ENERTECK CORP - FORM 10-Q

Attached files

file	filename
EX-32.1 - ENERTECK CORP	v222689_ex32-1.htm
EX-31.1 - ENERTECK CORP	v222689_ex31-1.htm
EX-31.2 - ENERTECK CORP	v222689_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

¨ 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 0-31981

ENERTECK CORPORATION

(Exact name of Registrant as Specified in its Charter)

Delaware	47-0929885
(State or other jurisdiction	(I.R.S. Employer
of incorporation or	Identification No.)
organization)

10701 Corporate Drive, Suite 150
Stafford, Texas	77477
(Address of principal	(Zip Code)
executive offices)

(281) 240-1787

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes ¨ No x

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: Common, $.001 par value per share; 22,257,851 outstanding as of May 12, 2011.

ENERTECK CORPORATION

TABLE OF CONTENTS

			Page
PART I - FINANCIAL INFORMATION

	Item 1.	Financial Statements.	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	19
	Item 4.	Controls and Procedures.	19

PART II - OTHER INFORMATION

	Item 1.	Legal Proceedings.	20
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	20
	Item 3.	Default upon Senior Securities.	20
	Item 4.	[Removed and Reserved.]	20
	Item 5.	Other Information.	20
	Item 6.	Exhibits.	20

SIGNATURES			21

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ENERTECK CORPORATION

Index to Financial Information

Period Ended March 31, 2011

	Page

Consolidated Financial Statements (Unaudited):

Consolidated Balance Sheets	4

Consolidated Statements of Operations	5

Consolidated Statements of Cash Flows	6

Notes to Consolidated Financial Statements	7

ENERTECK CORPORATION and SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	Unaudited			Audited
	March 31, 2011			Dec. 31, 2010
ASSETS

Current assets
Cash	$	76,776		$	123,526
Inventory		210,299			234,793
Receivables – Trade		198,916			199,660
Prepaid Expenses		45,000			11,570
Total current assets	$	530,991		$	569,549

Intellectual Property	$	150,000			150,000

Property and equipment, net of accumulated depreciation of $329,999 and $321,748, respectively		81,462			89,714
Total assets	$	762,453		$	809,263

LIAB. AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities
Accounts payable	$	229,338		$	191,800
Shareholder loans and advances		438,000			322,510
Accrued Interest		92,884			67,900
Other Accrued liabilities		982,044			857,067
Total current liabilities	$	1,742,266		$	1,439,277

Long Term Liabilities
Notes Payable	$	1,008,849		$	1,020,833
Total Long Term Liabilities	$	1,333,000		$	1,020,833

Stockholders’ Equity (Deficit)
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued
Common stock, $.001 par value, 100,000,000 shares authorized, 22,197,851 and 21,982,616 shares
issued and outstanding, respectively		22,198			21,983
Additional paid-in capital		22,581,577			22,544,644
Accumulated deficit		(24,592,437	)		(24,217,474	)
Total stockholders’ equity		(1,988,662	)		(1,650,847	)

Total liabilities and stockholders’ equity (deficit)	$	762,453		$	809,263

ENERTECK CORPORATION and SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2011 and 2010

(Unaudited)

	Three Months Ended March 31,
	2011			2010

Revenues	$	24,235		$	99,526
Cost of goods sold		5,066			20,059
Gross profit	$	19,169		$	79,467

General and Administrative Expenses:
Wages	$	183,331		$	211,239
Stock-based Compensation		0			0
Depreciation		8,251			10,371
Amortization		0			144,664
Other Selling, Gen. & Admin. Exp.		161,921			137,906
Total Expenses	$	353,503		$	504,180

Operating loss	$	(334,334	)	$	(424,712	)

Interest Income		10			6
Interest expense		(40,639	)		(8,832	)
Net Income (loss)	$	(374,963	)	$	(433,538	)

Weighted average shares outstanding:	$	(0.02	)	$	(0.02	)
Basic and diluted		22,096,024			21,637,788

ENERTECK CORPORATION and SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2010 (Unaudited)

	March 31,			March 31,
	2011			2010
Net (loss)	$	(374,963	)	$	(433,538	)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization		21,708			155,035
Conversion of debt to stock		2,198			0
Changes in operating assets and liabilities:
Accounts receivable		744			8,629
Inventory		24,494			11,815
Prepaid expenses and other		(33,430	)		(27,409	)
Accounts payable		37,538			16,400
Accrued interest payable		24,984			5,050
Accrued Liabilities		124,977			150,551
NET CASH USED IN OPERATING ACTIVITIES	$	(171,750	)	$	(113,467	)

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	$	0		$	(832	)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	$	0		$	(832	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of Stockholder Notes Payable and Advances	$	125,000		$	100,000
CASH PROVIDED BY FINANCING ACTIVITIES	$	125,000		$	100,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	(46,750	)	$	(14,299	)
Cash and cash equivalents, beginning of Quarter		123,526			52,129
Cash and cash equivalents, end of Quarter	$	76,776		$	37,830
Cash paid for:
Income tax	$	0		$	0
Interest	$	0		$	0

ENERTECK CORPORATION and SUBSIDIARY,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying Unaudited interim consolidated financial statements of EnerTeck Corporation have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in EnerTeck’s Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2010 as reported in the Form 10-K have been omitted.

NOTE 2 - INCOME (LOSS) PER COMMON SHARE

The basic net income (loss) per common share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding.

Diluted net income (loss) per common share is computed by dividing the net income applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For 2011 and 2010, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

NOTE 3 – INTELLECTUAL PROPERTY

In July 2006, EnerTeck acquired the EnerBurn technology. The purchase price for the EnerBurn technology is as follows: (i) $1.0 million cash paid on July 13, 2006, and (ii) a promissory note for $2.0 million. In May of 2007, we made the initial payment of $500,000 plus interest against the loan. Prior to 2009 EnerTeck had determined that the life of the intellectual property was indefinite; therefore, the asset was not amortized. The Company tested its intangible assets for impairment as of December 31, 2008. As a result of an independent examination based on sales for the year ended December 31, 2008, the Company determined that an impairment of the asset in the amount of $825,000 was required to be recorded.

Management made the decision during 2009 to change the characterization of its intellectual property to a finite-lived asset and to amortize the remaining balance of its intangible assets to the nominal value of $150,000 by the end of 2012, due to its determination that this now represents the scheduled end of its exclusive registration during that period. As a result, amortization expense of approximately $579,000 and $579,000 was recorded for the years ended December 31, 2010 and 2009 respectively.

Management made the decision effective December 31, 2010 to record an additional impairment of the asset in the amount of $868,000 as a result of the Company’s inability to generate sufficient sales to support its previously recorded amount. This impairment adjustment results in a value of $150,000 being place on the Company's intellectual property, which management believes is adequately supported by existing levels of sales and market data. Management has further determined that no additional amortization will be taken from the remaining value of the intellectual property.

NOTE 4 - STOCK-BASED COMPENSATION

EnerTeck follows the provisions of FASB Accounting Standards Codification (“FASB ASC”), FASB ASC 718, Compensation – Stock Compensation, to account for expense associated with stock options and other forms of equity compensation.

Pursuant to the employment agreement entered into with Gary B. Aman during the first quarter of 2009, the Company granted Mr. Aman an option to purchase 200,000 shares of Common Stock of the Company at an exercise price of $1.00 per share, all of which became 100% vested on January 1, 2010 and shall expire March 27, 2014.

In May 2009, the Company issued 250,000 shares of common stock to Wakabayashi Fund, LLC (“Wakabayashi”) for consulting services to be rendered pursuant to a consulting agreement entered into in May 2009 between the Company and Wakabayashi. Such shares were valued at the closing price of Company stock at the date of issuance and an expense of $225,000 was recorded.

During the third quarter of 2009, options to acquire 64,200 shares were issued under our 2003 Stock Option Plan to five employees which options are immediately exercisable. These options have an exercise price of $0.55 per share and expire in five years from their issue date. These options were valued using the Black-Scholes Model and the fair value of $35,295 was charged to operations in the third quarter of 2009.

NOTE 5 - EXERCISE OF WARRANTS

No warrants have been exercised during 2011 or 2010.

NOTE 6 – PRIVATE OFFERING

During the second quarter of 2009, we issued 1,600,000 shares of our common stock at $0.50 per share to five investors for total gross proceeds of $800,000 in a private placement offering to accredited investors only. An additional 700,000 shares, at $0.50 per share, were issued in the third quarter of 2009 to three other investors in connection with additional proceeds of $350,000 which had been advanced by such investors during the second quarter of 2009. An additional 60,000 shares, at $.50 per share, were issued in the second quarter of 2011 to one investor in connection with proceeds of $30,000 which had been advanced by such investor during the second quarter of 2009.

During the first quarter of 2011, we received an advance of $125,000 in gross proceeds for 250,000 shares of our common stock at $0.50 per share to three investors in a private placement offering to accredited investors only. The shares are scheduled to be issued to the three investors in the second quarter of 2011. This amount has been reported in the shareholder loans and advances in the accompanying balance sheet.

NOTE 7 – RELATED PARTY NOTES AND ADVANCES

On July 7, 2009, the Company entered into a $100,000 unsecured promissory note with an officer, due on demand. Interest is payable at 12% per annum. Also, on December 11, 2009, the Company entered into a $50,000 note with a shareholder/director. Interest is 5% per annum. The principal balance of the note is due on the earlier of December 11, 2012, or upon completion by the Company of equity financing in excess of $1.0 million in gross proceeds. Interest on the loan is payable on the maturity date at the rate of 5% per annum.

On June 1, 2010, the Company entered into a $50,000 convertible promissory note with a shareholder/director which shall be due and payable on June 1, 2013 and accrue interest at 8.0% per annum payable at maturity and which may be converted at any time into shares of common stock. The assignment of the conversion feature of the note resulted in a loan discount being recorded. The discount amount of $36,207 is being amortized over the original thirty-six month term of the debt as additional interest expense. Amortization for this loan was $3,017 and $0 for the first quarter of 2011 and 2010.

On June 1, 2010, the Company entered into $300,000 of convertible promissory notes with a shareholder/director which shall be due and payable on June 1, 2013 and accrue interest at 8.0% per annum payable at maturity and which may be converted at any time into shares of common stock.

On June 20, 2010, the Company entered into a $200,000 convertible promissory note with a shareholder/director which shall be due and payable on June 20, 2013 and accrue interest at 8.0% per annum payable at maturity and which may be converted at any time into shares of common stock.

On July 20, 2010, the Company entered into $300,000 of convertible promissory notes with a shareholder/director which shall be due and payable on July 20, 2013 and accrue interest at 8.0% per annum payable at maturity and which may be converted at any time into shares of common stock.

On December 10, 2010, the Company entered into $150,000 of convertible promissory notes with shareholder/directors which shall be due and payable on December 10, 2013 and accrue interest at 8.0% per annum payable at maturity and which may be converted at any time into shares of common stock.

During 2009 and 2010 such shareholder/director advanced the Company $100,000 and $50,000 respectively. Such advances are due on demand and bears interest at 5% per annum.

NOTE 8 – CONVERTIBLE NOTE PAYABLE

On February 10, 2010, the Company entered into a $50,000 convertible promissory note with Wayside Ventures, LLC due on October 10, 2010. Interest is payable at 8% per annum. At anytime Wayside Ventures, LLC shall have the right to convert any unpaid portion of the note into shares of common stock prior to the maturity date. During the second quarter of 2010, Wayside Ventures, LLC converted the note into 344,828 shares of common stock.

On June 7, 2010, the Company entered into a $55,000 convertible promissory note with Asher Enterprises, Inc. due on December 8, 2011. Interest is payable at 8% per annum. At any time during the period beginning 120 days following the date of the promissory note until maturity, Asher Enterprises, Inc. shall have the right to convert any unpaid portion of the note into shares of common stock. The assignment of the conversion feature of the note resulted in a loan discount being recorded. The discount amount of $35,164 is being amortized over the original eighteen month term of the debt as additional interest expense. In the first quarter of 2011 Asher Enterprises converted the entire principal and accrued interest due on such note into 215,235 shares of common stock. Amortization expense of $1,439 was recorded for the first quarter of 2011 prior to conversion.

On December 3, 2010, the Company entered into a $33,000 convertible promissory note with Asher Enterprises, Inc. due on September 3, 2011. Interest is payable at 8% per annum. At any time during the period beginning 120 days following the date of the promissory note until maturity, Asher Enterprises, Inc. shall have the right to convert any unpaid portion of the note into shares of common stock. The assignment of the conversion feature of the note resulted in a loan discount being recorded. The discount amount of $27,000 is being amortized over the original nine month term of the debt as additional interest expense. Amortization was $9,000 and $0 for the first quarter of 2011 and 2010.

NOTE 9 – ABILITY TO CONTINUE AS A GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the quarter ending March 31, 2011 and the year ended December 31, 2010, the Company incurred net losses of $375,000 and $2,763,000 respectively . In addition, at the quarter ending March 31, 2011 and year ending December 31, 2010, the Company has an accumulated deficit of $24,592,000 and $24,217,000 respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenues and cash flow to meet its obligations on a timely basis. Management believes that sales revenues for 2010 and 2009 were considerably less than earlier anticipated. As testing is either underway or completed with several potential new customers, and in new areas with existing customers, management expects that sales should show significant increases in 2011 and into 2012.

The Company has been able to generate working capital in the past through private placements and issuing promissory notes and believes that these avenues will remain available to the Company if additional financing is necessary. No assurance can be made that any of these efforts will be successful.

NOTE 10 — RECENTLY ISSUED AUTHORITATIVE ACCOUNTING GUIDANCE

In October 2009, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing.” This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. ASU 2009-15 became effective on January 1, 2010 and did not have an impact on the Company’s consolidated financial statements.

In December 2009, the FASB issued ASU 2009-16, "Accounting for Transfers of Financial Assets." This ASU amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. ASU 2009-16 became effective on January 1, 2010 and did not have an impact on the Company’s consolidated financial statements.

In December 2009, the FASB issued ASU No. 2009-17, “ Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” This ASU amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASU 2009-17 requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its effect on the entity’s financial statements. ASU 2009-17 became effective on January 1, 2010 and did not have an impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures About Fair Value Measurements.” This ASU requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. ASU 2010-06 became effective on January 1, 2010 with the exception of the requirement to provide Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which will become effective on January 1, 2011. Early adoption is permitted. The adoption of ASU 2010-06 as of January 1, 2010 did not have an impact on the Company’s consolidated financial statements. The adoption of the portion of ASU 2010-06 that becomes effective on January 1, 2011 is not expected to have an impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU 2010-17, "Revenue Recognition - Milestone Method" (Topic 605). This ASU codifies the consensus reached in EITF Issue No. 08-9, “Milestone Method of Revenue Recognition.” The amendments to the Codification provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and non-substantive milestones, and each milestone should be evaluated individually to determine if it is substantive.

ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply 2010-17 retrospectively from the beginning of the year of adoption. Vendors may also elect to adopt the amendments in this ASU retrospectively for all prior periods. The Company does not expect the provisions of ASU 2010-17 to have an effect on its consolidated financial statements.

In August 2010, the FASB issued ASU 2010-21, “Accounting for Technical Amendments to Various SEC Rules and Schedules: Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies.” The Company does not expect the provisions of ASU 2010-21 to have an effect on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

NOTE 11 — SUBSEQUENT EVENTS

See Note 6 for information on the $30,000 advance for a private stock offering during the second quarter of 2009. On March 18, 2010 the investor signed the subscription agreement and was issued 60,000 shares of common stock in April 2011.

Item 2. Management’s Discussion and Analysis of Plan of Operation

The following should be read in conjunction with the consolidated financial statements of the Company included elsewhere herein.

FORWARD-LOOKING STATEMENTS

When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” “plans”, and similar expressions are intended to identify forward-looking statements regarding events, conditions and financial trends which may affect our future plans of operations, business strategy, operating results and financial position. Forward looking statements in this report include without limitation statements relating to trends affecting our financial condition or results of operations, our business and growth strategies and our financing plans.

Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors include, among other things, general economic conditions; cyclical factors affecting our industry; lack of growth in our industry; our ability to comply with government regulations; a failure to manage our business effectively; our ability to sell products at profitable yet competitive prices; and other risks and factors set forth from time to time in our filings with the Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

EXECUTIVE OVERVIEW

EnerTeck Corporation (the “Company” or “EnerTeck Parent”) was incorporated in the State of Washington on July 30, 1935 under the name of Gold Bond Mining Company for the purpose of acquiring, exploring, and developing and, if warranted, the mining of precious metals. We subsequently changed our name to Gold Bond Resources, Inc. in July 2000. We acquired EnerTeck Chemical Corp. (“EnerTeck Sub”) as a wholly owned subsidiary on January 9, 2003. For a number of years prior to our acquisition of EnerTeck Sub, we were an inactive, public “shell” corporation seeking to merge with or acquire an active, private company. As a result of this acquisition, we are now acting as a holding company, with EnerTeck Sub as our only operating business. Subsequent to this transaction, on November 24, 2003 we changed our domicile from the State of Washington to the State of Delaware, changed our name from Gold Bond Resources, Inc. to EnerTeck Corporation and affected a one for 10 reverse common stock split. Unless the context otherwise requires, the terms “we,” “us” or “our” refer to EnerTeck Corporation and its consolidated subsidiary.

EnerTeck Sub, our wholly owned operating subsidiary, was incorporated in the State of Texas on November 29, 2000. It was formed for the purpose of commercializing a diesel fuel specific combustion catalyst known as EnerBurn (TM), as well as other combustion enhancement and emission reduction technologies. Nalco/Exxon Energy Chemicals, L.P. (“Nalco/Exxon L.P.”), a joint venture between Nalco Chemical Corporation and Exxon Corporation commercially introduced EnerBurn in 1998. When Nalco/Exxon L.P. went through an ownership change in 2000, our founder, Dwaine Reese, formed EnerTeck Sub. It acquired the EnerBurn trademark and related assets and took over the Nalco/Exxon L.P. relationship with the EnerBurn formulator and blender, and its supplier, Ruby Cat Technology, LLC (“Ruby Cat”).

We utilize a sales process that includes detailed proprietary customer fleet monitoring protocols in on-road applications that quantify data and assists in managing certain internal combustion diesel engine operating results while utilizing EnerBurn. Test data prepared by Southwest Research Institute and actual customer usage has indicated that the use of EnerBurn in diesel engines improves fuel economy, lowers smoke, and decreases engine wear and the dangerous emissions of both Nitrogen Oxide (NOx) and microscopic airborne solid matter (particulates). Our principal target markets have included the trucking, heavy construction, maritime shipping, railroad and mining industries, as well as federal, state and international government applications. We believe each of these industries shares certain common financial characteristics, i.e. (i) diesel fuel represents a disproportionate share of operating costs; and (ii) relatively small operating margins are prevalent. Considering these factors, management believes that the use of EnerBurn and the corresponding derived savings in diesel fuel costs can positively effect the operating margins of its customers while contributing to a cleaner environment.

RESULTS OF OPERATIONS

Revenues

We recorded $24,000 sales revenues for the three months ended March 31, 2011, compared to sales revenues of $100,000 in the same period of 2010. The decrease in revenues for the first three months of 2011 compared to the prior year period was primarily due to a sale to our oldest customer (Custom) in the previous year which did not reoccur this year.

In 2005, we appointed Custom, a subsidiary of Ingram Barge and which provides dockside and midstream fueling from nine service locations in Louisiana, Kentucky, Illinois, West Virginia, Missouri and Iowa, as our exclusive reseller of EnerBurn and the related technology on the Western Rivers of the United States, meaning the Mississippi River, its tributaries, South Pass, and Southwest Pass, excluding the Intra Coastal Waterway. Since 2006, sales have been sporadic with Custom but cumulatively since then Custom has been our largest customer to date. We cannot guarantee that we will ever generate meaningful revenues from our relationship with Custom.

As testing is either underway or completed with several potential new customers and in new areas with existing customers, more sales should occur. It is expected that sales should show significant increases during 2011 and into 2012.

Gross Profit

Gross profit, defined as revenues less cost of goods sold, was $19,000 or 79.1% of sales for the three month period ended March 31, 2011, compared to $79,000 or 79.8% of sales for the three period ended March 31, 2010. In terms of absolute dollars, the increase for the three month periods is a direct reflection of the difference in sales volume for the two periods. As testing is either underway or completed with several potential new customers and in new areas with existing customers, more sales should occur. As mentioned above, it is expected that sales should show significant increases during 2011 and into 2012.

Cost of goods sold was $5,000 for the three period ended March 31, 2011, which represented 20.9% of revenues, as compared to $20,000 for the three months ended March 31, 2010 which represented 20.2% of revenues. Since its purchase in July 2006, we have owned the EnerBurn technology and associated assets. Although our manufacturing is performed for us by an unrelated third party, we should continue to realize better gross margins due to the manufacturing our own product lines, compared to those we had achieved in the past when we purchased all of our products from an outside vendor.

Costs and Expenses

Operating expenses were $354,000 for the three months ended March 31, 2011 as compared to $504,000 for the three months ended March 31, 2010. Costs and expenses in all periods primarily consisted of payroll, professional fees, rent expense, depreciation expense, amortization expense and other general and administrative expenses. Such change from period to period of 2011 compared to 2010 was primarily due to amortization expense of $145,000 for the three months ended March 31, 2010 compared to no amortization expense for the three months ended March 31, 2011. While wages decreased to $183,000 for the three months ended March 31, 2011 from $211,000 for the three months ended March 31, 2010, other selling, general and administrative expenses increased to $162,000 for the three months ended March 31, 2011 from $138,000 for the three months ended March 31, 2010. Of the total $183,000 in wages for the first three months of 2010, $127,000 was not paid in cash during the period and was accrued to a later date when funds become available. While there has been a substantial increase in costs and expenses in recent years, it is felt that these increases will lead to a considerable increase in earnings potential in 2011 and future years.

Net Loss

We reported a net loss of $375,000 during the three months ended March 31, 2011, as compared to net losses of $434,000 for the three months ended March 31, 2010. The decrease in losses was primarily due to our having no amortization charge in the first three months of 2011 compared to $145,000 for the first three months of 2010, as well as lower payroll for the three months ended March 31, 2011 compared to the prior year period, offset by an increase in other selling, general and administrative for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

Net income in the future will be dependent upon our ability to successfully complete testing in our targeted markets and new product lines and to increase revenues faster than we increase our selling, general and administrative expenses, research and development expense and other expenses. Our improved gross margin resulting from our manufacturing of our products should help us in our ability to hopefully become profitable in the future.

Operations Outlook

The majority of our marketing effort since 2005 has been directed at targeting and gaining a foothold in one of several major target areas, including the inland marine diesel market, trucking, railroad, heavy construction and mining. Management has focused virtually all resources at pinpointing and convincing certain large potential customers within these markets, with our diesel fuel additive product lines. While we still believe that this is a valid theory, the results, to date, have been less than we had expected. A substantial portion of 2010 was spent redirecting our marketing emphasis for our primary product, EnerBurn, to solidify our major customers and expanding to newer, more innovative areas. As such, we have created marketing alliances domestically and internationally with two new marketing groups, EnerGreen Technologies, based in Australia and G2 Fuel Technologies, a minority owned marketing firm working in both the domestic and foreign markets. This resulted in the signing of marketing agreements which have opened our marketing efforts to both private and publically held customers both within the United States and abroad, which appear to have significant sales potential over the remainder of 2011 and thereafter.

We fully expect sales to our current in house customers to grow over the next several months and we will continue to work with our other domestic and international customers as in the past. Working with EnerGreen, we are currently either in negotiations or currently testing with heavy construction and ocean going marine customers, both in Australia and in other international venues and expect to have several significant new customers over the nest year and forward. G2 is currently heavily involved with federal, state and local government entities and are actively introducing EnerBurn and other Enerteck products to large new markets in those areas. In addition, G2 is working with a large new potential customer in the product distribution area for the general market, which if successful will open our Enerteck products to a totally new customer base than previously targeted.

It remains to be seen how, when or if these efforts will become successful, however the potential for success is much broader with our increased ability to service these markets.

LIQUIDITY AND CAPITAL RESOURCES

On March 31, 2011, we had working capital deficit of ($1,211,000) and a stockholders’ deficit of ($1,989,000) compared to a working capital deficit of ($870,000) and a stockholders’ deficit of ($1,651,000) on December 31, 2010.

On March 31, 2011, we had $77,000 in cash, total assets of $762,000 and total liabilities of $2,751,000, compared to $124,000 in cash, total assets of $809,000 and total liabilities of $2,460,000 on December 31, 2010.

Net cash used in operating activities was $172,000 for the three months ended March 31, 2011, which was primarily due to a net loss of ($375,000), prepaid expenses and other of ($33,000), offset by accounts payable of $38,000 and accrued liabilities of $125,000. Net cash used in operating activities was $113,000 for the three months ended March 31, 2010, which was primarily due to a net loss of($434,000) and prepaid expenses and other of ($27,000), offset by depreciation and amortization of $155,000, accrued liabilities of $151,000, accounts payable of $16,000 and inventory of $12,000.

For the three months ended March 31, 2011, we had investing activities of $0 compared to investing activities of a negative $832 for the three months ended March 31, 2010. Cash provided by financing activities was $125,000 for the three months ended March 31, 2011 as compared to $100,000 for the three months ended March 31, 2010.

On July 13, 2006, we completed the acquisition of the EnerBurn formulas, technology and associated assets pursuant to an Asset Purchase Agreement executed as of the same date (the “EnerBurn Acquisition Agreement”) between the Company and the owner of Ruby Cat (the “Seller”). Pursuant thereto, the Company acquired from the Seller all of its rights with respect to the liquid diesel motor vehicle fuel additives known as EC5805A and EC5931A products (the “Products”) as well as its rights to certain intellectual property and technology associated with the Products (collectively, the “Purchased Assets”). The purchase price for the Purchased Assets was $3.0 million, payable as follows: (i) $1.0 million paid on July 13, 2006 in cash, and (ii) the remaining $2.0 million evidenced by a promissory note (the “Note”) bearing interest each month at a rate of 4.0% per annum, compounded monthly, and which shall be paid in four annual

payments of $500,000 plus accumulated interest to that date on each anniversary of the closing until the entire purchase price is paid in full. This acquisition allows us to manufacture our own on and off road versions of the EnerBurn product line and will allow for significant savings in the cost requirements of product sales from manufacturing. The first payment of $500,000 was made in advance in May 2007. An additional $500,000 due July 13, 2008 was also made in advance of the due date, on July 3, 2008. Due to litigation commenced between the Company and the Seller, the Company requested the court to grant it leave to pay the remaining installments under the EnerBurn Acquisition Agreement into the registry of the court pending adjudication of such matter. The court granted the request and the Company paid the third annual installment of $500,000 plus accrued interest into the registry on July 13, 2009. On March 31, 2010, the parties to the lawsuit entered into a settlement agreement pursuant to which, among other things, the remaining installments due under the EnerBurn Acquisition Agreement were paid by the Company on July 22, 2010, along with an additional sum of $75,000. As a result, we have now completed our monetary obligations under the EnerBurn Acquisition Agreement which previously drew significantly on our cash reserves.

In the past, we have been able to finance our operations primarily from capital which has been raised. To date, sales have not been adequate to finance our operations without investment capital. For the year ended December 31, 2010, cash provided by financing activities was $688,000 from the proceeds of loans and advances made to the Company of $1,188,000, offset by payment on the note payable due on the intellectual property of $500,000. For the year ended December 31, 2009, cash provided by financing activities was $930,000 from proceeds from sale of common stock of $1,150,000, related party note payable and advances of $280,000, offset by payment on the note payable due on the intellectual property of $500,000.

We anticipate, based on currently proposed plans and assumptions relating to our operations, that in addition to our current cash and cash equivalents together with projected cash flows from operations and projected revenues we will require additional investment to satisfy our contemplated cash requirements for the next 12 months. No assurance can be made that we will be able to obtain such investment on terms acceptable to us or at all. We anticipate that our costs and expenses over the next 12 months will be approximately $3.0 million. Our continuation as a going concern is contingent upon our ability to obtain additional financing and to generate revenues and cash flow to meet our obligations on a timely basis. Management acknowledges that sales revenues have been considerably less than earlier anticipated. However, we expect that sales should show increases in 2011 and into 2012. No assurances can be made that we will be able to increase our sales or obtain required financial on terms acceptable to us or at all. Our contemplated cash requirements beyond 2011 will depend primarily upon level of sales of our products, inventory levels, product development, sales and marketing expenditures and capital expenditures.

Inflation has not significantly impacted the Company’s operations.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Significant Accounting Policies

Business and Basis of Presentation

EnerTeck Corporation, formerly Gold Bond Resources, Inc. was incorporated under the laws of the State of Washington on July 30, 1935. On January 9, 2003, the Company acquired EnerTeck Chemical Corp. ("EnerTeck Sub") as its wholly owned operating subsidiary. As a result of the acquisition, the Company is now acting as a holding company, with EnerTeck Sub as its only operating business. Subsequent to this transaction, on November 24, 2003, the Company changed its domicile from the State of Washington to the State of Delaware, changed its name from Gold Bond Resources, Inc. to EnerTeck Corporation.

EnerTeck Sub, the Company’s wholly owned operating subsidiary is a Houston-based corporation. It was incorporated in the State of Texas on November 29, 2000 and was formed for the purpose of commercializing a diesel fuel specific combustion catalyst known as EnerBurn (TM), as well as other combustion enhancement and emission reduction technologies for diesel fuel. EnerTeck’s primary product is EnerBurn, and is registered for highway use in all USA diesel applications. The products are used primarily in on-road vehicles, locomotives and diesel marine engines throughout the United States and select foreign markets.

Principles of Consolidation

The consolidated financial statements include the accounts of EnerTeck Corporation and its wholly-owned subsidiary, EnerTeck Chemical Corp. All significant inter-company accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash and cash equivalents.

Inventory

Inventory consists of market ready EnerBurn plus raw materials required to manufacture the products. Inventory is valued at the lower of cost or market, using the average cost method. Included in inventory are injector systems and R&D Equipment amounting to $74,000. The Company’s remaining inventory was split on approximately a 95/5 basis between raw materials and finished goods at March 31, 2011.

Accounts Receivable

Accounts receivable represent uncollateralized obligations due from customers of the Company and are recorded at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and charged to the provision for doubtful accounts. The Company calculates this allowance based on historical write-offs, level of past due accounts and relationships with and economic status of the customers. There was no allowance for doubtful accounts considered necessary at March 31, 2011.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided for on the straight-line or accelerated method over the estimated useful lives of the assets. The average lives range from five (5) to ten (10) years. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.

Intangible Assets

The Company follows the provisions of FASB ASC 350, Goodwill and Other Intangible Assets. FASB ASC 350 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Specifically, FASB ASC 350 addresses how intangible assets that are acquired should be accounted for in financial statements upon their acquisition, as well as how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The statement requires the Company to evaluate its intellectual property each reporting period to determine whether events and circumstances continue to support an indefinite life. In addition, the Company tests its intellectual property for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The statement requires intangible assets with finite lives to be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable and that a loss shall be recognized if the carrying amount of an intangible exceeds its fair value.

Intellectual property and other intangibles are recorded at cost. Prior to 2009, the Company determined that its intellectual property had an indefinite life because it believed there was no legal, regulatory, contractual, competitive, economic or other factor to limit its useful life, and therefore would not be amortized. For other intangibles, amortization would be computed on the straight-line method over the identifiable lives of the assets.

As a result of a review by management of its intangible asset and policies related thereto as of December 31, 2010, it was determined that a further impairment was required to be recorded. This impairment serves to reduce its intellectual property to an amount which management believes represents its fair value. This value would be considered a level 3 measurement under FASB ASC 820, Fair Value Measurements and Disclosures, since it is based on significant unobservable inputs. The Company will re-assess the value of this asset in future periods and make adjustments as

considered necessary, rather than record additional amortization.

Revenue Recognition

The Company follows the provisions of FASB ASC 605, Revenue Recognition, and recognizes revenues when evidence of a completed transaction and customer acceptance exists, and when title passes, if applicable.

Revenues from sales of product and equipment are recognized at the point when a customer order has been shipped and invoiced.

Income Taxes

The Company will compute income taxes using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on evidence from prior years, may not be realized over the next calendar year or for some years thereafter.

The current and deferred tax provisions in the financial statements include consideration of uncertain tax positions in accordance with FASB ASC 740, Income Taxes. Management believes there are no significant uncertain tax positions, so no adjustments have been reported from adoption of FASB ASC 740. The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The Company is no longer subject to income tax examinations by the Internal Revenue Service for years prior to 2007. For state tax jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2006.

Income (Loss) Per Common Share

The basic net income (loss) per common share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding.

Management Estimates and Assumptions

The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America which require 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments

The Company’s financial instruments recorded on the balance sheet include cash and cash equivalents, accounts receivable, accounts payable and note payable. The carrying amounts approximate fair value because of the short-term nature of these items.

Stock Options and Warrants

Effective January 1, 2006, the Company began recording compensation expense associated with stock options and other forms of equity compensation in accordance with FASB ASC 718, Stock Compensation.

Recently Issued Accounting Pronouncements

into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. ASU 2009-15 became effective on January 1, 2010 and did not have an impact on the Company’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2011, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no material changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not currently a party to any pending material legal proceeding nor is it aware of any proceeding contemplated by any individual, company, entity or governmental authority involving the Company.

Item 1A. Risk Factors.

Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the first quarter of 2011, we issued a total of 215,235 shares of our common stock to Asher Enterprises, Inc. in connection with the full conversion of a $55,000 convertible promissory note held by Asher and issued on June 7, 2010. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506 there under.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security-Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

			ENERTECK CORPORATION
			(Registrant)

Dated:	May 13, 2011	By:	/s/ Dwaine Reese
			Dwaine Reese,
			Chief Executive Officer
			(Principal Executive Officer)

Dated:	May 13, 2011	By:	/s/ Richard B. Dicks
			Richard B. Dicks,
			Chief Financial Officer
			(Principal Financial Officer)

Attached files

ENERTECK CORP Reports

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