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EX-31.2 - CERTIFICATION - FUEL PERFORMANCE SOLUTIONS, INC.ifue_ex312.htm
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EX-32.2 - CERTIFICATION - FUEL PERFORMANCE SOLUTIONS, INC.ifue_ex322.htm
EX-32.1 - CERTIFICATION - FUEL PERFORMANCE SOLUTIONS, INC.ifue_ex321.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 September 30, 2015

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission File No. 000-25367

 

FUEL PERFORMANCE SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

88-0357508

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

7777 Bonhomme, Suite 1920
St. Louis, Missouri

 

63105

(Address of principal executive offices)

 

(Zip Code)

 

(314) 727-3333

(Registrant's telephone number, including area code)
 

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 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 definitions 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

(Do not check if a smaller reporting company)    

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The number of shares outstanding of registrant's only class of stock as of November 16, 2015: Common stock, par value $0.01 per share – 203,758,698 shares outstanding.

 

 

 

INDEX

 

 

PAGE NO.

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

 

 

Balance Sheets — September 30, 2015 (unaudited) and December 31, 2014

 

 

3

 

 

 

 

 

 

 

 

Statements of Operations (unaudited) — Three-Month and Nine-Month Periods Ended September 30, 2015 and September 30, 2014

 

 

4

 

 

 

 

 

 

 

 

Statement of Stockholders' Equity (Deficit) (unaudited) — Nine-Month Period Ended September 30, 2015

 

 

5

 

 

 

 

 

 

 

 

Statements of Cash Flows (unaudited) — Nine-Month Periods Ended September 30, 2015 and September 30, 2014

 

 

6

 

 

 

 

 

 

 

 

Notes to Unaudited Financial Statements

 

 

7

 

 

 

 

 

 

 

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

17

 

 

 

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosure About Market Risk

 

 

25

 

 

 

 

 

 

 

Item 4. 

Controls and Procedures

 

 

25

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

 

26

 

 

 

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

26

 

 

 

 

 

 

 

Item 3. 

Defaults Upon Senior Securities

 

 

26

 

 

 

 

 

 

 

Item 4. 

Mine Safety Disclosures

 

 

26

 

 

 

 

 

 

 

Item 5. 

Other Information

 

 

26

 

 

 

 

 

 

 

Item 6. 

Exhibits

 

 

27

 

 

 
2
 

 

FUEL PERFORMANCE SOLUTIONS, INC.
(formerly known as International Fuel Technology, Inc.)

 
BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

(Unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$68,542

 

 

$530,201

 

Accounts receivable

 

 

46,538

 

 

 

338,572

 

Inventory

 

 

54,263

 

 

 

80,247

 

Deferred financing cost

 

 

93,095

 

 

 

127,555

 

Prepaid expenses and other assets

 

 

117,355

 

 

 

38,937

 

Total current assets

 

 

379,793

 

 

 

1,115,512

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

2,211,805

 

 

 

2,211,805

 

 

 

 

 

 

 

 

 

 

Total assets

 

$2,591,598

 

 

$3,327,317

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$312,219

 

 

$507,044

 

Convertible notes payable, net of discount of $235,912 and $0, respectively

 

 

856,588

 

 

 

-

 

Convertible notes payable – related party, net of discount of $12,417 and $0, respectively

 

 

45,083

 

 

 

-

 

Accrued interest

 

 

127,851

 

 

 

-

 

Accrued interest – related party

 

 

6,729

 

 

 

-

 

Accrued compensation

 

 

838,893

 

 

 

787,026

 

Derivative liability

 

 

461,187

 

 

 

457,380

 

Other accrued expenses

 

 

190,000

 

 

 

190,000

 

Total current liabilities

 

 

2,838,550

 

 

 

1,941,450

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Convertible notes payable, net of discount of $0 and $550,975, respectively

 

 

-

 

 

 

541,525

 

Convertible notes payable – related party, net of discount of $0 and $28,999, respectively

 

 

-

 

 

 

28,501

 

Notes payable, net of discount of $208,027 and $0, respectively

 

 

161,973

 

 

 

-

 

Notes payable – related party, net of discount of $19,160 and $0, respectively

 

 

25,840

 

 

 

-

 

Accrued interest

 

 

3,649

 

 

 

39,917

 

Accrued interest – related party

 

 

740

 

 

 

2,101

 

Deferred rent

 

 

7,416

 

 

 

10,028

 

Deferred income taxes

 

 

723,000

 

 

 

723,000

 

Total long-term liabilities

 

 

922,618

 

 

 

1,345,072

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

3,761,168

 

 

 

3,286,522

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 350,000,000 shares authorized at both September 30, 2015 and December 31, 2014; 203,758,698 (net of 1,440,000 shares held in treasury stock) shares issued and outstanding at both September 30, 2015 and December 31, 2014

 

 

2,051,987

 

 

 

2,051,987

 

Treasury stock

 

 

(664,600)

 

 

(664,600)

Discount on common stock

 

 

(819,923)

 

 

(819,923)

Additional paid-in capital

 

 

72,431,009

 

 

 

72,258,932

 

Accumulated deficit

 

 

(74,168,043)

 

 

(72,785,601)

Total stockholders' equity (deficit)

 

 

(1,169,570)

 

 

40,795

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$2,591,598

 

 

$3,327,317

 

 

See accompanying Notes to Unaudited Financial Statements.

 

 
3
 

 

FUEL PERFORMANCE SOLUTIONS, INC.
(formerly known as International Fuel Technology, Inc.)

STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$122,458

 

 

$677,105

 

 

$347,826

 

 

$1,506,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

(89,661)

 

 

(440,965)

 

 

(262,731)

 

 

(1,073,505)

Selling, general and administrative expense

 

 

(350,362)

 

 

(434,059)

 

 

(1,127,075)

 

 

(3,561,484)

Gain on accounts payable write off

 

 

-

 

 

 

59,899

 

 

 

-

 

 

 

59,899

 

Gain on deferred revenue write off

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,998,242

 

Total operating expenses

 

 

(440,023)

 

 

(815,125)

 

 

(1,389,806)

 

 

(1,576,848)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from operations

 

 

(317,565)

 

 

(138,020)

 

 

(1,041,980)

 

 

(70,650)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(212,061)

 

 

(54,193)

 

 

(528,536)

 

 

(54,020)

Gain (loss) on derivative liability

 

 

122,908

 

 

 

234,591

 

 

 

188,074

 

 

 

(67,409)

Loss on conversion of debt from a related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(387,500)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) before income taxes

 

 

(406,718)

 

 

42,378

 

 

 

(1,382,442)

 

 

(579,579)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

-

 

 

 

16,000

 

 

 

-

 

 

 

48,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$(406,718)

 

$26,378

 

 

$(1,382,442)

 

$(627,579)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

 

$(0.00)

 

$(0.00

)

 

$(0.01)

 

$(0.00)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding, basic

 

 

203,758,698

 

 

 

202,675,382

 

 

 

203,758,698

 

 

 

194,309,478

 

Weighted-average common shares outstanding, diluted

 

 

203,758,698

 

 

 

218,479,480

 

 

 

203,758,698

 

 

 

194,309,478

 

 

See accompanying Notes to Unaudited Financial Statements.

 

 
4
 

 

FUEL PERFORMANCE SOLUTIONS, INC.

(formerly known as International Fuel Technology, Inc.)

 

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2015

(Unaudited)

 

 

 

Common Stock Shares

 

 

Common Stock Amount

 

 

Treasury

Stock

 

 

Discount on Common Stock

 

 

Additional Paid-in Capital

 

 

Accumulated Deficit

 

 

Total

 

Balance, December 31, 2014

 

 

205,198,698

 

 

$2,051,987

 

 

$(664,600)

 

$(819,923)

 

$72,258,932

 

 

$(72,785,601)

 

$40,795

 

Expense relating to stock option grants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

108,290

 

 

 

-

 

 

 

108,290

 

Issuance of Affiliate Shares (See Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,787

 

 

 

 

 

 

 

63,787

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,382,442)

 

 

(1,382,442)

Balance, September 30, 2015 (unaudited)

 

 

205,198,698

 

 

$2,051,987

 

 

$(664,600)

 

$(819,923)

 

$72,431,009

 

 

$(74,168,043)

 

$(1,169,570)

 

See accompanying Notes to Unaudited Financial Statements.

 

 
5
 

 

FUEL PERFORMANCE SOLUTIONS, INC.
(formerly known as International Fuel Technology, Inc.)

STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(1,382,442)

 

$(627,579)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt provision

 

 

13,735

 

 

 

-

 

Non-cash option expense

 

 

108,290

 

 

 

2,438,983

 

Gain on deferred revenue write off

 

 

-

 

 

 

(2,998,242)

Gain on write off of accounts payable

 

 

-

 

 

 

(59,899)

(Gain) loss on derivative liability

 

 

(188,074)

 

 

67,409

 

Amortization of debt discount

 

 

347,350

 

 

 

31,103

 

Amortization of deferred financing cost

 

 

84,335

 

 

 

10,877

 

Loss on conversion of debt from a related party

 

 

-

 

 

 

387,500

 

Income tax provision

 

 

-

 

 

 

48,000

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

278,299

 

 

 

(302,884)

Inventory

 

 

25,984

 

 

 

(10,421)

Prepaid expenses and other assets

 

 

(78,418)

 

 

(74,227)

Accounts payable

 

 

(194,824)

 

 

72,459

 

Accrued compensation

 

 

86,867

 

 

 

(11,773)

Accrued interest payable

 

 

96,951

 

 

 

12,352

 

Deferred rent

 

 

(2,612)

 

 

(1,821)

Net cash used in operating activities

 

 

(804,559)

 

 

(1,018,163)
 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Gross proceeds from issuance of convertible notes

 

 

-

 

 

 

950,000

 

Gross proceeds from issuance of convertible notes – related party

 

 

-

 

 

 

50,000

 

Gross proceeds from issuance of notes payable

 

 

370,000

 

 

 

-

 

Gross proceeds from issuance of notes payable – related party

 

 

10,000

 

 

 

-

 

Deposits received for stock purchase

 

 

-

 

 

 

8,332

 

Payments made for deferred financing cost

 

 

(37,100)

 

 

(135,000)

Proceeds from issuance of common stock

 

 

-

 

 

 

827,724

 

Net cash provided by financing activities

 

 

342,900

 

 

 

1,701,056

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(461,659)

 

 

682,893

 

Cash and cash equivalents, beginning

 

 

530,201

 

 

 

216,913

 

Cash and cash equivalents, ending

 

$68,542

 

 

$899,806

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the nine months ended September 30:

 

 

 

 

 

 

 

 

Interest

 

$-

 

 

$-

 

Income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

 

Conversion of related party notes to common stock

 

$-

 

 

$550,000

 

Debt discount due to derivative liability

 

 

-

 

 

 

295,773

 

Debt discount due to warrants issued with convertible notes

 

 

-

 

 

 

246,905

 

Debt discount due to warrants issued with notes payable

 

 

179,106

 

 

 

-

 

Convertible note original issuance cost

 

 

-

 

 

 

150,000

 

Deferred financing cost due to derivative liability for warrants

 

 

12,775

 

 

 

29,550

 

Debt discount due to Affiliate Shares issued with notes payable

 

 

63,787

 

 

 

-

 

Notes payable issued for accrued compensation

 

 

35,000

 

 

 

-

 

 
See accompanying Notes to Unaudited Financial Statements.
 

 
6
 

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 – Basis of Presentation

 

The interim financial statements included herein have been prepared by Fuel Performance Solutions, Inc. (formerly known as International Fuel Technology, Inc.) (the "Company," "we," "us" or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. Interim results are not necessarily indicative of results for a full year. We suggest that these financial statements be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 31, 2015. We follow the same accounting policies in preparation of interim reports as we do in our annual reports.

 

Note 2 – Substantial Doubt about Ability to Continue as a Going Concern

 

Our financial statements are presented on the going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred significant losses since inception and currently have and previously from time to time have had limited funds with which to operate. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. Management is in the process of executing a strategy based upon marketing technologies that offer enhanced engine performance and greater fuel economy along with pollution control benefits. We have several technologies in the commercialization phase and in development. We have received necessary regulatory approvals for our products currently in the commercialization phase. We are selling our products directly to the commercial marketplace. We expect to increase our sales to the marketplace, eventually generating a level of revenues sufficient to meet our cash flow and earnings requirements. Until such time, we are dependent on external sources of capital to help fund the operations of the Company.

 

During the third quarter of 2014, we raised funds with the issuance of convertible notes. During the third quarter of 2015, we raised funds with the issuance of notes payable. We have been funded since inception primarily by unregistered sales of Company restricted stock, generally to existing shareholders. We believe we still have access to capital from existing shareholders and in addition, management is in the process of executing a plan that we believe will provide us with sufficient funds to allow us to operate through the end of 2015. Specifically, management is currently in discussions with its investment banker and with a group of institutions and high net worth individuals regarding a financing. However, we can make no assurances that additional capital will be available to us from these sources. Therefore, if we are unable to secure additional capital, we will need to curtail operations.

 

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

 
7
 

 

Note 3 – Significant Accounting Policies

 

Derivative Financial Instruments

 

We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in our statements of operations. For stock-based derivative financial instruments, we use a Lattice Model option pricing model, assuming maximum value, in accordance with the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") ASC 815-15, "Derivatives and Hedging," to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in our balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Fair Value of Financial Instruments

 

We measure our financial assets and liabilities in accordance with the requirements of ASC 820, "Fair Value Measurements and Disclosures," which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.

 

The following table sets forth by level within the fair value hierarchy the Company's financial assets and liabilities that were accounted for at fair value as of September 30, 2015, and December 31, 2014:

 

Recurring Fair Value Measures

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$-

 

 

$-

 

 

$461,187

 

 

$461,187

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$-

 

 

$-

 

 

$457,380

 

 

$457,380

 

 

 
8
 

  

Note 4 – Stockholders' Equity (Deficit)

 

On May 22, 2014, we filed a certificate of amendment to our Articles of Incorporation increasing the number of our authorized shares from 250,000,000 to 350,000,000 shares with the Nevada Secretary of State.

 

Non-cash stock-based compensation expense recorded during the three and nine months ended September 30, 2015 and September 30, 2014 is as follows:

 

 

 

Three Months

Ended

September 30,

2015

 

 

Three Months

Ended

September 30,

2014

 

 

Nine Months

Ended

September 30,

2015

 

 

Nine Months

Ended

September 30,

2014

 

Awards to employees and Directors

 

$35,507

 

 

$71,191

 

 

$108,290

 

 

$2,355,669

 

Awards to non-employees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

83,314

 

Total non-cash stock-based compensation expense

 

$35,507

 

 

$71,191

 

 

$108,290

 

 

$2,438,983

 

 

Employee and Director Awards

 

During the nine months ended September 30, 2015, we did not issue any options to employees or Directors for Director-related services. The $35,507 and $108,290 of non-cash stock-based compensation expense recognized during the three and nine months ended September 30, 2015 relates to employee options grants made during 2014 that have subsequent vesting terms. Some of these 2014 employee options grants vested during the nine months ended September 30, 2015. The remaining 2014 employee option grants will become fully vested by January 22, 2016. $41,380 of unrecognized non-cash stock-based compensation expense remains as of September 30, 2015.

 

The following table summarizes information about stock options to employees and Directors that were issued and outstanding during the nine months ended September 30, 2015:

 

 

 

Shares

 

 

Weighted-average exercise price

 

 

Weighted-average exercise life

 

 

Intrinsic value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2014

 

 

30,474,720

 

 

$0.10

 

 

 

4.23

 

 

$404,337

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

NA

 

 

NA

 

 

 

 

 

Cancelled

 

 

-

 

 

NA

 

 

NA

 

 

 

 

 

Expired

 

 

-

 

 

NA

 

 

NA

 

 

 

 

 

Outstanding at September 30, 2015

 

 

30,474,720

 

 

$0.10

 

 

 

3.48

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at September 30, 2015

 

 

28,308,053

 

 

$0.10

 

 

 

3.47

 

 

 

 

 

Options exercisable at December 31, 2014

 

 

27,641,386

 

 

$0.10

 

 

 

4.22

 

 

 

 

 

 

 
9
 

 

Non-employee Awards

 

During the nine months ended September 30, 2015, we did not issue any options to non-employee consultants for services.

 

The following table summarizes information about stock options to non-employees that were issued and outstanding during the nine months ended September 30, 2015:

 

 

 

Shares

 

 

Weighted-average exercise price

 

 

Weighted-average exercise life

 

 

Intrinsic value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2014

 

 

5,425,000

 

 

$0.19

 

 

 

2.57

 

 

$8,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

NA

 

 

NA

 

 

 

 

 

Cancelled

 

 

-

 

 

NA

 

 

NA

 

 

 

 

 

Expired

 

 

-

 

 

NA

 

 

NA

 

 

 

 

 

Outstanding at September 30, 2015

 

 

5,425,000

 

 

$0.19

 

 

 

1.82

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at September 30, 2015

 

 

5,425,000

 

 

$0.19

 

 

 

1.82

 

 

 

 

 

Options exercisable at December 31, 2014

 

 

5,425,000

 

 

$0.19

 

 

 

2.57

 

 

 

 

 

 

Sales of Common Stock

 

We did not receive any proceeds from the sale of common stock during the nine months ended September 30, 2015.

 

Note 5 – Equity Commitment and Related Party Transactions

 

On August 21, 2015, the Company issued $25,000 of notes payable to Jonathan Burst, the chairman of our Board of Directors (the "Board") and Chief Executive Officer, $10,000 to Michael Gianino, a Director on our Board and $10,000 to Stuart D. Beath, our Chief Financial Officer. These loans were pursuant to the notes payable transaction discussed in Note 7 – Notes Payable below. Total cash proceeds from the $45,000 of related party notes payable is $10,000, while the remaining $35,000 is offset with the accrued compensation.

 

On August 22, 2014, the Company borrowed $50,000 from Mr. Burst, the chairman of our Board and Chief Executive Officer. This loan was pursuant to the convertible note payable transaction discussed in Note 6 – Convertible Notes Payable below.

 

Effective December 11, 2007, we received an investment commitment from Rex Carr, a Director of the Company and a holder of over 5% of our common stock. Pursuant to the terms of the commitment, Mr. Carr agreed to invest up to an aggregate of $1,000,000 in the Company, at such time or times as we may request, in the form of a purchase or purchases of our restricted common stock. We may elect to draw from the commitment at one time or from time to time; provided, however, that the aggregate of such draws may not exceed $1,000,000. We have drawn down $500,000 of the commitment and issued to Mr. Carr that number of our shares of restricted common stock equal to the value of the investment then provided to us. The number of shares to be issued was calculated based on the closing price of our common stock as quoted on OTC Market Group's OTCQB marketplace on the date of the sale. There is no stipulation regarding the duration of this commitment. As of both September 30, 2015 and December 31, 2014, $500,000 remains available under this equity commitment.

 

Rex Carr passed away on April 27, 2015. On April 30, 2015, the Company elected Glenn Carr to its Board. Glenn Carr is the son of Rex Carr, a Director of the Company. The Company believes that the equity commitment of Rex Carr referenced above will be honored by his estate. However, we can make no assurances as to the timing of when the estate may be settled, and how much we may receive once the estate is settled. The first meeting to settle the estate is scheduled for late February or early March 2016.

 

 
10
 

 

Note 6 – Convertible Notes Payable

 

On August 22, 2014 (the "2014 Closing Date"), we closed a financing transaction by entering into a Securities Purchase Agreement dated August 22, 2014 (the "2014 Securities Purchase Agreement") with certain funds and investors signatory to such 2014 Securities Purchase Agreement (the "2014 Purchasers") for an aggregate subscription amount of $1,000,000 (the "2014 Purchase Price") of which $50,000 is from a related party. Pursuant to the 2014 Securities Purchase Agreement, we issued the following to the 2014 Purchasers: (i) 10% Convertible Promissory Notes with an aggregate principal amount of $1,150,000 (the "2014 Notes"), and (ii) warrants to purchase an aggregate of 6,666,667 shares of the Company's common stock, par value $0.01 per share, for an exercise price of $0.12 per share for a period of five (5) years from the effective date of the registration statement (the "2014 Warrants").

 

We recorded $150,000 of original issuance cost related to this transaction, which we have recorded as debt discount.

 

The terms of the 2014 Notes and the 2014 Warrants are as follows:

 

10% Convertible Promissory Notes

 

The total principal amount of the 2014 Notes is issued with a 115% premium to the subscription amount. The 2014 Notes accrue interest at a rate equal to 10% per annum and have a maturity date of February 22, 2016. The 2014 Notes are convertible any time after the issuance date of the 2014 Notes. The 2014 Purchasers have the right to convert the 2014 Notes into shares of the Company's common stock at a conversion price equal to $0.10 per share, subject to standard adjustments for stock dividends, stock splits, subsequent equity sales, subsequent rights offerings and pro rata distributions. While the 2014 Notes are outstanding, in the event of a subsequent equity sale at a price lower than the conversion price of $0.10 per share, the conversion price of the 2014 Notes shall be reduced to the lower conversion price. The 2014 Notes can be redeemed under certain conditions and the Company can force the conversion of the 2014 Notes in the event certain equity conditions are met.

 

In the event of default, the 2014 Purchasers have the right to require the Company to repay in cash all or a portion of the 2014 Notes at a price equal to 125% of the aggregate principal amount of the 2014 Notes plus all accrued but unpaid interest.

 

We recorded $31,969 and $92,562 of interest expense related to the issuance of the 2014 Notes during the three and nine months ended September 30, 2015, respectively.

 

Warrants

 

The 2014 Warrants are exercisable in whole or in part, at an initial exercise price per share of $0.12, subject to adjustment. The exercise price and number of shares of the Company's common stock issuable under the 2014 Warrants (the "2014 Warrant Shares") are subject to adjustments for stock dividends, splits, combinations, subsequent rights offerings, pro rata distributions and any issuance of securities below the exercise price of the 2014 Warrants. While the 2014 Warrants are outstanding, in the event of a subsequent equity sale including a warrant exercise price lower than the exercise price of $0.12 per share, the exercise price of the 2014 Warrants shall be reduced to the lower exercise price. Any adjustment to the exercise price shall similarly cause the number of 2014 Warrant Shares to be adjusted so that the total value of the 2014 Warrants may increase, provided, that in no event shall the number of 2014 Warrant Shares exceed 200% of the original number of 2014 Warrant Shares originally issued.

 

In addition to the 2014 Warrants described above, the Company also issued 800,000 warrants to a placement agent assisting with the convertible note transaction. The terms of the placement agent warrants are the same as of the terms of the 2014 Warrants explained above.

 

 
11
 

  

Registration Rights Agreement

 

In connection with the sale of the 2014 Notes and 2014 Warrants pursuant to the 2014 Securities Purchase Agreement, the Company entered into a registration rights agreement (the "2014 Registration Rights Agreement") with the 2014 Purchasers, pursuant to which the Company agreed to register all of the shares of common stock underlying the 2014 Notes and the shares of common stock underlying the 2014 Warrants (together, the "2014 Registrable Securities") on a Form S-1 registration statement (the "2014 Registration Statement") to be filed with the SEC within thirty (30) calendar days following the 2014 Closing Date (the "2014 Filing Deadline") and to use its best efforts to cause the 2014 Registration Statement to be declared effective under the Securities Act within one hundred (100) calendar days following the 2014 Closing Date (the "2014 Effectiveness Deadline"). The 2014 Registration Statement became effective November 26, 2014.

 

Deferred Financing Cost

 

In connection with the convertible note transaction explained above, the Company paid $55,000 for legal fees and $80,000 for placement agent fees. In addition, $29,550 was also recorded to deferred financing costs related to the fair value valuation of the placement agent warrants. $28,203 and $81,606 of deferred financing costs was amortized during the three and nine months ended September 30, 2015, respectively. The deferred financing cost balance related to the 2014 Notes is $45,949 and $127,555 as of September 30, 2015 and December 31, 2014, respectively.

 

Derivative

 

Because the above convertible 2014 Notes and 2014 Warrants have full reset adjustments tied to future issuances of equity securities by the Company, they are subject to derivative liability treatment under ASC 815-40-15, "Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock" ("ASC 815-40-15"). ASC 815-40-15 requires as of the date the convertible 2014 Notes and 2014 Warrants are issued, the derivative liability to be measured at the fair value and re-evaluated at the end of each reporting period. See Note 9 - Derivative Liability.

 

Debt Discount

 

On issuance date, the fair value of the derivative liability for both the convertible 2014 Notes and 2014 Warrants was $295,773 and $246,905, respectively. Therefore a total of $692,678 (including $150,000 original issuance costs) of debt discount was recorded. $129,077 and $331,645 was recorded as amortization of debt discount during the three and nine months ended September 30, 2015, respectively.

 

As of September 30, 2015, the convertible 2014 Notes have a balance of $856,588, net of $235,912 of debt discount, and accrued interest of $127,851. As of December 31, 2014, the convertible 2014 Notes have a balance of $541,525, net of $550,975 of debt discount, and accrued interest of $39,917.

 

As of September 30, 2015, the related party convertible 2014 Note has a balance of $45,083, net of $12,417 of debt discount, and accrued interest of $6,729. As of December 31, 2014, the related party convertible 2014 Note has a balance of $28,501, net of $28,999 of debt discount, and accrued interest of $2,101.

 

 
12
 

 

Note 7 – Notes Payable

 

On August 21, 2015 (the "2015 Closing Date"), we closed a financing transaction by entering into a Securities Purchase Agreement dated August 21, 2015 (the "2015 Securities Purchase Agreement") with certain funds and investors signatory to such 2015 Securities Purchase Agreement (the "2015 Purchasers") for an aggregate subscription amount of $415,000 (the "2015 Purchase Price") of which $45,000 is from related parties (see Note 5 - Equity Commitment and Related Party Transactions). Pursuant to the 2015 Securities Purchase Agreement, we issued the following to the 2015 Purchasers: (i) 10% Promissory Notes with an aggregate principal amount of $415,000 (the "2015 Notes"), and (ii) warrants to purchase an aggregate of 4,150,000 shares of the Company's common stock, par value $0.01 per share, for an exercise price of $0.12 per share for a period of five (5) years from the Securities Purchase Agreement date (the "2015 Warrants"). The 2015 Notes are subordinated to the 2014 Notes.

 

In addition, we issued 2,075,000 restricted common shares of our stock to the 2015 Purchasers (the "2015 Affiliate Shares"). The 2015 Affiliate Shares were contributed from existing shareholdings of related party Board members and did not increase the total number of our common shares outstanding.

 

The terms of the 2015 Notes and the 2015 Warrants are as follows:

 

10% Promissory Notes

 

The total principal amount of the 2015 Notes is $415,000. The 2015 Notes accrue interest at a rate equal to 10% per annum and have a maturity date of August 21, 2017. The 2015 Notes can be redeemed by the Company at any time without penalty.

 

In the event of default, the 2015 Purchasers have the right to require the Company to repay in cash all or a portion of the 2015 Notes at a price equal to 125% of the aggregate principal amount of the 2015 Notes plus all accrued but unpaid interest.

 

We recorded $4,389 of interest expense related to the issuance of the 2015 Notes during both the three and nine months ended September 30, 2015, respectively.

 

Warrants

 

The 2015 Warrants are exercisable in whole or in part, at an initial exercise price per share of $0.12, subject to adjustment. The exercise price and number of shares of the Company's common stock issuable under the 2015 Warrants (the "2015 Warrant Shares") are subject to adjustments for stock dividends, splits, combinations, subsequent rights offerings, pro rata distributions and any issuance of securities below the exercise price of the 2015 Warrants. While the 2015 Warrants are outstanding, in the event of a subsequent equity sale including a warrant exercise price lower than the exercise price of $0.12 per share, the exercise price of the 2015 Warrants shall be reduced to the lower exercise price. Any adjustment to the exercise price shall similarly cause the number of 2015 Warrant Shares to be adjusted so that the total value of the 2015 Warrants may increase.

 

In addition to the 2015 Warrants described above, the Company also issued 296,000 warrants to a placement agent assisting with the 2015 Notes transaction. The terms of the placement agent warrants are the same as of the terms of the 2015 Warrants explained above.

 

 
13
 

 

Deferred Financing Cost

 

In connection with the note transaction explained above, the Company paid $7,500 for legal fees and $29,600 for placement agent fees. In addition, $12,775 was also recorded to deferred financing costs related to the fair value valuation of the placement agent warrants. $2,729 of deferred financing costs was amortized during both the three and nine months ended September 30, 2015, respectively. The deferred financing cost balance related to the 2015 Notes is $47,146 and $0 as of September 30, 2015 and December 31, 2014, respectively.

 

Derivative

 

Because the above 2015 Notes and 2015 Warrants have full reset adjustments tied to future issuances of equity securities by the Company, they are subject to derivative liability treatment under ASC 815-40-15. ASC 815-40-15 requires as of the date the 2015 Notes and 2015 Warrants are issued, the derivative liability to be measured at the fair value and re-evaluated at the end of each reporting period. See Note 9 - Derivative Liability.

 

Debt Discount

 

On issuance date, the fair value of the derivative liability for the 2015 Warrants was $179,106. Also, the relative fair value of the 2015 Affiliate Shares was $63,787. Therefore a total of $242,893 of debt discount was recorded. $15,705 was recorded as amortization of debt discount during both the three and nine months ended September 30, 2015, respectively.

 

As of September 30, 2015, the 2015 Notes have a balance of $161,973, net of $208,027 of debt discount, and accrued interest of $3,649.

 

As of September 30, 2015, the related party 2015 Notes have a balance of $25,840, net of $19,160 of debt discount, and accrued interest of $740.

 

Note 8 – Blencathia Merger

 

Effective October 27, 1999, we merged with Blencathia Acquisition Corporation ("Blencathia"). Blencathia was a public shell company with immaterial assets and liabilities and 312,000 shares outstanding at the time of the merger, which it redeemed and cancelled upon the merger. In exchange, we issued 312,000 of our common shares to the prior Blencathia owner with the contractual understanding that such shares were to be sold by that owner to achieve gross cash proceeds of $500,000. Any excess proceeds were to be returned to us and any deficiency was to be made up by us issuing additional shares or paying the difference in cash. As we believed that we controlled the ultimate timing of the sale of these 312,000 shares by the prior Blencathia owner, we did not consider these shares as issued or outstanding for purposes of computing earnings per share prior to 2006.

 

In 2006, we learned that the prior Blencathia owner had, in fact, sold the 312,000 shares for aggregate proceeds of approximately $150,000, without our consent. Accordingly, in the fourth quarter of 2006, we recorded $500,000 of general expenses (representing the cost of the 1999 merger) and the deemed issuance of approximately $150,000 of common stock. The remaining $350,000 obligation was reflected as a current accrued expense. Beginning in 2006, the 312,000 shares have been reflected as outstanding for earnings per share computations. During 2009 and 2010, we made payments totaling $160,000 to the prior Blencathia owner. We have not made any payments to the prior Blencathia owner since 2010. The related current accrued expense balance remains at $190,000 at September 30, 2015. We are in negotiations with the prior Blencathia owner to resolve this obligation and may ultimately settle the obligation with either cash or equity securities with a lower market value.

 

 
14
 

 

Note 9 – Derivative Liability

 

During 2009, we granted a warrant to purchase 2,000,000 shares of the Company's common stock to an accredited investor in conjunction with equity raise efforts. On April 12, 2013, our Board authorized and approved the extension of the expiration date and a change of exercise price for this warrant. The outstanding share purchase warrant originally had a March 23, 2014 expiration date and an exercise price of $0.25. The new modified terms extended the warrant expiration date to April 11, 2018 and reduced the exercise price to $0.226. The exercise price is also subject to dilutive adjustments for share issuances (full ratchet reset features). As of September 30, 2015 and December 31, 2014, the exercise price has been reduced to approximately $0.15 and an additional 1,430,134 (as of September 30, 2015) and 1,418,987 (as of December 31, 2014) warrants, respectively, are to be issued to the investor due to the reset features.

 

On August 21, 2015, we issued 4,150,000 warrants to investors and 296,000 warrants to a placement agent. The exercise price of these warrants is also subject to dilutive adjustments for share issuance (full ratchet reset features). See Note 7 - Notes Payable.

 

On August 22, 2014, we issued 6,666,667 warrants to investors and 800,000 warrants to a placement agent. The exercise price of these warrants is also subject to dilutive adjustments for share issuance (full ratchet reset features). See Note 6 – Convertible Notes Payable.

 

Because the convertible 2014 Notes, 2014 Warrants and 2015 Warrants all have full reset adjustments tied to future issuances of equity securities by the Company, they are subject to derivative liability treatment under ASC 815-40-15, which requires as of the date the convertible 2014 Notes, 2014 Warrants and 2015 Warrants are issued, the derivative liability to be measured at fair value and re-evaluated at the end of each reporting period.

 

Key assumptions used to determine the fair value of the convertible 2014 Notes are as follows:

 

Stock price volatility (one-year measurement):

 

 

 

December 31, 2014 measurement

 

 

192%

September 30, 2015 measurement

 

 

163%

Probability of default triggering 21% interest rate, increasing 1% per month to a maximum of 10% with a 125% penalty

 

 

0%

Probability of the Company redeeming the convertible 2014 Notes (with 130% penalty): projected initially at 0% of the time, increasing 1% monthly to a maximum of 5% (from alternative financing being available for a redemption event to occur)

 

 

 

 

Conversion behavior - holder automatically converts the convertible 2014 Notes at a maximum of 2 times the conversion price

 

 

 

 

 

Key assumptions used to determine the fair value of the 2014 Warrants and 2015 Warrants are as follows:

 

Stock price volatility (one-year measurement):

 

 

 

December 31, 2014 measurement

 

 

192%

August 21, 2015 measurement

 

 

158%

September 30, 2015 measurement

 

 

163%

Exercise behavior – warrant exercise at target prices 2 times the higher of the projected reset price or stock price

 

 

 

 

 

 
15
 

  

As of September 30, 2015, the fair value of the total convertible 2014 Notes, 2014 Warrants and 2015 Warrants' derivative liability is $461,187 and we recognized a gain on derivative liability of $122,908 and $188,074 for the three and nine months ended September 30, 2015, respectively.

 

As of December 31, 2014, the fair value of the total convertible 2014 Notes, 2014 Warrants and 2015 Warrants' derivative liability is $457,380.

 

The following table summarizes the derivative liability included in the balance sheet:

 

Balance at December 31, 2014

 

 

$457,380

 

Debt discount due to warrants issued with notes payable

 

 

$179,106

 

Deferred financing cost originated from derivative liability

 

 

$12,775

 

Gain on change of fair value

 

 

$

 (188,074

Balance at September 30, 2015

 

 

$461,187

 

 

The following table summarizes information about warrants outstanding as of September 30, 2015:

 

Total # of warrants issued and outstanding

 

 

32,613,551

 

Weighted-average exercise price

 

$0.12

 

Remaining life (in years)

 

 

2.80

 

Intrinsic value

 

$-

 

 

Note 10 – Legal Proceedings

 

We are periodically subject to various lawsuits and claims with respect to matters arising out of the normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes, after consulting with counsel, that it is more likely than not that the ultimate liabilities resulting from such lawsuits and claims will not materially affect our financial position, results of operations or liquidity.

 

On July 31, 2006, we received notice from the American Arbitration Association ("AAA") of a Demand for Arbitration dated July 27, 2006 received by the AAA naming the Company as Respondent and TPG Capital Partners ("TPG"), the prior Blencathia owner, as the Claimant. The arbitration had been requested by TPG to resolve an alleged aggregate proceeds shortfall from the sale of our securities issued in the Blencathia merger. TPG has claimed they sold some or all of the 312,000 shares and the sales have not generated at least $500,000 of proceeds, as guaranteed in the merger documents.

 

In an effort to resolve this matter prior to submission to binding arbitration, both TPG and the Company participated in a non-binding mediation conference on January 30, 2007, which did not resolve the matter. Informal discussions are ongoing. It is not expected that the ultimate settlement of this matter, considering we have recorded a liability for the shortfall amount, will have an additional adverse material effect on the Company. Since 2009, the Company has made payments to TPG totaling $160,000 to reduce the recorded liability. The remaining recorded liability balance is $190,000 at September 30, 2015 and December 31, 2014, respectively.

 

 
16
 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following is management's discussion and analysis of certain significant factors that have affected the financial condition, results of operations and cash flows of Fuel Performance Solutions, Inc. (formerly known as International Fuel Technology, Inc.) (the "Company," "we," "us" or "our") during the periods included in the accompanying financial statements. This discussion should be read in conjunction with the financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission ("SEC") on March 31, 2015 (the "Annual Report").

 

Forward-looking Statements and Associated Risks

 

This quarterly report on Form 10-Q contains forward-looking statements that are based largely on our expectations and are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control, including, but not limited to, economic, competitive and other factors affecting our operations, markets, products and services, expansion strategies, our ability to raise additional capital and other factors described elsewhere in this report and documents filed by us with the SEC, including in our Annual Report under the "Risk Factors" section. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. Actual results could differ materially from these forward-looking statements. In light of these risks, uncertainties and assumptions, there can be no assurance that the forward-looking information contained in this report will, in fact, prove accurate. We do not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances.

 

Overview

 

We are a fuel performance enhancement technology company transitioning to a commercial enterprise. We believe the macroeconomic environment for our technology and products is excellent now and will continue to be so for the foreseeable future. We believe ever-increasing fuel environmental regulations will likely result in increased demand for additive products to help offset adverse fuel performance and engine impacts resulting from these regulations. We believe our products and technology are uniquely positioned to benefit from this macro environment by offering fuel performance enhancement solutions that specifically address these macro developments and trends.

 

Commercial Update

 

Since the third quarter of 2014, our commercial efforts have been focused on the development of, preparation for, and the launch of a comprehensive fuel solutions program (the "Program") in conjunction with Unipart, our distribution partner.

 

Since that time period, in consultation with Unipart, we put all of our DiesoLiFTTM sales and marketing efforts in the United Kingdom and Europe on hold pending the proper development of the Program. Equipment vendors for all aspects of the Program have now been sourced and vetted and the deliberate pace to ensure the Program was ready for proper deployment has reached the launch point.

 

We expect initial Program deployments to customers in the fourth quarter of 2015.

 

Although 2015 has not been a great year in terms of revenues, we believe it has been the most productive year in our history in terms of positioning the Company for a successful future. Our Company narrative has changed dramatically over the last year as distribution partner Unipart now has a division set up for the specific purpose of commercializing DiesoLiFTTM. Unipart continues to commit more time, efforts and resources toward making the Program a success.

 

 
17
 

 

The reduction in revenues during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 is attributable to two factors: (1) the fact that we put sales and marketing efforts of DiesoLiFTTM on hold, as discussed above; and (2) a decrease in orders for our PerfoLiFTTM BD-Series bio-diesel stabilization product from distribution partner Nordmann Rassmann ("NRC"). The PerfoLiFTTM BD-Series has provided us with a steady flow of revenues over the last two years and will continue to do so, but is not our primary business segment.

 

The Program is our primary business focus and will be the primary driver of our future revenues and profits.

 

Our distribution partners will continue to be primarily responsible for our sales and marketing efforts and the drivers of our commercial progress.

 

Unipart: In the third quarter of 2015, we expanded our marketing and distribution agreement with Unipart. The revised marketing and distribution agreement with Unipart provides Unipart exclusive distribution rights for DiesoLiFTTM for the rail industry worldwide; exclusive distribution rights for DiesoLiFTTM for commercial and public service vehicle and retail markets in the United Kingdom and the Republic of Ireland, Australia, South Africa and the Middle East; exclusive distribution rights for GasoLiftTM for all sectors in the United Kingdom and The Republic of Ireland; and non-exclusive distribution rights for DiesoLiFTTM and GasoLiFTTM worldwide.

 

In addition, Unipart has been granted exclusive distribution rights for PerfoClean in the United Kingdom and the Republic of Ireland and non-exclusive distribution rights worldwide. PerfoClean is the Company's proprietary formulation specifically designed to clean bulk fuel storage tanks.

 

Unipart and the Company are in the process of launching the Program in the United Kingdom within the rail and road transport markets, and in Europe within the rail market, to address the pressing needs that end-users have with fuel quality, storage and performance.

 

In the United Kingdom and Europe, the mandate to incorporate bio-diesel into the diesel fuel stream has created fuel storage and equipment performance problems. The use of bio-diesel does provide emissions benefits. However, there are many drawbacks associated with bio-diesel use: it is not a stable fuel (it oxidizes and creates deposits); has a lower volumetric energy density than regular diesel (lower fuel economy and less power); naturally contains more water (fosters microbial contamination and sludge formation in tanks); causes corrosion and spray hole blockage of fuel injectors; causes seal failures; and causes fuel filter plugging.

 

Perhaps the biggest concern caused by extended bio-diesel use relates to engine warranties. Once in-specification fuel is delivered to an end-user, the quality of that fuel and the responsibility to maintain that fuel in-specification transfers to the end-user. If the end-user fuel tank and/or fuel system is compromised due to sludge, microbial contamination, water and/or deposits, the fuel immediately becomes out-of-specification thereby nullifying the engine warranty.

 

The Program offered by Unipart and us mitigates all risk associated with bio-diesel fuel use and provides the end-user the ability to maximize the performance and efficiency of their equipment.

 

The Program consists of: fuel tank testing; fuel tank cleaning (our PerfoClean product is used); fuel additive dosing equipment; the DiesoLiFTTM fuel additive formulation; and on-going fuel and fuel tank analysis and monitoring. The Program ensures that end-users are maintaining in-specification fuel and optimizing the performance of their equipment.

 

 
18
 

 

Unipart has established business partnerships with vendors who supply tank testing, tank cleaning, fuel additive dosing and on-going fuel and fuel tank testing equipment. The cornerstone of the Program is DiesoLiFTTM, our proprietary fuel additive formulation that is proven to: restore lost fuel economy and power loss associated with bio-diesel use; maintain fuel system cleanliness; and provide fuel stability by controlling oxidation and deposit formation.

 

We expect Unipart to roll out our joint Program to a number of rail and road transport operators in the United Kingdom and Europe beginning in the fourth quarter of 2015 or early in the first quarter of 2016. 

 

Brenntag: In 2014, Brenntag commenced the ramp up of its sales and marketing efforts on our behalf. Brenntag has introduced our products to a number of its customers and made its first sale into the marine market in 2014. Brenntag also sells our products to Bardahl, Lubrichim, ETSP, Lubro and Eurol, who all repackage the products and sell to retail customers under their own brand name.

 

Going forward, we expect Brenntag to continue to ramp up their sales and marketing on our behalf by selling our products to: the road transport industry (fleets); refineries and fuel distributors; bio-diesel manufacturers; and the marine industry.

 

NRC: NRC continues to receive orders from and sells our products to some of the largest bio-diesel manufacturers in Europe in 2015. In addition, they have a number of road transport and rail opportunities pending.

 

Despite the fact that sales of our PerfoLiFTTM BD-Series product line to NRC decreased during the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014, we expect NRC to increase its sales of our PerfoLiFTTM BD-Series of bio-diesel stability additives through increased sales to existing and sales to new accounts going forward. NRC has also begun to market our products to the marine industry and to some road transport fleets.

 

NRC recently transferred all of its Company related business from it new products division to its growth division. NRC is now committing more resources to the commercialization of our products. 

 

United States: We have a number of road transport operators using our products, one such account for over nine years. We are also involved in a project with one of the largest municipal fleets in the United States.

 

Results of Operations

 

Three and Nine Months Ended September 30, 2015 Compared to Three and Nine Months Ended September 30, 2014

 

Net Revenues

 

Net revenues for the three months ended September 30, 2015 were $122,458, as compared to $677,105 for the three-month period ended September 30, 2014. This decrease is primarily attributable to decreased sales of the PerfoLiFTTM BD-Series and DiesoLiFTTM through our distributor network during the three months ended September 30, 2015.

 

During the three months ended September 30, 2015, 100% of our sales were concentrated among three customers. During the three months ended September 30, 2014, 95% of our sales were concentrated among three customers. Sales revenue generated during the three months ended September 30, 2015 and September 30, 2014 was primarily generated from the sale of the PerfoLiFTTM BD-Series and DiesoLiFTTM.

 

Net revenues for the nine months ended September 30, 2015 were $347,826, as compared to $1,506,198 for the nine-month period ended September 30, 2014. This decrease is primarily attributable to decreased sales of the PerfoLiFTTM BD-Series and DiesoLiFTTM through our distributor network during the nine months ended September 30, 2015.

 

During the nine months ended September 30, 2015, 100% of our sales were concentrated among five customers. During the nine months ended September 30, 2014, 98% of our sales were concentrated among four customers.

 

Sales revenues generated during the nine months ended September 30, 2015 and September 30, 2014 were primarily generated from the sale of the PerfoLiFTTM BD-Series and DiesoLiFTTM.

 

 
19
 

  

Operating Income (Expenses)

 

Total operating expenses were $440,023 for the three months ended September 30, 2015, as compared to $815,125 for the three-month period ended September 30, 2014. This $375,102 decrease from the prior period was primarily attributable to a decrease in cost of operations due to decreased sales and decreases in non-cash stock-based compensation expense, marketing expenses in the United Kingdom and gain on accounts payable write off, which are more fully described below.

 

Total operating expenses were $1,389,806 for the nine months ended September 30, 2015, as compared to $1,576,848 for the nine-month period ended September 30, 2014. This $187,042 decrease from the prior period was primarily attributable a decrease in cost of operations due to decreased sales and decreases in non-cash stock-based compensation expense, marketing expenses in the United Kingdom and accounting fees, partially offset by a gain on deferred revenue liability of $2,998,242 recorded during the nine months ended September 30, 2014, which are more fully described below.

 

Cost of Operations

 

Cost of operations was $89,661 for the three months ended September 30, 2015, as compared to $440,965 for the three-month period ended September 30, 2014. This decrease was due to decreased sales for the three months ended September 30, 2015, compared to the three months ended September 30, 2014.

 

Cost of operations was $262,731 for the nine months ended September 30, 2015, as compared to $1,073,505 for the nine-month period ended September 30, 2014. This decrease was due to decreased sales for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014.

 

Selling, General and Administrative Expense

 

Selling, general and administrative expense for the three months ended September 30, 2015 was $350,362 (including non-cash stock-based compensation of $35,507), as compared to $434,059 (including non-cash stock-based compensation of $71,191) for the three-month period ended September 30, 2014. This decrease of $83,697 was primarily attributable to the following activities:

 

 

·

a $35,684 decrease in non-cash stock-based compensation expense primarily related to the issuance of options to employees and Directors during the nine months ended September 30, 2014 (and no options issued during the three months ended September 30, 2015); and

 

 

 

 

·

a $35,000 decrease in marketing expenses in the United Kingdom as we transitioned efforts and costs from our United Kingdom sales representatives to our United Kingdom distributor, Unipart, during 2015.

 

Selling, general and administrative expense for the nine months ended September 30, 2015 was $1,127,075 (including non-cash stock-based compensation of $108,290), as compared to $3,561,484 (including non-cash stock-based compensation of $2,438,983) for the nine-month period ended September 30, 2014. This decrease of $2,434,409 was primarily attributable to the following activities:

 

 

·

a $2,330,693 decrease in non-cash stock-based compensation expense related to the cancellation of certain options previously granted to employees and Directors and new option grants to employees, Directors and non-employee consultants during the nine months ended September 30, 2014 (and no options issued during the nine months ended September 30, 2015);

 

 

 

 

·

an approximate $75,000 decrease in marketing expenses in the United Kingdom during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 as we transitioned efforts and costs from our United Kingdom sales representatives to our United Kingdom distributor, Unipart, during 2015; and

 

 

 

 

·

an approximate $29,000 decrease in accounting fees related to audit services conducted for our 2014 annual report compared to our 2013 annual report, which was more labor intensive as it required the audits for the calendar years 2011 through 2013.

 

Gain on Accounts Payable Write Off

 

Gain on accounts payable write off was $0 and $59,899 for the three months ended September 30, 2015 and September 30, 2014, respectively.

 

Gain on accounts payable write off was $0 and $59,899 for the nine months ended September 30, 2015 and September 30, 2014, respectively. This decrease relates to the write off of certain outstanding payable balances that were dated at least five years before September 30, 2014.

 

Gain on Deferred Revenue Liability Write Off

 

Gain on deferred revenue liability was $0 for both the three months ended September 30, 2015 and September 30, 2014, respectively.

 

Gain on deferred revenue liability was $0 and $2,998,242 for the nine months ended September 30, 2015 and September 30, 2014, respectively. The decrease relates to the first quarter of 2014 write off of a previously recorded obligation due to the expiration of the relevant statute of limitations.

 

Interest Expense, Net

 

Interest expense, net was $212,061 and $54,193 for the three months ended September 30, 2015 and September 30, 2014, respectively. The increase in interest expense, net is primarily attributable to interest expense recorded relating to the third quarter of 2014 convertible 2014 Notes financing and the third quarter of 2015 Notes financing.

 

Interest expense, net was $528,536 and $54,020 for the nine months ended September 30, 2015 and September 30, 2014, respectively. The increase in interest expense, net is primarily attributable to interest expense recorded relating to the third quarter 2014 convertible 2014 Notes financing and the third quarter of 2015 Notes financing.

 

Gain (Loss) on Derivative Liability

 

Gain (loss) on derivative liability was $122,908 and $234,591 for the three months ended September 30, 2015 and September 30, 2014, respectively.

 

Gain (loss) on derivative liability was $188,074 and $(67,409) for the nine months ended September 30, 2015 and September 30, 2014, respectively.

 

 
20
 

 

The gain (loss) on derivative liability recorded during the three and nine months ended September 30, 2015 and September 30, 2014 was primarily attributable to certain warrants issued during 2009 and during the third quarter of 2014 and 2015(see Note 9 – Derivative Liability) that are subject to dilutive adjustments for share issuances (full ratchet reset features) tied to future issuances of our equity securities. Because of these characteristics, our derivative liability must be measured at fair value and re-evaluated at the end of each reporting period. The mark-to-market of the derivative liability at September 30, 2015 and September 30, 2014 caused such gain (loss).

 

As of September 30, 2015 and December 31, 2014, the fair value of both components of our derivative liability is $461,187 and $457,380, respectively.

 

Loss on Conversion of Debt From a Related Party

 

Loss on conversion of debt from a related party was $0 for both the three months ended September 30, 2015 and September 30, 2014, respectively.

 

Loss on conversion of debt from a related party was $0 and $387,500 for the nine months ended September 30, 2015 and September 30, 2014, respectively. During the nine months ended September 30, 2014, we converted $550,000 of notes payable to related parties, triggering this loss. No such conversion occurred during the nine months ended September 30, 2015.

 

Income Tax Provision

 

We have operated at a net loss since inception and have not recorded or paid any income taxes, other than for non-cash deferred tax expense related to a basis difference between financial reporting and tax reporting goodwill. We have significant net operating loss ("NOL") carry-forwards that would be recognized at such time as we demonstrate the ability to operate on a profitable basis for an extended period of time. The deferred income tax asset resulting primarily from the NOL carry-forwards has been fully reserved with a valuation allowance. Because goodwill is not depreciated and has an indefinite life for book purposes, the deferred tax liability related to the book to tax basis difference is not offset against the deferred tax assets when establishing our valuation allowance. We recorded $16,000 and $48,000 of expense during the three and nine months ended September 30, 2014, respectively, but did not record any such expense during the three and nine months ended September 30, 2015 as we deemed the valuation allowance to be sufficient.

 

Net Income (Loss)

 

Net income (loss) for the three months ended September 30, 2015 was $(406,718), as compared to 26,378 for the three months ended September 30, 2014. The increase in net loss was primarily due to a decrease in gross margin from sales ($203,343), an increase in interest expense, net ($157,868) and a decrease in gain on derivative liability ($111,683), partially offset by decreases in non-cash stock-based compensation expense ($35,684) and marketing expenses in the United Kingdom ($35,000), as described above. The basic and diluted net loss per common share for the three months ended September 30, 2015 and September 30, 2014 was $(0.00) and $0.00, respectively.

 

 
21
 

 

Net loss for the nine months ended September 30, 2015 was $(1,382,442), as compared to $(627,579) for the nine months ended September 30, 2014. The increase in net loss was primarily due to a gain on a deferred revenue liability write off ($2,998,242) recorded during the nine months ended September 30, 2014, an increase in interest expense, net of $(474,516) and a decrease in gross margin from sales ($347,598), partially offset by a decrease in non-cash stock-based compensation expense ($2,330,693), a decrease in marketing expenses in the United Kingdom (approximately $75,000), a decrease in accounting fees (approximately $29,000), a decrease in income tax provision ($48,000), fluctuation gains related to a derivative liability ($255,483) and conversions of related party notes during the nine months ended September 30, 2014 ($387,500), as described above. The basic and diluted net loss per common share for the nine months ended September 30, 2015 and September 30, 2014 was $(0.01) and $(0.00), respectively.

 

Recently Issued Accounting Pronouncements

 

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company's financial statements.

 

Critical Accounting Policies and Estimates

 

DerivativeFinancial Instruments

 

We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in our statements of operations. For stock-based derivative financial instruments, we use a Lattice Model option pricing model, in accordance with the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") ASC 815-15, "Derivatives and Hedging," to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in our balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve (12) months of the balance sheet date.

 

Revenue Recognition

 

We recognize revenue from the sale of our products when the price is fixed and determinable, persuasive evidence of an arrangement exists, the products are shipped, and title and risk of loss has passed to the buyer and collectability of the resulting receivable is reasonably assured. The majority of our revenues is from sales to product distributors. Product distributors do not have the option to return product that is not immediately sold to an end-user. Therefore, our revenue recognition is not conditional on whether a distributor is able to sell product to an ultimate product end-user. Our sales policies for end-users are consistent with product distributor sales policies.

 

Beginning in May 2013, as an effort to address our outstanding payable balance with and at the request of our product manufacturer, our non-United States customers began remitting receivable payments directly to our product manufacturer in lieu of remitting payment directly to us. Under this arrangement, we still maintained the risks and benefits related to sending the product to each customer and thus recorded sales revenues (and associated cost of sales) applying the gross reporting treatment for each transaction pursuant to ASC 605-45, "Principal Agent Considerations." During the first quarter of 2014, we once again began collecting payments directly from our non-United States customers and paying our product manufacturer separately for the corresponding cost of manufactured goods.

 

 
22
 

 

Investor Warrant Modifications

 

The Company and the Board from time to time have authorized the modification to the terms of certain prior warrant issuances. We analyze such modifications under ASC 718 "Compensation-Stock Compensation" ("ASC 718") and ASC 505, "Equity Based Payments to Non-Employees" ("ASC 505") and have historically determined that no gain or loss is recognized upon the modification due to the warrants having been issued to an investor and investor awards not being subject to either ASC 718 or ASC 505.

 

Valuation of Goodwill

 

We account for goodwill and intangible assets in accordance with ASC 350 "Intangibles-Goodwill and Other" ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.

 

We employed a qualitative analysis for goodwill at December 31, 2014 and determined that there was no impairment.

  

Liquidity and Capital Resources

 

A critical component of our operating plan affecting our ability to execute the product commercialization process is the cash resources needed to pursue our marketing and sales objectives. Until we are able to generate positive and sustainable operating cash flow, our ability to attract additional capital resources in the future will be critical to continue the funding of our operations.

 

In its March 31, 2015 report, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

While we cannot make any assurances as to the accuracy of our projections of future capital needs, based on our current cash available as of November 16, 2015, we believe we have adequate cash and cash equivalents balances to fund operations through the end of 2015. Management implemented a salary deferral program for all employees during 2011 to conserve our cash position. This salary deferral program has continued.

 

We have been funded since inception primarily by unregistered sales of Company restricted stock, generally to existing shareholders. We have also relied on a $1,000,000 equity commitment from one of our Directors, Rex Carr, of which $500,000 remains available (See Note 5 – Equity Commitment and Related Party Transactions). Rex Carr passed away on April 27, 2015. On April 30, 2015, the Company elected Glenn Carr as a Director to its Board. Glenn Carr is the son of Rex Carr. The Company believes that the equity commitment of Rex Carr will be honored by his estate. However, we can make no assurances as to the timing of when the estate may be settled, and how much we may receive once the estate is settled. The first meeting to settle the estate is scheduled for late February or early March 2016.

 

 
23
 

 

In addition, during the third quarter of 2014, we obtained additional funding in the form of a convertible notes payable (see Note 6 – Convertible Notes Payable) and during the third quarter of 2015, we obtained additional funding in the form of a subordinated notes payable (see Note 7 – Note Payable).

 

We are currently in discussions with our investment banker and a number of potential investors to raise additional capital. We believe we will be successful in raising additional capital to fund our operations, but if we are unable to secure additional capital, we will need to curtail operations.

 

Cash used in operating activities was $804,559 for the nine months ended September 30, 2015, as compared to cash used in operating activities of $1,018,163 for the nine months ended September 30, 2014. The decrease in cash flow used in operating activities was due primarily to a decrease in our accounts receivable balance ($581,183) due to timing of customer cash collections, partially offset by a decrease in our accounts payable balance ($267,283) due to timing of vendor payments.

 

Cash provided by financing activities was $342,900 for the nine months ended September 30, 2015, as compared to $1,701,056 for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, we received gross proceeds of $380,000 from the issuance of notes payable. During the nine months ended September 30, 2014, we raised $827,724 upon the private placement of 31,894,778 restricted shares of our common stock to accredited investors. In addition, during the nine months ended September 30, 2014, we received gross proceeds of $1,000,000 from the issuance of convertible notes payable.

 

Net cash decreased by $461,659 for the nine months ended September 30, 2015, as compared to an increase in net cash of $682,893 for the nine months ended September 30, 2014.

 

During the nine months ended September 30, 2015 and September 30, 2014, we did not make significant investments in property and equipment and do not anticipate doing so in the immediate future.

 

Working capital deficit at September 30, 2015 was $(2,458,757), as compared to $(825,938) at December 31, 2014. The negative working capital balance at September 30, 2015 is negatively impacted by the reclassification of the convertible note related items from long-term to current liabilities during the first quarter of 2015 and a net $(368,092) impact of the deferred financing cost asset and the derivative liability recorded at September 30, 2015. The negative working capital balance at December 31, 2014 is negatively impacted by the net $(329,825) impact of the deferred financing cost asset and the derivative liability recorded at December 31, 2014.

 

Effective October 27, 1999, we merged with Blencathia Acquisition Corporation ("Blencathia"). Blencathia was a public shell company with immaterial assets and liabilities and 312,000 shares outstanding at the time of the merger, which it redeemed and cancelled upon the merger. In exchange, we issued 312,000 of our common shares to the prior Blencathia owner with the contractual understanding that such shares were to be sold by that owner to achieve gross cash proceeds of $500,000. Any excess proceeds were to be returned to us and any deficiency was to be made up by us issuing additional shares or paying the difference in cash. As we believed that we controlled the ultimate timing of the sale of these 312,000 shares by the prior Blencathia owner, we did not consider these shares as issued or outstanding for purposes of computing loss per share.

 

In 2006, we learned that the prior Blencathia owner had, in fact, sold the 312,000 shares for aggregate proceeds of approximately $150,000, without our consent. Accordingly, in the fourth quarter of 2006, we recorded $500,000 of general expenses (representing the cost of the 1999 merger) and the deemed issuance of approximately $150,000 of common stock. Since 2009, we have made payments to the prior Blencathia owner in the aggregate of $160,000 reducing this obligation. The remaining $190,000 obligation has been reflected as a current accrued expense. We are in negotiations with the prior Blencathia owner to resolve this obligation and may ultimately settle the obligation with either cash or equity securities with a lower market value. Beginning in 2006, the 312,000 shares have been reflected as outstanding for earnings per share computations.

 

 
24
 

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2015. Based on this evaluation, the principal executive officer and principal financial officer have identified a material weakness in our internal control over financial reporting. Because of the material weakness, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at September 30, 2015.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

This quarterly report does not include an attestation report of our independent auditors regarding internal control over financial reporting. Management's report was not subject to attestation by our independent auditors pursuant to temporary rules of the SEC that permit our company to provide only management's report in this quarterly report.

 

 
25
 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are periodically subject to various lawsuits and claims with respect to matters arising out of the normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes, after consulting with counsel, that it is more likely than not that the ultimate liabilities resulting from such lawsuits and claims will not materially affect our financial position, results of operations or liquidity.

 

On July 31, 2006, we received notice from the American Arbitration Association ("AAA") of a Demand for Arbitration dated July 27, 2006 received by the AAA naming us as Respondent and TPG Capital Partners ("TPG"), the prior Blencathia owner, as the Claimant. The arbitration had been requested by TPG to resolve an alleged aggregate proceeds shortfall from the sale of Company securities issued in the Blencathia merger. TPG has claimed they sold some or all of the 312,000 shares and the sales have not generated at least $500,000 of proceeds, as guaranteed in the merger documents.

 

In an effort to resolve this matter prior to submission to binding arbitration, both TPG and the Company participated in a non-binding mediation conference on January 30, 2007, which did not resolve the matter. Informal discussions are ongoing. It is not expected that the ultimate settlement of this matter, considering we have recorded a liability for the shortfall amount, will have an additional adverse material effect on the Company. Since 2009, we have made payments to TPG totaling $160,000 to reduce the recorded liability. The remaining liability balance is $190,000 at September 30, 2015.

 

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

 

On August 21, 2015, the Company completed a $415,000 subordinated note funding that included warrants to purchase 4,150,000 shares of our common stock with a five year term and an exercise price of $0.12, subject to adjustments for stock dividends, splits, combinations, subsequent rights offerings, pro rata distributions and any issuance of securities below the $0.12 exercise price. In conjunction with this transaction, the Company also issued warrants to purchase 296,000 shares of our common stock to a placement agent with the same terms and conditions as the warrants issued to the note holders. We used the proceeds for general corporate purposes.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since the filing of our Annual Report.

 

 
26
 

 

Item 6. Exhibits

 

(a) The following exhibits are filed as part of this report:

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

 

 

101.LAB

 

XBRL Taxonomy Extension Labe Linkbase

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

 

 
27
 

 

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. 

 

 

FUEL PERFORMANCE SOLUTIONS, INC.

 

 

(Registrant)

    
Date: November 16, 2015By:/s/ Jonathan R. Burst

 

 

 

Jonathan R. Burst

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer) 

 

 

Date: November 16, 2015By:/s/ Stuart D. Beath

 

 

 

Stuart D. Beath

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

 

 

28