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 September 30, 2014

 

¨ 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 of incorporation or organization)		(I.R.S. Employer Identification No.)

 

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

 

(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 x 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; 25,498,055 outstanding as of November 13, 2014.

 

 

 

 

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.			14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.			22
Item 4.	Controls and Procedures.			22
PART II ‑ OTHER INFORMATION
Item 1.	Legal Proceedings.			23
Item 1A.	Risk Factors.			23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.			23
Item 3.	Default upon Senior Securities.			23
Item 4.	Mine Safety Disclosures.			23
Item 5.	Other Information.			23
Item 6.	Exhibits.			24
SIGNATURES				25

 

2

 

PART I ‑ FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

ENERTECK CORPORATION

 

Index to Financial Information

Period Ended September 30, 2014

 

		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

 

3

 

ENERTECK CORPORATION and SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		Unaudited				Audited
		September 30, 2014				December 31, 2013
ASSETS
Current assets
Cash		$	82,196			$	8,797
Inventory			231,311				254,724
Receivables – Trade			60,473				76,125
Prepaid Expenses			27,083				11,637
Total current assets		$	401,063			$	351,283
Intellectual Property		$	150,000				150,000
Property and equipment, net of accumulated depreciation of $354,748 and $343,627, respectively			10,571				21,692
Total assets		$	561,634			$	522,975
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable		$	164,906			$	146,247
Shareholder advances and notes			2,315,000				2,015,000
Accrued compensation			2,591,773				2,254,632
Accrued Interest			660,563				515,249
Accrued liabilities			72,062				54,743
Total current liabilities		$	5,804,304			$	4,985,871
Long Term Liabilities
Deferred Lease Liability		$	14,365			$	3,210
Total Long Term Liabilities		$	14,365			$	3,210
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, 25,498,055 and 24,983,055 shares issued and outstanding, respectively			25,498				24,983
Common stock subscribed, 75,000 shares			37,500				37,500
Additional paid-in capital			25,387,253				25,284,768
Accumulated deficit			(30,707,286	)			(29,813,357	)
Total stockholders’ equity (deficit)			(5,257,035	)			(4,466,106	)
Total liabilities and stockholders’ equity		$	561,634			$	522,975

 

4

 

ENERTECK CORPORATION and SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Revenues		$	34,263			$	43,205			$	151,337			$	216,790
Cost of goods sold			5,189				13,316				25,133				52,296
Gross profit		$	29,074			$	29,889			$	126,204			$	164,494
General and Administrative Expenses:
Wages		$	194,871			$	200,211			$	598,914			$	604,994
Non-cash compensation			0				133,465				0				133,465
Depreciation			3,707				8,812				11,121				26,436
Other Selling, Gen. & Admin. Exp.			93,711				87,844				264,825				369,149
Total Expenses		$	292,289			$	430,332			$	874,860			$	1,134,044
Operating loss		$	(263,215	)		$	(400,443	)		$	(748,656	)		$	(969,550	)
Interest Income		$	1			$	2			$	4			$	5
Other Income			0				(1,498	)			37				(855	)
Interest expense			(49,987	)			(80,489	)			(145,314	)			(249,210	)
Net Income (loss)		$	(313,201	)		$	(482,428	)		$	(893,929	)		$	(1,219,610	)
Net Loss per Share: Basic and diluted		$	(0.01	)		$	(0.02	)		$	(0.04	)		$	(0.05	)
Weighted average shares outstanding:
Basic and diluted			25,233,761				24,850,603				25,117,266				24,227,369

 

5

 

ENERTECK CORPORATION and SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2014 and 2013 (Unaudited)

 

		September 30,				September 30,
		2014				2013
Net (loss)		$	(893,929	)		$	(1,219,610	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization			11,121				140,201
Other non Cash Transactions			10,791				153,464
Changes in operating assets and liabilities:
Accounts receivable			15,652				56,645
Inventory			23,413				(34,373	)
Prepaid expenses and other			(15,446	)			(18,440	)
Accounts payable			18,659				(83,257	)
Accrued interest payable			145,314				133,669
Accrued Liabilities			354,824				214,806
NET CASH USED IN OPERATING ACTIVITIES		$	(329,601	)		$	(656,895	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		$	0			$	(1,563	)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		$	0			$	(1,563	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of Sale of Common Stock		$	103,000			$	555,500
Proceeds of Stockholder Notes Payable and Advances			300,000				135,000
CASH PROVIDED BY FINANCING ACTIVITIES		$	403,000			$	690,500
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		$	73,399			$	32,042
Cash and cash equivalents, beginning of period			8,797				24,324
Cash and cash equivalents, end of period		$	82,196			$	56,366
Cash paid for:
Income tax		$	0			$	0
Interest		$	0			$	0

 

6

 

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 2013 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.

 

During the year ended December 31, 2011, EnerTeck entered into stock sales agreements with investors who contributed $175,000 in cash to the Company for 350,000 shares of common stock. The shares had not been issued as of December 31, 2012 but retained the rights associated with the respective class of stock. Accordingly, these shares are considered common stock equivalents for purposes of computing basic earnings per share. 275,000 of these shares were issued during 2012, and 75,000 remain unissued.

 

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 2014 and 2013, 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 asset to the nominal value of $150,000 by the end of 2013, 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 was recorded for the years ended December 31, 2010 and zero for 2011, 2012 and 2013.

 

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 placed on the Company's intellectual property, which management believes is adequately supported by existing levels of sales and market data.

 

7

 

NOTE 4 – STOCKHOLDERS' EQUITY

 

During the first quarter of 2013, the Company issued 57,142 shares of common stock for prior legal services rendered in the amount of $20,000. During the first quarter of 2013, the Company sold to three accredited investors in a private placement offering 571,414 units at $0.70 per unit or $400,000 cash in the aggregate with each unit consisting of two shares of common stock of the Company.

 

During the second quarter of 2013, the Company sold to three accredited investors in a private placement offering 222,142 units at $0.70 per unit or $155,500 cash in the aggregate with each unit consisting of two shares of common stock of the Company.

 

During the third quarter of 2013, the Company to sold to an accredited investor in a private placement offering 14,285 units at $0.70 per unit or $10,000 cash in the aggregate with each unit consisting of two shares of common stock of the Company.

 

During the fourth quarter of 2013, the Company sold to two accredited investors in a private placement offering 42,857 units at $0.70 per unit or $30,000 cash in the aggregate with each unit consisting of two shares of common stock of the Company. Such proceeds have been recorded as common stock as the shares were issued in the first quarter of 2014.

 

During the third quarter of 2014, the Company to sold 515,000 shares of common stock to an accredited investor in a private placement offering at $0.20 per share or $103,000 cash in the aggregate, $50,000 of which was advanced in the second quarter of 2014.

 

An additional $375,000 remains in the Other Liability section of the Balance Sheet, representing additional shares not yet issued from advances from a shareholder/director at the end of the third quarter of 2014.

 

NOTE 5 – STOCK WARRANTS AND OPTIONS

 

Stock Warrants

 

During the first quarter of 2013, the Company issued to a consultant 400,000 warrants for services to be rendered with regard to the fund raising required for the Company to meet its upcoming requirements for operating funds and for extended testing with several potential new customers. Each warrant is exercisable into one share of common stock at $0.25 per share.

 

Other than the foregoing, there were no other warrants granted or exercised for the nine months ended September 30, 2013 and for the nine months ended September 30, 2014. A total of 400,048 warrants expired during the year ended December 31, 2013. No warrants expired during the nine months ended September 30, 2013 and September 30, 2014. Warrants outstanding and exercisable as of September 30, 2014 are as follows:

 

								Weighted				Exercisable
				Number of				Average				Number of
Exercise Price				Warrants				Remaining Life				Warrants
$	0.60				3,590,000				1.8				3,590,000
$	0.75				100,000				2.0				100,000
$	0.50				166,667				2.3				166,667
$	0.25				400,000				5.3				400,000
					4,256,667								4,256,667

 

8

 

Stock Options

 

In September 2003, shareholders of the Company approved an employee stock option plan (the “2003 Option Plan”) authorizing the issuance of options to purchase up to 1,000,000 shares of common stock. The 2003 Option Plan is intended to give the Company greater ability to attract, retain, and motivate officers, key employees, directors and consultants; and is intended to provide the Company with the ability to provide incentives more directly linked to the success of the Company’s business and increases in shareholder value.

 

During the third quarter of 2013, the board of directors increased the number of shares reserved for issuance under the 2003 Option Plan from 1,000,000 to 1,250,000 and approved the issuance of 474,201 additional employee stock options to cover services for the years 2012 and 2013. These options have an exercise price of $0.35 per share and expire in five years from their issue date.

 

The fair value of options at the date of grant was $137,505 and was recognized as non-cash compensation for the year ended December 31, 2013, as estimated using the Black-Scholes Model with the following weighted average assumptions for fiscal year 2013:

 

		2013
Expected dividend yield			0.0	%
Expected term			5.0 yrs
Expected volatility			350	%
Risk-free interest rate			1.3	%
Fair value per option		$	.29

 

The fair value of warrants issued in 2013 at the date of grant was $100,000 and was recognized as non-cash compensation for the quarter ended December 31, 2013, as estimated using the Black-Scholes Model with the following weighted average assumptions:

 

		2013
Expected dividend yield			0.0	%
Expected term			7.0 yrs
Expected volatility			279	%
Risk-free interest rate			1.0	%
Fair value per warrant		$	.25

 

The expected term of the options and warrants represents the estimated period of time until exercise and is based on the Company’s historical experience of similar option grants, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For fiscal 2013, expected stock price volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury bill rate in effect at the time of grant with an equivalent expected term or life. The Company has not paid dividends in the past and does not currently plan to pay any dividends in the future.

 

9

 

Information regarding activity for stock options under our plan is as follows:

 

		2014								2013
						Weighted								Weighted
						average								average
		Number of				exercise				Number of				exercise
		shares				price				shares				price
Outstanding at beginning of period			963,402			$	.76				553,401			$	.76
Options granted			0				0				0				0
Options exercised			0				0				0				0
Options forfeited/expired			(264,200	)			.89				(64,200	)			.80
Outstanding at end of period			699,202			$	.43				489,201			$	.76

 

Options exercisable at end of period			699,202								489,201
Non-vested options at end of period			0								0
Weighted-average
Remaining contractual term – all options			3.2 yrs								2.1 yrs
Weighted-average
Remaining contractual term – vested options			3.2 yrs								2.1 yrs
Fair value of options vested during the period		$	0							$	0
Aggregate intrinsic value		$	0							$	0

 

NOTE 6 – 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. This note is now overdue for payment.

 

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-Nine month term of the debt as additional interest expense. Amortization for this loan was $12,069 and $7,000 for the years ended December 31, 2013 and 2012. This note is now overdue for payment.

 

10

 

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. This note is now overdue for payment.

 

On July 20, 2010, the Company entered into a $200,000 convertible promissory note 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. This note is now overdue for payment.

 

On July 20, 2010, the Company entered into $300,000 of convertible promissory notes with shareholders/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. This note is now overdue for payment.

 

On December 10, 2010, the Company entered into $150,000 of convertible promissory notes with shareholders/director 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. This note is now overdue for payment.

 

On October 20, 2011, the Company entered into a $70,000 convertible promissory note with a shareholder/director which shall be due and payable on October 20, 2014 and accrue interest at 8.0% per annum payable at maturity and which may be converted at any time into shares of common stock. This note is now overdue for payment.

 

During 2010, 2011 and 2012 such shareholder/director advanced the Company $150,000, $150,000 and $320,000 respectively.

 

During 2013, such shareholder/director advanced the Company $175,000 to be applied to stock subscriptions expected to be issued in 2014. Such advances do not bear interest.

 

During the nine months ended September 30, 2014, such shareholder/director advanced the Company $300,000 to be applied to stock subscriptions expected to be issued in 2014. Such advances do not bear interest.

 

Discounts representing additional interest expense had been recorded on the issuance of warrants related to certain notes. Such discounts are being amortized over the terms of the respective notes on a straight-line basis and are netted with those notes for purposes of balance sheet presentation. Interest expense resulting from the amortization of discounts amounted to approximately $142,000 and $162,000, for the years ended December 31, 2013 and 2012, respectively. All debt discounts have been fully amortized as of December 31, 2013.

 

Negotiations are underway with such shareholder/director to restructure all of his debt and related interest receivable. The Company expects that this will be finalized during the fourth quarter of 2014.

 

NOTE 7 – 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 nine months ended September 30, 2014, the Company incurred a net loss of $894,000. In addition, at September 30, 2014, the Company has an accumulated deficit of $30,707,000. 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.

 

11

 

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 the three months ended September 30, 2014 were considerably less than earlier anticipated primarily due to circumstances which have been corrected or are in the process of being corrected. Tests which were expected to be run and completed during 2013 were, for reasons beyond the Company’s control either delayed or rescheduled completely into 2014 and are ongoing at this time. Management expected that marine, railroad and trucking sales would show significant increases in 2013 over what has been generated in the past. That is only now beginning to materialize. This was caused by delays in the completion of long term client demonstrations for several extremely large clients which were initially intended to be completed during 2013 and early 2014 but were delayed and are continuing to take place. Testing has successfully been completed with the frac fleet of one of the worlds largest oilfield service companies and has been awaiting the manufacture of dependable injection equipment. The initial delivery of this equipment is currently underway which will be closely followed with the delivery of EnerBurn. It is felt that this should lead to substantial future business in this area. Another major test in the inland marine industry is nearing completion and should be complete prior to year end 2014. While it remains to be seen if all will be successful, it is believed that the final results will be in the Company’s favor and that the Company will show significant improvement over the next two years.

 

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 8 – RECENTLY ISSUED AUTHORITATIVE ACCOUNTING GUIDANCE

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of ASU 2013-04 is fixed at the reporting date. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors as well as any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of those obligations. ASU 2013-04 is effective for reporting periods beginning after December 15, 2013, with early adoption permitted. Retrospective application is required. The Company is currently evaluating the impact of ASU 2013-04 on its consolidated financial statements and related disclosures.

 

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This new guidance is effective for the Company beginning January 1, 2015. The Company does not expect the adoption of ASU 2014-08 will have a material effect upon its financial statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual and interim reporting periods beginning on or after December 15, 2016, and early adoption is not permitted. ASU 2014-09 permits the use of two transition methods, either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method, and is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.

 

12

 

In June 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-12, “Stock Compensation – Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period.” The amendment applies to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. A reporting entity should apply existing guidance in ASC Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in ASU 2014-12 are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. Early adoption is permitted. This guidance is not expected to have a material impact on our financial condition or results of operations.

 

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 9 – SUBSEQUENT EVENTS

 

Subsequent to the quarter ended September 30, 2014, options to acquire 124,167 shares were issued under the Company’s 2003 Stock Option Plan to five employees which options are immediately exercisable. These options have an exercise price of $0.30 per share and expire in five years from their issue date.

 

13

 

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”), formerly named Gold Bond Mining Company and then Gold Bond Resources, Inc., was incorporated in the State of Washington on July 30, 1935. We acquired EnerTeck Chemical Corp. (“EnerTeck Sub”) as a wholly owned subsidiary on January 9, 2003. As a result of this acquisition, we are now acting as a holding company, with EnerTeck Sub as our primary operating business. Subsequent to this transaction, on November 24, 2003 we changed our domicile from the State of Washington to the State of Delaware and changed our name from Gold Bond Resources, Inc. to EnerTeck Corporation. 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. 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.

 

During 2011, we acquired a 40% membership interest in a newly formed entity called EnerTeck Environmental, LLC, which was formed for the purpose of marketing and selling a diesel fuel emission reduction technology with the creators of such specific technology.

 

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RESULTS OF OPERATIONS

 

Revenues

 

We recorded sales revenues of $34,000 for the three months and $151,000 for the nine months ended September 30, 2014 compared to sales revenues of $43,000 for the three months and $217,000 for the nine months ended September 30, 2013. The decrease in revenues for the first three month and nine month periods of 2014 compared to the prior year period was primarily due to the longer than originally anticipated testing periods with several customers both old and new and along with other logistical problems caused by current levels of staffing. The primary source of revenue since 2011 has been from the sale of EnerBurn to oilfield service, heavy construction and maritime industries. As testing is either underway or completed with several potential customers and in new areas with existing customers, more sales should occur. It is expected that sales should show significant increases starting during the remainder of 2014 and into 2015.

 

Gross Profit

 

Gross profit, defined as revenues less cost of goods sold, was $29,000 or 84.9% of sales for the three month period and $126,000 or 83.% of sales for the nine month period ended September 30, 2014. This is compared to $30,000 or 69.2% of sales for the three month period and $164,000 or 75.9% of sales for the nine month period ended September 30, 2013. As testing is either underway or completed with several potential new customers and in new areas with existing customers, more sales should occur.

 

Cost of goods sold was $5,000 for the three month and $25,000 for the nine month periods ended September 30, 2014, which represented 15.1% and 16.6% of revenues respectively, as compared to was $13,000 and $52,000 for the three and nine month periods ended September 30, 2013, which represented 30.8% and 24.1% of revenues. Although our actual manufacturing function is performed for us by an unrelated third party under contract to us, we should continue to realize better gross margins through the manufacturing of our product lines, compared to those we achieved in the past when we purchased all of our products from an outside vendor.

 

Costs and Expenses

 

Operating expenses were $292,000 for the three months and $875,000 for the nine months ended September 30, 2014 as compared to $430,000 for the three months and $1,134,000 for the nine months ended September 30, 2013. Such change for the Nine months ended September 30, 2014 compared to the prior year period is primarily due to a decrease in other selling, general and administrative expenses during the first two quarters while we have waited for final testing by two potentially large customers. Testing is successfully completed now for one of those two customers. Implementation has been held up due to delays to the fourth quarter of delivery of required high tech injection equipment by the customer's selected vendor. Initial delivery has now begun, although it remains to be seen how long actual implementation of the program for these customers will take. Testing is currently scheduled to be complete at Southwest Research Institute for another large customer, which if successful should lead to significant sales and future business. Costs and expenses in all periods primarily consisted of payroll, professional fees, rent expense, depreciation expense, amortization expense and other general and administrative expenses. While there has been a substantial decrease in costs and expenses in recent years, it is felt that these costs will likely increase later in future years to allow for the servicing of these clients.

 

Net Loss

 

We reported a net loss of $313,000 during the three months and $894,000 during the nine months ended September 30, 2014, as compared to a net loss of $482,000 for the three months and $1,220,000 for the nine months ended September 30, 2013. While we had sales of $34,000 and $151,000 in the three and nine months ended September 30, 2014 which were not significantly different than sales of $43,000 and $217,000 in the three and nine months ended September 30, 2013, we had a significant decrease in interest expense and noncash compensation for the three and nine months ended September 30, 2014.

 

Net income in the near future will be dependent greatly upon our ability, along with that of our dosing equipment manufacturer, Hammonds Technical Service, to supply the required injection equipment and EnerBurn for the servicing of our large new oilfield service industry client. Equally important will be the successful completion of testing currently underway at Southwest Research Institute, which should happen by the end of the fourth quarter of 2014 and into 2015. It is anticipated that the expected test results will increase revenues much faster than we increase our selling, general and administrative expenses, research and development expense and other expenses. Our gross margin resulting from our manufacturing of our products should help us in our ability to hopefully become profitable in the future.

 

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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, 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. For example, in 2005, we appointed Custom Fuel Services Inc., 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 and we cannot guarantee that we will ever generate meaningful revenues from our relationship with Custom.

 

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 PTY, based in Australia (“EnerGreen”), and G2 Fuel Technologies, LLC (“G2 Technologies”), a minority owned marketing firm working in both the domestic and foreign markets.

 

As testing is either underway or has been completed with several potential new customers and in new areas with existing customers, more sales should occur. We have been informed by EnerGreen, our distributor for Australia, that testing has successfully been completed with a new large customer there and that implementation will start shortly. This implementation will require the installation of injection systems on each of the customer vessels which may take through the end of 2014 to fully occur.

 

G2 Technologies, our new Certified Minority supplier and distributor, had advised us that several of its new potential customers should start testing and using EnerBurn during the fourth quarter of 2014 and thereafter.

 

Since 2011, we have owned a 40% membership interest in a newly formed entity called EnerTeck Environmental, LLC (“EnerTeck Environmental”), which was formed for the purpose of marketing and selling a diesel fuel emission reduction technology with the creators of such specific technology. EnerTeck Environmental was formed as a joint venture with Indian Nation Technologies, LLC (“Indian Nation”) located in Comanche, Oklahoma for the testing and manufacture of an innovative new type of environmental equipment for the remediation of diesel engine emissions for diesel engines in the marine industry. Indian Nation has filed a patent for this equipment called PEx® (Particle Extraction) and we will hold the exclusive marketing rights for this technology for the various applications within the marine diesel industry. EnerTeck Environmental is working with Ingram Barge and is in the process of testing the prototype of the patent pending PEx technology for marine diesel engines. Testing was completed late in the fourth quarter of 2013. The results are now in the hands of the testing company for final analysis and the PEx technology is now pending approval from the California Air Resources Board (CARB).

 

LIQUIDITY AND CAPITAL RESOURCES

 

On September 30, 2014, we had a working capital deficit of ($5,403,000) and a stockholders’ deficit of ($5,257,000) compared to a working capital deficit of ($4,635,000) and a stockholders’ deficit of ($4,466,000) on December 31, 2013. On September 30, 2014, we had $82,000 in cash, total assets of $562,000 and total liabilities of $5,818,000, compared to $9,000 in cash, total assets of $523,000 and total liabilities of $4,989,000 on December 31, 2013.

 

Net cash used in operating activities was $330,000 for the nine months ended September 30, 2014, which was primarily due to a net loss of ($894,000), plus changes in prepaid expenses of ($15,000), offset by changes in inventory of $23,000, Accounts receivable of $16,000 and changes in accounts payable of $19,000, accrued interest payable of $145,000 and accrued liabilities of $354,000. Net cash used in operating activities was $657,000 for the nine months ended September 30, 2013, which was primarily due to a net loss of ($1,220,000), plus changes in inventory of ($34,000), prepaid expenses and other of ($18,000) and accounts payable of ($83,000), offset by changes in accounts receivable of $57,000, along with changes in accrued interest payable of $134,000 and accrued liabilities of $215,000 and depreciation and other noncash expenses of $22,000.

 

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For the nine months ended September 30, 2014, we had no cash used in investing activities as compared to cash used in investing activities of ($1,600) for the nine months ended September 30, 2013 from capital expenditures incurred in the period.

 

Cash provided by financing activities was $403,000 for the nine months ended September 30, 2014 due to proceeds from the sale of common stock of $103,000 and proceeds from related party advances of $300,000 as compared to $691,000 for the nine months ended September 30, 2013 due to proceeds from the sale of common stock of $555,500 and related party advances of $135,000.

 

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. All payments have been made and, as of July 2010, we have now completed our monetary obligations under the EnerBurn Acquisition Agreement and the Note. Through 2010 this obligation drew significantly on our cash reserves. Starting in 2011 this is no longer the case.

 

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. During 2013, investment capital provided $771,000 for working capital from the proceeds from sales of common stock, loans and other advances.

 

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. As mentioned above, management acknowledges that sales revenues have been considerably less than earlier anticipated. This was primarily due to a combination of circumstances which have been corrected or are in the process of being corrected and therefore should not reoccur in the future and the general state of the economy. Management expects that sales should show increases in the latter part of 2014 and into 2015. No assurances can be made that we will be able to obtain required financial on terms acceptable to us or at all. Our contemplated cash requirements beyond 2014 will depend primarily upon level of sales of our products, inventory levels, product development, sales and marketing expenditures and capital expenditures.

 

Due to our lack of meaningful revenues, we have been forced to finance our operations primarily from capital which has been raised from third parties and promissory notes and advances from related parties. As of September 30, 2014, such loans and advances from related parties total $2,265,000. Many of these loans are past due and certain others are due on demand. The Company does not expect any of such lenders to demand payment until the Company has adequate resources to pay back such loans and advances, although there can be no assurance that such will be the case. This debt presents a significant risk to the Company in that in the event any of such lenders demand payment, the Company may not have the necessary cash to meet such payment obligations, or if it does, such payments may draw significantly on the Company’s cash position. Any of such events will likely have a materially detrimental effect on the Company. The principal lender has indicated that he wishes to convert the majority of his loans to common stock during 2014 and the Company expects that this should occur during the fourth quarter of this year, although there can be no assurance such will be the case or that such conversion will occur at all.

 

Inflation has not significantly impacted the Company’s operations.

 

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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.

 

During 2012, EnerTeck acquired a 40% membership interest in EnerTeck Environmental, LLC (Environmental). Environmental was formed for the purpose of marketing and selling diesel fuel emission reduction technology with the creators of such specific technology. Environmental is working with Ingram Barge and is in the process of testing the prototype of the patent pending PEx technology for marine diesel engines. Testing was completed late in the fourth quarter of 2013. The results are now in the hands of the testing company for final analysis and the PEx technology is now pending approval from the California Air Resources Board (CARB).

 

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 primarily consists of market ready EnerBurn plus raw materials required to manufacture the products. Inventory has been valued at the lower of cost or market, using the average cost method.

 

Included in inventory at December 31, 2010, were three large Hammonds EnerBurn doser systems amounting to $57,000 which were projected to be transferred to marine customers during 2010, but in 2011 were traded for injection units which are more universally adaptable to other customers. Included in inventory at December 31, 2013 and 2012, are various injector units and R & D Equipment amounting to $65,000 and $77,000, respectively. Testing of our newly developed Marine PEX beta unit which is currently included in Inventory was originally scheduled to occur prior to the end of the second quarter of 2013. This was delayed due to monitoring equipment requirements requested by the California Air Resources Board regulations and testing was completed late in the fourth quarter of 2013. The results are now in the hands of the testing company for final analysis and presentation to the California Air Resources Board (CARB).

 

Finished product amounted to approximately $55,000 and $72,000 at September 30, 2014 and December 31, 2013, respectively: the remaining inventory comprises raw materials.

 

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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. Accounts are written off as bad debts when all collection efforts have failed and the account is deemed uncollectible. Management has provided an allowance for doubtful accounts of $9,863 as of December 31, 2013 and September 30, 2014.

 

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.

 

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 asset 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 year.

 

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. No adjustment was required during the year ended December 31, 2013 and the Nine months ended September 30, 2014.

 

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.

 

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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 2010. For state tax jurisdictions, the Company is no longer subject to income tax examinations for years prior to 2009.

 

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.

 

During the year ended December 31, 2011, EnerTeck entered into stock sales agreements with investors who contributed $175,000 in cash to the Company for 350,000 shares of common stock. The shares had not been issued as of December 31, 2012 but retained the rights associated with the respective class of stock. Accordingly, these shares were considered common stock equivalents for purposes of computing basic earnings per share. 275,000 of these shares were issued during 2012, and 75,000 remain unissued.

 

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 2013, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

 

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.

 

Taxes Collected

 

The Company collects sales taxes assessed by governmental authorities imposed on certain sales to customers. Sales taxes collected are included in revenues; net amounts paid are reported as expenses in the consolidated statement of operations.

 

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Recently Issued Accounting Pronouncements

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of ASU 2013-04 is fixed at the reporting date. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors as well as any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of those obligations. ASU 2013-04 is effective for reporting periods beginning after December 15, 2013, with early adoption permitted. Retrospective application is required. The Company is currently evaluating the impact of ASU 2013-04 on its consolidated financial statements and related disclosures.

 

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This new guidance is effective for the Company beginning January 1, 2015. The Company does not expect the adoption of ASU 2014-08 will have a material effect upon its financial statements.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual and interim reporting periods beginning on or after December 15, 2016, and early adoption is not permitted. ASU 2014-09 permits the use of two transition methods, either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method, and is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.

 

In September 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-12, “Stock Compensation – Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period.” The amendment applies to reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. A reporting entity should apply existing guidance in ASC Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The amendments in ASU 2014-12 are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. Early adoption is permitted. This guidance is not expected to have a material impact on our financial condition or results of operations.

 

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.

 

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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 September 30, 2014, 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.

 

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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 2013, we sold to three accredited investors in a private placement offering 571,414 units at $0.70 per unit with each unit consisting of two shares of our common stock. These securities were sold directly by the Company, without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. 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 thereunder.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

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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)
101	The following financial information from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements

 

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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: November 13, 2014	By:	/s/ Dwaine Reese
		Dwaine Reese,
		Chief Executive Officer
		(Principal Executive Officer)

 

Dated: November 13, 2014	By:	/s/ Richard B. Dicks
		Richard B. Dicks,
		Chief Financial Officer (Principal Financial Officer)

  

 

 

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