, 2001 and December 31, 2000,
Respectively 8,386 3,406
Additional paid in capital 3,104,937 1,421,223
Deficit accumulated during the development stage (3,843,842) (2,540,564)
-------------------- --------------------
Total stockholders' deficit (730,519) (1,115,935)
-------------------- --------------------
Total liabilities and stockholders' deficit $ 249,598 $ 253,127
==================== ====================
See accompanying notes.
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
2001 2000
---------------- -----------------
Sales $ 176,030 $ 157,210
Cost of sales 81,169 84,336
---------------- -----------------
Gross profit 94,861 72,874
Consulting, professional and outside services 851,923 146,540
Other operating expenses 332,100 388,726
Salaries and wages 66,075 41,175
Travel 36,747 55,047
---------------- -----------------
Operating loss (1,191,984) (558,614)
Other income and expense (172,464) (48,884)
Extraordinary income 61,170 -
---------------- -----------------
Net loss ($1,303,278) ($607,498)
================ =================
Net loss per share, basic ($.21) ($.16)
================ =================
Net loss per share, diluted ($.21) ($.14)
================ =================
Weighted average shares, basic 6,086,218 3,898,396
================ =================
Weighted average shares, diluted 6,086,218 3,898,396
================ =================
See accompanying notes.
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
2001 2000
--------------- -------------------
Sales $ 45,726 $ 51,818
Cost of sales 20,243 23,825
--------------- -------------------
Gross profit 25,483 27,993
Consulting, professional and outside services 275,125 19,519
Other operating expenses 173,607 63,926
Salaries and wages 18,954 46,439
Travel 10,473 5,333
--------------- -------------------
Operating loss (452,676) (107,224)
Other income and expense (8,719) (17,174)
Income tax benefit - -
--------------- -------------------
Net loss ($461,395) ($124,398)
=============== ===================
Net loss per share, basic ($.06) ($.03)
=============== ===================
Net loss per share, diluted ($.06) ($.03)
=============== ===================
Weighted average shares, basic 7,975,923 3,906,000
=============== ===================
Weighted average shares, diluted 7,975,923 3,906,000
=============== ===================
See accompanying notes.
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
2001 2000
--------------- ------------
Cash flows from operating activities:
Net loss ($1,303,278) ($607,498)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 16,200 14,894
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 (18,002) 6,377
Decrease (increase) in inventory 4,735 (71,650)
(Decrease) increase in accounts payable (4,889) 136,924
Increase in taxes payable 1,033 40,439
(Decrease) increase in accrued expenses 102,349 33,530
--------------- ------------
Net cash used in operating activities (566,851) (446,984)
Cash flows used in investing activities:
Purchase of fixed assets (4,000) (38,711)
--------------- ------------
Cash flows from financing activities:
Proceeds from convertible note payable - 230,000
Payment of notes payable (8,747) (153,500)
Net proceeds from equipment loan - 29,195
Principal payments on equipment loan - (1,106)
Proceeds from loan - 12,068
Proceeds from increase in line of credit - 8,000
Issuance of capital stock 2,500 1,270
Increase in additional paid in capital 572,502 232,648
--------------- ------------
Net cash provided by financing activities 566,255 358,575
--------------- ------------
Net decrease in cash (4,596) (127,120)
Cash, at beginning of period 14,207 135,766
--------------- ------------
Cash, at end of period $ 9,611 $ 8,646
=============== ============
See accompanying notes.
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 September 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 September 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.
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In June 1997, the Licensor agreed to add the quotas shortfall
from the first year to the second year, increasing the second year quota to
5,882 units. In June, 1998, the Licensor agreed to suspend the quotas for a
period of three (3) years, i.e. there would be no quotas for the Company to meet
until the license year beginning June 1, 2001 at which time the quotas would
start at 2,500 units per year and continue as is now set forth in the License
Agreement. The licensor had the right to terminate the License if the quota in
any year was not met.
The quotas have been 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 $110,735
Sales tax 25,941
Penalties
and interest 81,195
$217,871
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.
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
4. STOCKHOLDERS' EQUITY
Sales of Common Stock
During the nine months ended September 30, 2001, the Company sold 1,560,000
shares of common stock for $575,000.
Conversion of Debt to Common Stock
During the nine-months ended September 30, 2001, the holders of 415,000 face
value in 12% convertible notes exercised an improved conversion offer by the
Company. The improved conversion offer provided for the a conversion price lower
than that stipulated in the underlying debt agreements, plus the payment of
accrued interest with common stock. Pursuant to this offer, the Company issued
1,164,786 shares of common stock to convert $460,324 of debt principle and
accrued interest. The fair value of the additional shares issued under the
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 nine months ended September 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. Included in these amounts are 282,000
shares, valued at $70,500 that were used in the first fiscal quarter as payments
for accounts payable with a book value of $131,670. The gain from
extinguishments of this liability has been reported as an extraordinary item in
the accompanying financial statements for the nine months ended September 30,
2001.
During the third fiscal quarter, the Company incurred certain expenses for
outside services and professional fees that it intends to pay for with 55,000
shares of common stock and warrants to purchase 220,000 shares of common stock
over a three-year period at a nominal strike price. The Company has recorded a
non-cash charge of $204,050 for the fair value of the shares of common stock
(based upon the closing market price on the dates of service) and the warrants
(using the Black Scholes fair value model) to be issued during the third
quarter.
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 2,201 487,860
Offerings 4,648,790 4,649 2,617,077
----------- ----------- -------------
8,386,150 $ 8,386 $3,104,937
=========== =========== =============
SAVE ON ENERGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
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 combinations, disallow the periodic recording of
amortization expense on goodwill, and require new methods of reviewing all
intangible assets for impairments.
During September 2001, the Financial Accounting Standards Board issued
Statement 144 "Accounting for the Impairment or Disposal of Long-lived
Assets." Statement 141 supersedes standards established in Statement 121
"Accounting for Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of," which provides the basis for the Company's framework
for determining and measuring impairments. The Company has not yet
determined the effects of Statement 144 on its financial accounting and
reporting.
6. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 22,725 $ 10,787
Income taxes - -
Additional disclosure for development stage enterprise: Cumulative amounts
since inception:
Net cash used in operating activities ($2,268,791) ($1,644,915)
Net cash used in investing activities ( 136,536) (131,163)
Net cash provided by financing activities 2,414,938 1,803,264
$ 9,611 $ 27,186
Item 2. Management's Discussion and Analysis of Financial Condition 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 September 30, 2001, our current liabilities
exceed our current assets by $752,865 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,
2001 as 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 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 September 30, 2001, we had 3 full-time employees and 2 part-time
employees. We are not subject to any collective bargaining agreements and we
believe that our relationships with our employees are good as of the date
hereof. 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 September 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 September 30, 2001
2001 2000
Net Sales............................ $ 45,726 100.00% $ 51,818 100.00%
Cost of Sales........................ 20,243 44.27% 23,825 45.98%
Gross Profit.......................... 25,483 55.73% 27,993 54.02%
Operating Expenses................ 478,159 1,045.70% 135,217 260.95%
Other Gains/Expenses............ (8,719) _(17,174)
Net Loss.............................. $(461,395) $(124,398)
Sales
Our revenues during the third quarter resulted primarily from sales of our duel
fuel diesel conversion kits. Our remaining revenues resulted from the sale of
replacement parts, forklift conversions and consulting fees. Net sales decreased
by $6,092 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.
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
$23,825 during the third quarter of 2000 to $20,243 during the same period in
2001 due to decreased sales of kits and replacement parts.
Operating and Other Expenses
Our operating expenses increased by $342,942 in the third quarter 2001 as
compared to the same period in 2000. Such increase was primarily the result of
an increase of $255,606 in consulting and professional fees and other outside
services (including $204,050 of non-cash charges relating to the impending
issuance of securities of the Company's common stock in exchange for services),
which was 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. Although our salaries and wages for the three-month
period ending September 30, 2001 were reduced by $27,485, our other operating
expenses increased from $69,259 to $184,080.
Net Loss
Our net loss for the third quarter 2001 increased to $461,395 as compared to
$124,398 for the comparable quarter in 2000. The increase was primarily due to
increased operating expenses as discussed above.
Results of Operations for the Nine Months Ended September 30, 2001 and 2000
The following table sets forth certain statement of operation items as a
percentage of net sales for the period indicated:
Nine Months Ended September 30, 2001
2001 2000
Net Sales............................ $176,030 100.00% $157,210 100.00%
Cost of Sales...................... 81,169 46.11% 84,336 53.65%
Gross Profit.......................... 94,861 53.89% 72,874 46.35%
Operating Expenses................ 1,286,845 731.04% 631,488 401.68%
Other Gains/Expenses............ (172,464) (48,884)
Extraordinary Income............ 61,170 34.75%
Net Loss............................. $(1,303,278) $(607,498)
Sales
Our revenues during the nine months ended September 30, 2001 resulted primarily
from sales of our duel fuel diesel conversion kits. Our remaining revenues
resulted from [the sale of replacement parts, forklift conversions and
consulting fees. Net sales increased by $18,820 as a result of [increased sales
of diesel kits and replacement parts.
Cost of Sales
Notwithstanding our increase in net sales, our cost of sales for the nine months
ended September 30, 2001 was slightly lower than it was for the comparable
period in 2000. This reduction was achieved through cost reductions and
efficiencies, generally necessary to preserve cash.
Operating and Other Expenses
Our operating expenses increased by $655,357 for the nine months ended September
30, 2001 as compared to the same period in 2000. Such increase was primarily the
result of an increase of $705,383 in consulting and professional and other
outside services fees (of which $557,171 was in the form of non-cash 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 $123,580. 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 allow such notes to convert into a
greater number of 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 nine-month period ended September 30, 2001 increased to
$1,303,278 as compared to $607,498 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 $61,170 extraordinary gain resulting
from the extinguishments 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 (including the issuance of convertible notes), 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 nine months ended
September 30, 2001, we received an aggregate of $575,000 in cash proceeds from
the sale of shares of 2,500,000 shares our common stock. As of September 30,
2001, we had outstanding borrowings under our line of credit of approximately
$148,000. Such borrowings bear interest annually at the prime rate plus 2%. In
addition, as of September 30, 2001, we had borrowed $24,500 pursuant to a
secured note which is payable in 2005 and which bears interest at the rate of
13% per annum.
As of September 30, 2001, we had $9,611 in cash. As shown in the accompanying
financial statements, and as of September 30, 2001, our current liabilities
exceeded our current assets by $752,865 and our total liabilities exceeded our
total assets by $480,921. These factors continue to create an uncertainty about
our ability to continue as a going concern.
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 September 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.
We believe that we will be able to secure sufficient additional capital in order
to meet our operating needs. However, any failure to secure such capital, or any
significant delay in obtaining funds, is likely to 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 September 2001, we issued 100,000 shares of common stock to Jose Rasco in a
private placement transaction for $25,000.
In September 2001, we issued 100,000 shares of common stock to William Eldredge
in a private placement transaction for $25,000.
In September 2001, we issued 100,000 shares of common stock to David Townsend in
a private placement transaction for $25,000.
In September 2001, we issued 100,000 shares of common stock to Veegeli, Inc. in
a private placement transaction for $25,000.
In September 2001, we issued 80,000 shares of common stock to Christina Von
Buelow in a private placement transaction for $20,000.
In September 2001, we issued 100,000 shares of common stock to Daniel Strasser
in a private placement transaction for $25,000.
In September 2001, we issued 30,000 shares of common stock to Issam Omairat in a
private placement transaction for $7,500
In September 2001, we issued 100,000 shares of common stock to Windsor Holdings,
Ltd. in a private placement transaction for $25,000.
In September 2001, we issued 50,000 shares of common stock to Al Jandool Brides
Jewelry Co. in a private placement transaction for $12,500.
In September 2001, we issued 50,000 shares of common stock to Isle-Steel, Ltd.
in a private placement transaction for $12,500.
In September 2001, we issued 200,000 shares of common stock to Gregory Erwin in
a private placement transaction for $50,000.
In September 2001, we issued an option covering 230,000 shares of common stock
to Bob Stiles, which vest over a period of three years, and expire in 2006, as
pursuant to his employment agreement.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Shareholders of the Company was held on October 18,
2001. At the meeting, the following actions were taken by the shareholders:
Robert Stiles, Ricky Davis and John Perry were each elected as Directors to
serve until the next annual meeting and until their respective successors are
elected and qualified or until their earlier resignation, removal from office.
Two additional nominees, Gregory Erwin and Wolfgang Wacker, were each also
elected, however, Messrs. Erwin and Wacker declined to accept such appointment
until such time, if at all, as we obtain directors' and officers' liability
insurance. Pursuant to our Bylaws, the Board of Directors has the power to fill
these vacancies. The votes cast with respect to the election of directors were
as follows:
Nominee For Against Abstain
Robert Stiles 4,711,140 - 0 - - 0 -
Ricky Davis 4,711,140 - 0 - - 0 -
John Perry 4,711,140 - 0 - - 0 -
Gregory Erwin 4,711,140 - 0 - - 0 -
Wolfgang Wacker 4,711,140 - 0 - - 0 -
The Company's 2001 Stock Plan was approved. The voting on the proposal was as
follows:
For Against Abstain
4,353,150 - 0 - 358,000
The appointment of Aidman, Piser & Company as the Company's independent auditors
for fiscal year 2001 was ratified and approved. The voting on the proposal was
as follows:
For Against Abstain
4,353,150 - 0 - 358,000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Employment Agreement with Robert Stiles, dated July 17, 2001.
10.2 2001 Stock Plan - Incorporated by reference to 2001 Annual Proxy
Statement filed October 1, 2001.
(b) Reports on Form 8-K
None.
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: November 19, 2001 By:___/s/_Robert Stiles_________
-----------------------------
Robert Stiles, President
(Principal Executive Officer)
Date: November 19, 2001 By:__/s/ Ricky Davis___________
------------------------------
Ricky Davis, Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
Exhibit 10.1
Employment Agreement
THIS EMPLOYMENT AGREEMENT is made effective as of July 17, 2001 (the "Effective
Date") by and between Save On Energy, Inc., a Georgia corporation ("Save" or
"the Company") and Robert Stiles ("Executive").
WITNESSETH:
WHEREAS, Save desires to employ the Executive upon and subject to the terms and
conditions set forth herein and the Executive desires to accept such employment;
and
WHEREAS the parties wish to set forth the terms and conditions upon which the
Executive is to be employed;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1.Nature of Employment The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to be employed by Save, as its
President. In such capacity, Executive shall perform such duties and have such
responsibilities as may be assigned by the Board from time to time that are
normally inherent in such capacities in public companies of similar size and
character. In addition, during the Employment Term, the Company shall appoint
Executive to serve as the Chairman of the Board; provided the Company agrees
that Executive shall be indemnified for serving in such capacity on a basis no
less favorable than is provided by the Company's By-laws and to other members of
the Board.
2.Best Efforts The Executive shall serve Save faithfully and on a
full-time basis and devote all of his attention, energy, effort, technical
knowledge, know-how and skill to best promote the business and interests of
Save. The Executive shall at all times use his best efforts to preserve and
maintain the business relationships between Save and its Executives, clients and
suppliers. During the Term of this Agreement, the Executive shall not engage in
any other business, profession or occupation for compensation or otherwise which
would conflict with the rendition of such services either directly or
indirectly, without the prior written consent of the Board.
3.Term Of Employment The initial term of employment shall be three (3)
years (the "Term"), beginning on the Effective Date unless sooner terminated in
accordance with Section 6 below. After the initial three (3) year agreement,
this agreement shall be renewable annually upon mutual written agreement of the
parties.
4. Relocation. The initial principal location at which Executive shall
perform services for the Company shall be Forest Park, Georgia, although the
Company acknowledges he currently resides in Binghamton, New York. Executive
shall use his best efforts to relocate to Forest Park, Georgia or the
surrounding area within a reasonable time (which the parties acknowledge shall
not be prior to August 1, 2002) as shall be dictated by the needs of the
Company. The Company shall reimburse Executive for all actual and reasonable
costs associated with such move, and subject to appropriate documentation and
will gross up the Executive's reimbursement to the extent necessary to
compensate Executive for any federal or state tax liability associated with
these reimbursement. The expenses shall include, but are not limited to, the
following: All legal, real estate, and other selling expenses such as home
inspections health certificates, radon tests, water tests, septic testing. In
addition, the Company will pay for Executive to take a reasonable number of
trips to the Atlanta area to search for a new residence and will reimburse
Executive for related travel, meals, lodging and other transportation, subject
to appropriate documentation. To determine the actual expenses that will be
associated with a required relocation, the Executive agrees to provide the
Company with estimates from three (3) moving companies. The Company and the
Executive will mutually agree upon a moving company.
5.0 Compensation
5.1 Base Salary -The Company shall pay the Executive an annual base
salary of $75,000 for the period beginning on the date hereof and ending on July
16, 2002, $100,000 for the period beginning on July 17, 2002 and ending on July
16, 2003 and $125,000 for the period beginning on July 16, 2003 and ending on
July 17, 2004 (the "Base Salary"), payable in accordance with the Company's
normal payroll practice, less taxes required by law to be withheld.
5.2 Signing Bonus. In consideration of his entry into this Agreement,
Executive shall be entitled to a $25,000 signing bonus payable to Executive in
cash within 30 days following the execution of this Agreement. In addition the
Executive will receive a stock option pursuant to the terms of the Company's
Stock Option Plan to purchase 30,000 shares of company stock at and exercise
price of $0.50
5.3 Mandatory Bonus. The Executive shall be entitled to an annual bonus
equal to 2 1/2% of the Company's annual net after-tax profits as reported on the
Company's Annual Report on Form 10-K for the fiscal year preceding the date of
determination (the "Mandatory Bonus"). The Mandatory Bonus shall be initially
payable on July 17, 2002 and on each anniversary thereafter during the Term.
5.4 Benefits The Executive shall be entitled to [four] weeks paid
vacation and Holidays to be agreed upon by the executive and the Board of
Directors. . in each twelve-month period beginning with the Effective Date of
this Agreement, in accordance with the Company's policies regarding accrual and
use of vacation for the Company's similarly situated executives. The Executive
shall be entitled to participate in all benefit plans maintained by Save,
specifically including but not limited to health insurance, life insurance, and
group disability insurance, in accordance with the terms of the plans. As shall
be determined by the Board of Directors the Executive shall be entitled to
personal leave.
5.5 Expenses During the Term, the Executive shall be reimbursed by Save
for expenses reasonably and necessarily incurred by him in connection with his
duties on behalf of Save, subject to appropriate documentation in accordance
with Save's expense reimbursement policy; provided that expenses in excess of
$5,000 shall require the prior approval of the Board of Directors. In addition,
the Company shall at its expense, allow the Executives spouse to accompany the
Executive from time to time (as agreed to by the Board of Directors) on business
related trips (not to exceed three times in a calendar year).
5.6 Stock Options Executive shall receive a stock option to purchase up
to 200,000 shares of the Company's common stock at an exercise price per share
equal to $0.50. The options will vest only as follows: (i) options to acquire
100,000 shares of common stock shall vest on the date which is one year from the
Effective Date and (ii) options to acquire the remaining 100,000 shares of
common stock shall vest on the date which is two years from the Effective date;
provided that, in both cases, Executive is still an employee of the Company.
6. Termination
6.1. Termination Upon Disability If Executive becomes totally or
partially physically or mentally disabled, such that he is unable with or
without a reasonable accommodation to perform his duties hereunder for a period
of 45 days in any 90 consecutive calendar day period or for an aggregate of 120
days within any 12 consecutive month period, the Company shall have the right to
terminate the Executive's employment hereunder by giving the Executive thirty
(30) days written notice to that effect. In the event of Executive's termination
pursuant to this Section 6.1, the Company shall pay Executive, in full
satisfaction of all of its obligations hereunder, all compensation and benefits
to which he is entitled through the date of termination, but shall be entitled
to a credit against this obligation in the amount of any disability insurance
benefits received by Executive during such period from a disability insurance
policy paid for by the Company, or from the Social Security disability program.
6.1.1. Determination of Disability Any question as to the existence of
the disability of the Executive as to which the Executive and the Company cannot
agree shall be determined in writing by a qualified independent physician
mutually acceptable to the Executive and the Company. If the Executive and the
Company cannot agree as to a qualified independent physician, each shall appoint
such a physician and those two physicians shall select a third who shall make
such determination in writing. The determination of disability made in writing
to the Company and the Executive shall be final and conclusive for all purposes
of the Agreement. Notwithstanding the foregoing, the receipt of long-term
disability benefits by the Executive shall constitute conclusive proof of the
Executive's disability for purposes of this Agreement.
6.2. Termination Upon Death If the Executive dies, his employment and the
Company's obligation to pay the Base Salary and Bonus, if any, shall terminate
as of the date of Executive's death; provided, however, that Executive's estate
shall be entitled to receive any unpaid amounts of the Annual Salary, and any
Bonus earned up to the date on which Executive's death occurs, which payments
shall be made at such times as they would have been paid to Executive.
6.3 Termination by Mutual Agreement Executive's employment under this Agreement
may be terminated by the mutual agreement of the parties to this Agreement, on
such terms as may be agreed.
6.4 Termination by the Company For Cause
6.4.1 The Company may terminate Executive's employment hereunder for
Cause.
6.4.2 For purposes of this Section 6, "Cause" shall mean: (i)
commission of a willful act of dishonesty in the course of the Executive 's
duties hereunder, (ii) conviction by a court of competent jurisdiction of a
crime constituting a felony or conviction in respect of any act involving fraud,
dishonesty or moral turpitude, (iii) the Executive 's continued, habitual
intoxication or performance under the influence of controlled substances during
working hours, after the Company shall have provided written notice to the
Executive and gave the Executive thirty (30) days within which to commence
rehabilitation with respect thereto, and the Executive shall have failed to
commence such rehabilitation, (iv) frequent or extended, and unjustifiable (not
as a result of incapacity or disability) absenteeism, (v) engaging in any act
which has the potential for material injury to the Company, (vi) the Executive
's willful personal misconduct, action, inaction, inability or refusal to
perform duties and responsibilities described in Section 1 above, or to carry
out directives of the Board, or (vii) material non-compliance with the terms of
this Agreement.
6.4.3 In the event the Company terminates Executive's employment hereunder for
Cause, the Company shall pay him all compensation and benefits due to him
pursuant to this Agreement through the date of termination in full satisfaction
of all of the Company's obligations to Executive.
6.5 Termination for other reasons In the event the Company terminates
the Executives employment for reasons other than for Cause or pursuant to the
provisions outlined in sections 6.1,6.2 or 6.3 the Company shall continue to pay
to Executive his Base Salary for a period of twelve months following the date he
receives notice of such termination.
6.6 Release. Notwithstanding any other provision of this Agreement to
the contrary, the Executive acknowledges and agrees that any and all payments to
which the Executive is entitled under this Section are conditioned upon and
subject to the Executive's execution of a general waiver and release, in such
reasonable form as shall be prepared by the Company, of all claims the Executive
may have against the Company.
7.Protection of Confidential Information.
7.1 Definition The Company and its affiliates has acquired and will
develop certain trade secrets and other confidential and proprietary
information, including without limitation methods of operation, financial
information, strategic planning, operational budgets and strategies, software
(including specifications, programs and documentation), marketing information
and strategies, merger and acquisition strategies, payroll data, management
systems, client and vendor lists and client and vendor information (collectively
the "Confidential Information"), to which the Executive will have access as a
result of his employment. Confidential Information does not include information
generally known in the industry or which has become part of the public domain
other than by reason of the Executive's breach of this Agreement.
7.2 Return Upon termination of his employment for any reason, Executive
will immediately deliver to Save all papers, books, manuals, lists, software,
computer discs and data, correspondence and documents (in any medium whether in
writing, on magnetic tape or in electronic or other form) containing or relating
to the Confidential Information, and he will neither copy nor take any such
material with him upon leaving Save's employ.
7.3 Nondisclosure Executive will not at any time either while employed
by Save or after the termination of his employment reveal any Confidential
Information to any other person or business entity, except as required by his
duties for Save or by law.
7.4 Remedies Executive acknowledges and agrees that (a) Save is engaged
in a highly competitive business, (b) the Confidential Information of Save would
be valuable to Save's competitors by virtue of the fact that it is not generally
known to the public or in the industry; (c) the provisions of this Section are
fair and reasonable to protect Save's business interests and competitive
position and are of vital concern to Save, and, (d) breach of this Section by
Executive would cause Save irreparable harm, for which monetary damages would
not adequately compensate Save. Therefore, the Executive agrees that the
restrictions set forth in this Section may be enforced by injunction, without
the requirement of any bond, in addition to whatever other rights or remedies
are available to Save.
8.0 Inventions The Company agrees that if the Executive is primarily responsible
for the concept and development of patentable devices during the Term, other
than patentable devices that the Company is currently developing, or are based
upon, or natural extensions of, the Company's existing technology involving
gaseous fuel and in mixing devices and a process designated for use with the
conversion of aspirated and non-aspirated diesel engines to the use of
compressed natural gas, liquid natural gas or propane or to the conversion of
such engines to the use of multiple fuels (the "Patented Products"), and the
Company generates revenues relating to such Patented Products, then the
Executive will be entitled to a royalty equal to 1 1/2% of the net after-tax
profit derived by the Company from the sale of the Patented Products for a
period of three (3) years following the date on which the Patented Products are
first sold. Nothing contained in this paragraph shall affect or limit
Executive's assignment of the rights related to the Patented Products as set
forth in Section 8.2.
8.1 Executive will promptly disclose to Save (or persons
designated by it) all discoveries, developments, designs, improvements,
inventions, formulae, processes, techniques, programs, know-how, data or other
information of possible technical or commercial importance related to Save's
technology or its business, whether or not patentable, and whether or not
protectable under copyright or similar statutes, made, conceived, reduced to
practice or learned by Executive, either alone or jointly with others, during
Executive's employment by Save, whether or not discovered, made, conceived,
reduced to practice or learned during ordinary business hours or otherwise and
whether on Save's premises or elsewhere. (All of the foregoing are hereinafter
referred to as "Inventions").
8.2 Executive agrees that all Inventions shall be the sole
property of the Save and its assigns, and Save and its assigns shall be the sole
owner of all patents, patent applications (including continuations,
continuations-in-part, divisionals, reissues, reexaminations and foreign
counterparts thereof), trade secret rights, copyrights and other rights arising
therefrom or in connection therewith. Executive hereby assigns to Save any
rights Executive may have or acquire in such Inventions. Executive further
agrees as to all such Inventions to assist Save in every proper way (but at
Save's expense) to obtain and from time to time to enforce patents, trade secret
rights, copyrights and other rights and protections relating to such Inventions
in any and all countries (the foregoing are hereinafter referred to as
"Proprietary Rights"), and to that end Executive will execute all documents for
use in applying for, obtaining and enforcing all Proprietary Rights as Save
deems necessary or desirable, together with any assignments thereof to Save or
persons designated by it.) The Executive's assignment of intellectual property
and other Proprietary Rights hereunder includes without limitation all rights of
paternity, integrity, disclosure and withdrawal and any other rights that may be
known as or referred to as moral rights and the like (collectively, "Moral
Rights"), and to the extent such Moral Rights cannot be assigned under
applicable law and to the extent allowed by the laws in the various countries
where Moral Rights exist, the Executive hereby waives such Moral Rights and
consents to any action of the Company or any third party that would violate such
Moral Rights in the absence of such consent.
8.3 Executive's obligation to assist Save in obtaining and
enforcing Proprietary Rights shall survive and continue beyond the termination
of Executive's employment with Save. If Save is unable, after reasonable effort,
to secure Executive's signature on any document or documents needed to apply for
or prosecute any Proprietary Right or Rights, whether because of Executive's
physical or mental incapacity or for any other reason whatsoever, Executive
hereby irrevocably designates and appoints Save and its duly authorized officers
and agents as Executive's agent and attorney-in-fact, to act for and in
Executive's behalf and stead, to execute and file any documents necessary and to
do all other lawfully permitted acts to secure such Proprietary Rights for the
benefit of Save, with the same legal force and effect as if executed by
Executive. Executive expressly acknowledges, stipulates and agrees that the
foregoing power of attorney is coupled with an interest, is therefore
irrevocable and shall survive the death or incompetency of Executive.
9. Non-Competition and Non-Solicitation
9.1 Non-Solicitation; Non-Interference.During the Term and for a period
of one year after the termination of Executive's employment with Save, Executive
will not directly or indirectly, on his own behalf or on behalf of any other
person or business entity, (i) induce, entice, solicit, hire or attempt to hire,
or assist in the inducement, enticement, solicitation, hiring, or attempted
hiring of, any of Save's or its affiliates' employees to work for any other
person or business entity, in any other capacity or (ii) influence or attempt to
influence any person that is a contracting party with Save or its affiliates as
of the date of this Agreement or at any time during the Term of this Agreement,
to terminate any written or oral agreement with Save or its affiliates.
9.2 Non-Competition Executive will not, at any time during the Term and
for a period of one year following the termination of employment hereunder,
compete with Save directly or indirectly (whether as owner, partner, employer,
agent, principal, stockholder, corporate officer, director; consultant,
independent contractor, Executive, or otherwise in any capacity whatsoever).
"Compete" means owning, managing, operating, consulting for, being employed by,
or otherwise providing services to, a business that sells products or services
that compete with any products or services sold by Save or its affiliates and
which is located within the United States.
9.3 Injunctive Relief Executive acknowledges and agrees that (a) Save
is engaged in a highly competitive business, (b) Save's relationships with its
customers are fundamental to Save's business success, (c) the provisions of this
Section are fair and reasonable to protect Save's Confidential Information,
customer relationships, business interests and competitive position, and, (d)
breach of this Section by Executive would cause Save irreparable harm, for which
monetary damages would not adequately compensate Save. Therefore, Executive
agrees that the restrictions set forth in this Section may be enforced by
injunction, without the requirement of any bond, in addition to whatever other
rights or remedies are available to Save. In the event Save brings an action for
a temporary or permanent injunction to enforce this Section, the period of time
during which such action is pending and Executive's breach of this Section
continues, but no injunction has been issued, shall be added to the period of
the restriction sought to be enforced.
10. Arbitration Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, with the exception (at Save's option) of
sections 7, 8 and 9, shall be settled by binding arbitration in the City of New
York, New York, in accordance with the then-existing Employment Dispute
Resolution Rules of the American Arbitration Association (AAA), and judgment
upon the award rendered may be entered in any court having jurisdiction thereof.
If the parties cannot agree upon an arbitrator(s), the arbitration shall be
administered by the AAA. All applicable statutes of limitation shall apply to
any controversy or claim.
11. Entire Agreement This Agreement (including any Schedules attached)
supersedes any and all prior Agreements or understandings with respect to the
employment of the Executive. Any modification, termination or waiver of any
provision of this Agreement shall be effective only if contained in a writing
signed by the party to be charged, and no such waiver in one instance shall
operate as a waiver of any other provision or of any subsequent breach of the
provision waived.
12. Severability of Provisions The provisions of this Agreement are
separate and severable, and if any of them is declared invalid and/or
unenforceable by a court of competent jurisdiction or an arbitrator, the
remaining provisions shall not be affected.
13. Blue-Pencilling If an arbitrator or a court of competent jurisdiction
determines that any of the restrictions against disclosure of Confidential
Information, competition and/or solicitation contained in this Agreement are
invalid in whole or in part due to overbreadth, whether geographically,
temporally, or otherwise, such arbitrator or court is specifically authorized
and requested to reform such provision by modifying it to the smallest extent
necessary to render it valid and enforceable, and to enforce the provision as
modified.
14. Assignment This Agreement is a personal contract and may not be sold,
transferred or assigned by the Executive, except with respect to compensation to
be received hereunder, which may be assigned by written notice to Save. It shall
be assignable by Save to any party that acquires a substantial portion of the
assets, stock or business of Save, provided that the assignee assumes this
Agreement.
15. Benefit The rights and covenants of this Agreement shall inure and extend to
the parties hereto, their respective personal representatives, heirs,
successors, corporate parents, subsidiaries, and affiliates, and permitted
assigns.
16. Miscellaneous
(a) The section and paragraph headings in this Agreement are included
for convenience only.
(b) By signing this Agreement, the Company warrants (1) that it is a corporation
duly organized, validly existing and in good standing under the laws of all
jurisdictions in which it is incorporated and/or licensed to conduct business;
(2) that it has full authority to enter into and perform its obligations under
this Agreement, and that the corporate officer signing on its behalf has
authority to do so; and (3) that to the best of its knowledge there exists no
actual or threatened proceeding or investigation of any kind against the Company
or to which the Company might become a party which might affect the validity or
enforceability of this Agreement.
(c) This Agreement is the joint product of the Company and the Executive and
each provision hereof has been subject to the mutual consultation, negotiation
and agreement of the Company and the Executive and shall not be construed for or
against either party hereto.
(d) This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without reference to its principles of conflict of
laws, or to the principles of conflict of laws of any other jurisdiction which
would cause the application of the law of any jurisdiction other than the State
of New York.
(e) This Agreement may be signed in counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date first above written.
SAVE ON ENERGY, INC.
By: /s/ Robby Davis
-----------------
Robby Davis, President
/s/ Robert Stiles
----------------------
Robert Stiles