U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 2002
Commission File Number: 1-12350
FUELNATION INC.
---------------
(Exact name of small business issuer as specified in its charter)
Florida
-------
(State or other jurisdiction of incorporation or organization)
65-0827283
----------
(IRS Employer Identification No.)
4121 SW 47th Ave.
Davie, Florida
---------------
(Address of principal executive offices)
33314
(Zip Code)
(954) 587-3775
-------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
__X__ No ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of May 15, 2002 was 180,522,772 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
Our unaudited financial statements for the three month period ended March
31, 2002, are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS/PLAN OF OPERATION
The following discussion should be read in conjunction with our unaudited
Financial Statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
OVERVIEW
FuelNation Inc. ("we," "us," "our," "FuelNation" or the "Company") is a
Florida-based development stage corporation engaged in the development of
providing real-time e-commerce communications and energy services. Our
operations are conducted through strategic alliances, which principally are
engaged in advanced technology and services solutions for the petroleum
marketing industry, i.e., oil companies, marketers, transports, gas stations and
convenience stores worldwide, and the development of one of the worlds most
integrated communications platform for the petroleum industry. We intend to use
Broadband that delivers data to remote stations at speeds reaching 45Mbps,
satellite technology, global positioning system (GPS) with real-time tracking
and path logging of delivery vehicles. We have developed the R2R(sm)
communications technology which allows multiple point of sales, tank monitors,
global positioning system, VSAT, wireless PDA devices, Internet phones,
automated teller machines, back office software, price signs and numerous other
equipment manufacturers to integrate and seamlessly exchange data in an open
architecture environment.
2
We were incorporated under the laws of the state of Florida on July 6, 1993
under the name "International Pizza Corporation." We have had two other names
and business plans since our incorporation, including QPQ Corporation and
Regenesis Holdings, Inc. We changed our name to the current name in October 2000
and adopted the business plan described under "Plan of Operation" hereinbelow.
In conjunction with our most recent name change, in October 2000 Triad
Petroleum, LLC ("Triad") and Triad's owners as a group, acquired 96% interest in
our company pursuant to the terms of a Share Sale and Contribution Agreement in
exchange for the assignment of all of the rights, title, interest, marketing
rights, patent rights, royalty rights, and any other rights in the Intellectual
Property and technology, and any related trademarks and service marks (or
applications made thereby) Triad may have had with regard to said Intellectual
Property.
As a result, we currently are a development stage company which provides
real time e-commerce communications and energy services. We are engaged in
advanced technology and services solutions for the petroleum marketing industry,
including oil companies, marketers, transports, gas stations and convenience
stores worldwide, and the development of one of the world's most integrated
communications platforms for the petroleum industry. We use Broadband that
delivers data to remote stations at speeds reaching 45Mbps, satellite
technology, global positioning system (GPS) with real-time tracking and path
logging of delivery vehicles. We have developed the R2RSM communications
technology which allows multiple point of sales, tank monitors, global
positioning system, VSAT, wireless PDA devices, Internet phones, automated
teller machines, back office software, price signs and numerous other equipment
manufacturers to integrate and exchange data in an open architectural
environment.
The following information is intended to highlight developments in our
operations, to present our results of operations to date, our plan of operation,
to identify key trends affecting our business and to identify other factors
affecting our business for the three month periods ended March 31, 2002 and
2001.
Results of Operations
Comparison of Results of Operations for the three month periods ended March
31, 2002 and 2001
We generated no revenues during the three month periods ended March 31,
2002 and 2001 and it is not anticipated that we will be able to generate any
revenues in the foreseeable future unless and until we begin marketing our
technology or otherwise acquire an existing entity which generates revenues and
profits.
Selling, general and administrative expenses were $423,305 for the three
months ended March 31, 2002, compared to $462,234 for the
3
three months ended March 31, 2001. The expenses incurred during the three month
period ended March 31, 2002 arose primarily from salaries and wages ($188,171),
professional and consulting fees ($85,766), non-cash employee compensation
($87,693) and other general and administrative expenses ($57,850). These
expenses decreased by 8% in 2002 over the same period in 2001, mainly due to a
decrease in the professional and consulting fees and the general and
administrative expenses. The expenses decreased by management streamlining costs
and reducing overhead, including our moving our principal place of business
during the applicable period. We also incurred increased interest expense of
$8,440 during the three month period ended March 31, 2002, as compared to
interest expense of $1,308 for the comparable period in 2001. As a result, we
incurred a net loss of $431,745 for the three months ended March 31, 2002.
We had a working capital deficiency of $1,409,590 as of March 31, 2002 and
a deficit accumulated during our development stage thus far of approximately
$30.1 million as of March 31, 2002. While no assurances can be provided, we do
anticipate that, upon closing of the bond offering described herein, we expect
to begin generating revenues and hope to be profitable by the end of 2002. See
"Trends" below.
Plan of Operation
Our objective is to be the leading worldwide provider of real- time
e-commerce and business-to-business communications in the petroleum marketing
industry. Our vertical integration strategy is to purchase existing petroleum
marketers, transport companies, dealers and related facilities in key
distribution markets.
We intend to finance these purchases with the issuance and sale of taxable
municipal bonds. We have been negotiating the issuance of $330 million of
Taxable Municipal Bonds with the Town of Davie, Florida. We currently have
prepared an application for the bond offering that requires us to pay a $660,000
commitment and application fee. We are also required to have a bank issue a cost
of issuance and short fall letter of credit in the amount of approximately
$9,900,000 which is refundable from the proceeds of the bond issue. As of the
date of this Report, GunnAllen Financial our financial advisor, has brought an
investor that has completed extensive due diligence on the proposed bond
offering and has verbally agreed to escrow approximately $11 million for our
company. These monies will be used to pay for the application and commitment fee
in the amount of $660,000 and the cost of issuance and short fall letter of
credit in the amount of approximately $9.9 million, as well as certain legal and
underwriting fees. It is anticipated that the agreement for this $11 million, if
acceptable terms are negotiated, should be executed in May 2002. However, there
can be no assurances that agreeable terms will be reached, or that this matter
will be successfully consummated.
4
We have developed proprietary technology that allows us to provide fully
integrated services relating to the inventory, sales, distribution and financial
reporting functions in the fuel industry. Marketed under the service mark
R2R(SM) ("Rack to Retail"), this technology completely automates and streamlines
the data collection processes for centralization, retrieval and integration of
inventory, financial and accounting information in the fuel industry.
The R2R(sm) technology is an inventory management system that allows
multiple point of sales, tank monitors, wireless PDA devices, Internet phones,
automated teller machines, back office software, price signs and numerous other
equipment manufacturers to integrate and seamlessly exchange data in an open
architecture environment without installing computer software. The R2R(sm)
technology includes a proprietary router box connected to an existing retail or
wholesale location, which automatically collects, integrates and distributes the
data, in various formats, to the customer at a centralized location. By
utilizing this technology, the pricing, monitoring of sales, inventory status
and reordering of fuel can be done remotely including through a remote apparatus
such as a PDA. In other words, from a distant location, an R2R(sm) customer can
regularly monitor fuel sales on a real-time basis as well as change the pricing
at retail fuel pumps to reflect current market conditions. Furthermore, the
system enables the automatic reordering of fuel based upon the actual volume of
sales and remaining quantity of fuel at the applicable pump.
The automated system serves as a significant mechanism for companies to
monitor their fuel sales, inventory, and costs. In addition, financial lenders
can also have access to the data in order to monitor the operations of their
borrowers on a real time basis. We expect to receive fees and/or royalty
payments either on a fixed basis per month or on a per gallon basis charge. We
intend to license our technology to service stations, truck stops and/or
customers that are otherwise involved in the distribution and sale of fuel.
We believe that our product offering is unique and is not available via any
other method. The industry is a very difficult market to penetrate and as such
we feel we have accomplished major milestones in the industry to date. We
originally started marketing our system to the major oil companies and felt this
would give us the immediate market share and the vertical integration we
desired. During our sales initiatives we discovered the following:
The oil companies main drive is gallons and market share. The oil companies
distribute their products through petroleum marketers, dealers and some company
owned stores. The oil companies require the petroleum marketers and the dealers
to use their credit card processors. This equipment for the credit card
processing is
5
supplied through the oil company and paid by the petroleum marketers and the
dealers. The oil companies typically charge 3% processing fee for the use of all
credit cards on the network and offer their own branded credit card processing
for no charge. The majority of all of the credit card processing is Visa and
MasterCard and therefore the burden and costs are passed down the food chain to
the petroleum marketers and the dealers for the credit card processing fees.
The reporting requirements of the industry are very labor intensive and the
burden is always passed down to the petroleum marketers and the dealers. New
equipment and programs are usually offered through the major oil companies to
the petroleum marketers and the dealers with a percentage of the offering always
being rebated back to the oil company. There are other alternative equipment and
service suppliers in the industry and they are limited on their entry to the
market by being approved and certified to operate on their credit-processing
network. Our approach is and will continue to be providing the industry with an
open architecture and shared information environment that allows entry to
virtually all equipment and service suppliers. Other industries have state of
the art communications and networks and first class accounting and reporting
packages. We believe the petroleum industry is behind the market by decades.
Our entry to the market is being focused on working with major petroleum
marketers and dealer networks. We have discovered that when several petroleum
marketers and dealers are very satisfied with your products and services and
they request the major oil companies to approve our products and services, they
typically get what they want. This process is not fast, but it is very
effective. The oil companies are starting to follow the lead of petroleum
marketers and dealer networks because they see the efficiencies first hand. We
feel confident the industry will start to make significant changes to the manual
processes and allow a more open environment once they see others operating.
Given the magnitude of these fuel markets, we are currently focusing on B2B
applications and automating manual processes. We also intend to find one or more
partners to assist in retail sales of the R2R system. There are also multiple
advertising opportunities that we intend to pursue, including the displaying of
our logo at automated locations and on fuel transports.
Sales Strategy
Our products and services will be marketed through direct and indirect
channels. We intend to accomplish our direct selling in several ways, including:
- our web sites;
- direct sales by our own staff and technology partners;
6
- affiliate programs;
- original equipment manufacturers; and
- tradeshows.
For our indirect sales efforts, we will use independent resellers. Reseller
organizations can offer all of our services. These third party sales
organizations are either already involved in marketing to the petroleum
industry. Those in the reseller program purchase our services at a discounted
rate and then re-sell them to their clients. They can either use us to bill
their customers for these services or invoice their customers under their own
name.
For resellers, we believe the key element is residual, transaction-based
income. Resellers that manage the entire transactions will receive a per
transaction fee, plus sign-up fees if the reseller uses our suggested retail
pricing. Many resellers actually charge higher prices when the market will bear
it. The use of resellers allows us to leverage our resources to maximize
revenues. By working with companies as resellers, we strategically develop an
outside sales organization that already has sound, existing relationships with
merchants. These resellers recognize that income derived from our installation
fees and recurring transaction charges provide them with significant revenue
potential. Most competitors sell products using a direct sales force.
We will use a variety of marketing activities to increase market awareness
of our services and educate our target audience. In addition to building
awareness of our brand, our marketing activities focus on generating leads for
our sales efforts. To build awareness and attract new merchants we conduct
marketing and partnership programs including advertising, public relations
activities, referral programs, co-branded initiatives, virtual seminars and
trade shows.
Our vertical integration strategy is to purchase existing petroleum
marketers and dealers in key distribution markets. We will focus upon the
complete automation of these companies and allow them to continue to operate and
consolidate additional marketers in their markets. This approach has been
received very favorably and we are in negotiations with several very large
marketers on this strategy. However, there can be no assurances that these
negotiations will result in our obtaining contracts, or if we obtain these
contracts, we will become profitable. If we acquire these entities, the
marketers will continue to operate their companies as wholly owned subsidiaries
of our Company and we will provide the high-speed networks and communications to
their existing facilities and equipment. Our current tests on petroleum
marketers to date have shown increases in EBIDTA approaching 30% with the
increased efficiencies in automating manual processes, less shrinkage, improved
buying power.
7
Data Centers and Network Access
Our data center in the United States is located at leased facilities at
Echosat in Lexington, Kentucky. A data center is a facility containing servers,
modem banks, network circuits and other physical equipment necessary to connect
users to the Internet. The data center has multiple levels of redundant
connectivity to the Internet, back-up power, fire suppression, seismic
reinforcement and security surveillance 24 hours a day, 7 days a week. The
current base monthly rent is $2,000 per month, on a month to month basis.
Our data center in the Middle East is currently located at leased
facilities at BATELCO in Manama Bahrain. A data center is a facility containing
servers, modem banks, network circuits and other physical equipment necessary to
connect users to the Internet. The data center has multiple levels of redundant
connectivity to the Internet, back-up power, fire suppression, seismic
reinforcement and security surveillance 24 hours a day, 7 days a week. The
current base monthly rent is $7,000 per month, on a month to month basis.
The technology underlying our e-commerce and Business-to- Business
transaction services provides the following benefits:
Scalability. Our services allow us to deliver consistent quality of service
as transaction volumes grow, and to handle daily and seasonal peak periods. As a
result, we do not have to expand these areas of their transaction-processing
infrastructure as their businesses grow.
High reliability. Our systems are engineered to provide high reliability,
and we provide transaction processing and support 24 hours a day, 7 days a week.
Secure messaging. All communications between our system are facilitated by
an encrypted protocol.
Real-time responses. Because our services enable online e- commerce and
Business-to-Business transactions in real-time, clients can improve their level
of customer satisfaction and reduce their support costs by avoiding delayed
responses and minimizing the need for follow-up communications.
Product Development
Our Florida-based product development team is responsible for the design,
development, testing and release of our core software and services. We have a
well-defined software development methodology that we believe enables us to
deliver services that satisfy real business needs for the global market while
meeting commercial quality expectations. We emphasize quality assurance
8
throughout our software development lifecycle. We believe that a strong emphasis
placed on analysis, design and rapid prototyping early in the project lifecycle
reduces the number and costs of defects that may be found in later stages. Our
development methodology focuses on delivery of product to a global market,
enabling localization into multiple languages, multi-currency payment
processing, global fraud detection, and local regulatory compliance from a
single code base.
When appropriate, we utilize third parties to expand the capacity and
technical expertise of our internal product development organization. On
occasion, we have licensed third-party technology that we feel provides the
strongest technical alternative. We believe this approach shortens time-to-
market without compromising our competitive position, product quality or
service.
Manufacturing
We do not have the capacity to manufacture the router devices and have used
contract manufacturers for the devices made to date. For the foreseeable future,
we intend to continue to use contract manufacturers for the router device. We
believe that there are multiple vendors and manufacturers available and that we
will not rely on any one source.
Intellectual Property
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.
As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, distributors, and corporate
partners and into license agreements with respect to our software, documentation
and other proprietary information. Despite these precautions, third parties
could reverse engineer, copy or otherwise obtain our technology without
authorization, or develop similar technology independently. While we police the
use of our services and technology through online monitoring and functions
designed into our products, an unauthorized third-party may nevertheless gain
unauthorized access to our services or pirate our software. We are unable to
determine the extent to which piracy of our intellectual property or software
exists. Software piracy is a prevalent problem in our industry. Effective
protection of intellectual property rights may be unavailable or limited in
foreign countries. We cannot assure you that the protection of our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology, duplicate our services or design around any intellectual
property rights we hold.
9
Liquidity and Capital Resources
At March 31, 2002, we had $2,157 in cash and a working capital deficiency
of $1,409,590. For the three month period ended March 31, 2002, net cash used in
operating activities was $152,126. This was primarily attributable to a net loss
for the period of $431,745 and offset by non cash expense of $87,693 arising
from an option granted to purchase shares of our common stock to Mr. Salmonson.
Our ability to meet our future obligations in relation to the orderly
payment of our recurring obligations on a current basis is totally dependent on
our ability to commence generating revenues and attain a profitable level of
operations, receive required working capital advances from our shareholders or
obtain capital from outside sources.
During the three months ended March 31, 2002 we borrowed approximately
$154,754 from Fuel America LLC ["Fuel America"], an entity controlled by our
Chairman of the Board/Chief Executive Officer, Christopher R. Salmonson. In
February 2002, Mr. Salmonson exercised options to purchase 1,252,761 shares of
our common stock at an exercise price of $.01 per share. The proceeds of $12,527
were used to reduce the amount due to Fuel America. At March 31, 2002, the
balance owed Fuel America was $361,713. Currently, there are no interest
repayment terms for the debt and it is treated as if due on demand.
In October 2001, we borrowed approximately $36,000 from four (4)
individuals and issued 9% convertible subordinated promissory notes, which are
due by September 30, 2002 and are convertible into 258,654 shares of our common
stock, at a rate of one share of common stock for each $0.139 principal amount
of notes. Additionally, we issued stock purchase warrants to the noteholders,
which entitled these noteholders to purchase 517,309 shares of our common stock
at an exercise price of approximately $.15 per share. The warrants were issued
at twice the conversion rate of our common stock (two warrants for each $0.139
principal amount of notes). The notes are shown net of a discount of
approximately $30,000 which represents the fair value assigned to the warrants
that were issued. The discount is being amortized over the life of the debt.
Amortization amounted to approximately $7,631 for the three months ended March
31, 2002 and is charged to interest expense. Unamortized discount at March 31,
2002 is approximately $14,869.
We have primarily funded our payroll costs through borrowing from related
parties. Payroll taxes have become delinquent since the second quarter of 2001.
These liabilities, which include penalties and interest through March 31, 2002,
amount to $617,531. Penalties (to the maximum limits) and interest will accrue
on such payroll tax liabilities, as well as additional payroll tax liabilities
incurred subsequent to March 31, 2002, until paid. Mr.
10
Salmonson has deferred payment of approximately $153,384 of his salary as of
March 31, 2002.
Additional financings will be required in order to allow us to implement
our business plan described herein. Our success is dependent upon our ability to
raise additional capital. As of the date of this Report, we have been
negotiating the issuance of $330,000,000 of Taxable Municipal Bonds. We
currently have prepared an application for the bond offering that requires us to
pay a $660,000 commitment and application fee. We are also required to have a
bank issue a cost of issuance and short fall letter of credit in the amount of
approximately $9,900,000 which is refundable from the proceeds of the bond
issue. We have received a commitment for a cost of issuance and short fall
letter of credit, subject to cash collateral. While no assurances can be
provided, we are cautiously optimistic that the required cash collateral will be
raised with the help of our financial advisor, GunnAllen Financial and the
assistance of our potential purchasers, because the monies are held in escrow
and the $9,900,000 is refundable from the proceeds of the bond issue. However,
there can be no assurances that our efforts in this regard will be successful.
We are also in discussions with investment bankers and others to provide or
assist in providing additional financing. However, as of the date of this
Report, we do not have any written commitments for any financing, and no
assurance can be given that we will obtain any additional financing. The failure
to infuse additional capital into our Company may force management to curtail
marketing expenditures and product introductions, which may affect our ability
to fully implement our business plan described herein.
We are currently in discussions to acquire an unaffiliated oil company with
significant revenues and assets, which we intend to acquire in exchange for
shares of our common stock. However, as of the date of this Report, there is no
definitive agreement between us and any third party and there can be no
assurances that such an agreement will be reached in the future.
We intend to continue our discussions with investment bankers and others to
provide or assist in providing additional financing. However, as of the date of
this Report, we do not have any other written commitments for any financing, and
no assurance can be given that we will obtain any such financing.
Trends
We believe that we have now established the groundwork necessary to
commence implementation of our business plan, including arranging for the
capital necessary to accomplish our objectives, as well as establishing
sufficient presence in the petroleum industry. While no assurances can be
provided, we expect to begin generating revenues during this calendar year, upon
the
11
successful completion of our $330 million bond offering. However, until such
time as we consummate the acquisitions of petroleum marketers and wholesalers,
which is not expected to occur until the completion of the bond offering. While
no assurances can again be provided, if our business plan described herein is
successful, we expect to experience significant growth, including revenues and
profitability, during the 2002 calendar year.
Inflation
Although management expects that our operations will be influenced by
general economic conditions once we commence generating revenues, we do not
believe that inflation had a material effect on our results of operations during
the three month period ended March 31, 2002.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There were no new legal proceedings filed or threatened involving our
company during the three month period ended March 31, 2002.
ITEM 2. CHANGES IN SECURITIES.
In February 2002, our CEO, Christopher Salmonson, exercised options to
purchase 1,252,761 shares of our common stock at an exercise price of $.01 per
share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
None
Subsequent Event
In April 2002, the holders of a majority of our outstanding common stock
approved the adoption of our 2002 Stock Option Plan, wherein we reserved an
aggregate of 27,000,000 shares of our common stock for issuance under said Plan.
This action was taken in accordance with the laws of the State of Florida.
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - none
12
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the three month period ended
March 31, 2002.
13
FUELNATION INC.
(A Development Stage Company)
(Formerly Regensis Holdings, Inc.)
CONDENSED BALANCE SHEETS
March 31, 2002
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 2,157
Inventory 560,340
Other 17,961
-----------
Total Current Assets 580,458
-----------
FIXED ASSETS:
Office Furniture and Equipment and Computer Systems,
net of accumulated depreciation of $73,653 173,027
-----------
OTHER ASSETS:
Deposits on Equipment 752,500
Technology 1,581,747
-----------
Total Other Assets 2,334,247
-----------
Total Assets $ 3,087,732
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 583,996
Accrued Liabilities 256,618
Payroll and Taxes Payable 617,531
Convertible Debt, net of unamortized discount of $14,869 20,690
Due to Affiliates 361,713
Other Payables 149,500
-----------
Total Current Liabilities 1,990,048
-----------
Commitments and Contingencies -
-----------
Common Stock Subject to Repurchase,
8,566,113 Shares Issued and
Outstanding at March 31, 2002 3,547,974
-----------
STOCKHOLDERS' [DEFICIT]:
Preferred Stock, $.01 par value, 20,000,000 shares
authorized; none issued and outstanding -
Common Stock, $.01 par value, 350,000,000 shares
authorized; 171,956,659 issued and outstanding
at March 31,2002 1,719,565
Additional paid-in capital 25,964,383
(Deficit) Accumulated in the Development Stage (30,134,238)
----------
Total Stockholders' [Deficit] (2,450,290)
-----------
Total Liabilities and Stockholders' [Deficit] $ 3,087,732
===========
See Accompanying Notes
14
FUELNATION INC.
(A Development Stage Company)
(Formerly Regenesis Holdings, Inc.)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002
For the Three Months Ended
March 31, Accumulative in
------------------------ the Development
2002 2001 Stage
----------- ----------- ------------
Revenue $ - $ - $ -
----------- ----------- ------------
Operating expenses:
Salaries and wages including related taxes 188,171 92,836 1,010,191
Consulting fees 19,456 75,000 48,890
Consulting fees - related party - - 221,162
Legal and professional 66,310 135,317 677,119
Marketing and promotion - - 406,567
Rent - related party - - 45,387
Depreciation 3,825 11,638 73,653
Other general and administrative expenses 57,850 147,443 516,532
Research and development cost - - 10,000
Non-Cash Consulting fees - - 16,278,718
Non-Cash Consulting fees - related party - - 3,585,000
Non-Cash financing costs - - 92,956
Non - Cash Employee Compensation 87,693 - 6,455,659
----------- ----------- ------------
Total operating expenses 423,305 462,234 29,421,834
----------- ----------- ------------
Operating Loss (423,305) (462,234) (29,421,834)
Other Income (Expense):
Other Expense - - (694,982)
Interest expense (8,440) (1,308) (17,422)
----------- ----------- ------------
Total other (expense), net (8,440) (1,308) (712,404)
----------- ----------- ------------
Net Loss $ (431,745) $ (463,542) $(30,134,238)
=========== =========== ============
Basic and Diluted Net Loss per Common Share $ (0.00) $ (0.00)
=========== ===========
Basic and Diluted Weighted Average Common
Shares Outstanding 179,196,266 154,989,627
=========== ===========
See Accompanying Notes
15
FUELNATION INC.
(A Development Stage Company)
(Formerly Regenesis Holdings, Inc)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited)
Cumulative
The Development
2002 2001 Stage
---------- ---------- ---------------
Cash Flows from Operating Activities:
Net loss $ (431,745) $ (463,542) $ (30,134,238)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,825 11,638 73,653
Non-Cash Employee Compensation 87,693 - 6,455,659
Non-Cash Consulting Fees - 75,000 16,278,718
Non-Cash Consulting Fees-Related Party - - 3,585,000
Non-Cash Financing Costs - - 92,956
Write-Down of Investments - - 657,686
Other - - 32,500
Amortization of Discount on Convertible Debt 7,631 - 7,631
Changes in Assets and Liabilities:
Inventory - (1,933) (560,339)
Due from Escrow Accounts - - (45,000)
Due from Affiliates - (14,614) 304,680
Other 16,667 (55,165) 25,372
Increase [Decrease] in :
Accounts Payable 48,890 400,197 449,325
Accrued Liabilites 21,809 (15,587) 242,710
Payroll and Taxes Payable 93,104 39,967 617,531
---------- ---------- ---------------
Net cash used in operating activities (152,126) (24,039) (1,916,156)
---------- ---------- ---------------
Cash Flows from Investing Activities:
Payments for Technology - (96,602) (544,903)
Payment for Fixed Assets (2,667) (3,460) (246,680)
Advances Toward Pending Acquisition - - (402,724)
Cash Received in Acquisition - - 1,109
---------- ---------- ---------------
Net cash used in investing activities (2,667) (100,062) (1,193,198)
---------- ---------- ---------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock - 126,500 3,261,608
Proceeds from Issuance of Convertible Debt - - 35,953
Payment of Loans Payable - - (100,000)
Debt Restructuring - - (255,804)
Increase in loan to officers and stockholders 154,754 - 169,754
---------- ---------- ---------------
Net cash provided by financing activities 154,754 126,500 3,111,511
---------- ---------- ---------------
Net (Decrease) Increase in Cash (39) 2,399 2,157
Cash, Beginning of Period 2,196 13,198 -
---------- ---------- ---------------
Cash, End of Period $ 2,157 $ 15,597 $ 2,157
========== ========== ===============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest: $ - $ 1,308 $ 1,308
========== ========== ===============
Cash paid during the period for Income Taxes: $ - $ - $ -
========== ========== ===============
Supplemental Schedule of Non Cash Investing and Financing Activities: Options to
purchase 1,252,761 shares of common stock were excercised by a officer of the
company and the amount of $ 12,527 was offset against the loan to officers and
stockholders.
See Accompanying Notes
16
FUELNATION INC.
(A Development Stage Company)
(Formerly Regenesis Holdings, Inc.)
March 31, 2002
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements of FuelNation Inc. (the
"Company") have been prepared in accordance with Regulation S-B promulgated
by the Securities and Exchange Commission and do not include all of the
information and footnotes required by generally accepted accounting
principles in the United States for complete financial statements. In the
opinion of management, these interim financial statements include all
adjustments necessary in order to make the financial statements not
misleading. The results of operations for such interim period are not
necessary indicative of results of operations for a full year. The
unaudited financial statements should be read in conjunction with the
audited financial statements and notes thereto of the Company and
management's discussion and analysis of financial condition and results of
operations included in the Annual Report on Form 10-KSB for the year ended
December 31, 2001.
The accompanying unaudited interim financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
the liquidation of liabilities in the normal course of business. However,
the Company has a history of net losses and as of March 31, 2002, has a
working capital deficiency of $1,409,590 and capital deficiency of
approximately $30.1 million. Since October 2000, the Company has relied on
financial support from equity financing and loans from affiliated entities.
Management is currently seeking additional financing; however no assurances
can be made that such financing will be consummated. The continuation of
the Company as a going concern is dependent upon its ability to obtain
financing, and to use the proceeds from any such financing to increase its
business to achieve profitable operations. The accompanying financial
statements do not include any adjustments that would result should the
Company be unable to continue as a going concern.
Note 2. Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 2 to
the Company's financial statements in the December 31, 2001 Form 10-KSB.
Note 3. Basic and Diluted Loss Per Share
Basic loss per share reflects the amount of loss for the period attributable to
each share of common stock outstanding during the reporting period. Diluted loss
per share reflects basic loss per share, while giving effect to all dilutive
potential common shares that were outstanding during the period, such as common
shares that could result from the potential exercise or conversion of securities
into common stock. The computation of diluted loss per share does not assume
conversion, exercise, or contingent issuance of securities that would have an
anti-dilutive effect on loss per share (i.e. reducing loss per share). The
dilutive effect, if any, of outstanding options and warrants and their
equivalents would be reflected in dilutive earnings per share by the application
of the treasury stock method which recognizes the use of proceeds that could be
obtained upon the exercise of operations and warrants in computing diluted
earnings per share. It assumes that any proceeds would be used to purchase
common stock at the average market price of the common stock during the period.
For the period from January 1, 2002 through March 31, 2002, and January 1, 2001
through March 31, 2001, the Company had outstanding warrants and stock options
to purchase 5,683,753 shares of common stock at prices ranging from $0.01 to
$7.50 per share and for the period from January 1, 2001 through March 31, 2001,
the Company had outstanding warrants and stock options to purchase 466,000
shares of common stock at prices ranging from $2.50 to $7.50 per share.
17
FUELNATION INC.
(A Development Stage Company)
(Formerly Regenesis Holdings, Inc.)
March 31, 2002
(Unaudited)
Note 3. Basic and Diluted Loss Per Share (Continued)
For the three months ended March 31, 2002 and 2001, all of the Company's
potential common shares were anti-dilutive and a dual presentation of loss
per share is not required.
Note 4. Due to Affiliates
During the three months ended March 31, 2002 the Company borrowed
approximately $154,754 from Fuel America LLC ["Fuel America"], an entity
controlled by the Chairman of the Board/Chief Executive Officer ["CEO"]. In
February 2002, the CEO exercised options to purchase 1,252,761 shares of
common stock at an exercise price of $.01 per share. The proceeds of
$12,527 were used to reduce the amount due to Fuel America. At March 31,
2002, the balance owed Fuel America was $361,713. Currently, there are no
interest repayment terms for the debt and it is treated as if due on
demand.
Note 5. Payroll and Taxes Payable
The Company has primarily funded its payroll costs through borrowing from
related parties. Payroll taxes have become delinquent since the second
quarter of 2001. These liabilities, which include penalties and interest
through March 31, 2002, amount to $617,531. Penalties (to the maximum
limits) and interest will accrue on such payroll tax liabilities, as well
as additional payroll tax liabilities incurred subsequent to March 31,
2002, until paid. The CEO has deferred payment of approximately $153,384 of
his salary as of March 31, 2002.
Note 6. Stockholders' Equity - Issuance of Common Stock
In February 2002, the CEO was granted and exercised options to purchase
1,252,761 shares of common stock at an exercise price of $.01 per share.
The Company incurred non-cash expense of $87,693.
Note 7. New Authoritative Accounting Pronouncements
On August 15, 2001, the FASB issued SFAS No.143, "Accounting for Asset
Retirement Obligations ["SFAS No.143"]. SFAS No.143 requires that the fair
value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. SFAS No.143 will be
effective for financial statements issued for fiscal years beginning after
June 15, 2002. An entity shall recognize the cumulative effect of adoption
of SFAS No.143 as a change in accounting principle. The Company is not
currently affected by this Statement's requirements.
On April 30, 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections. The Statement
updates, clarifies and simplifies existing accounting pronouncements.
Statement 145 rescinds Statement 4, which required all gains and losses
from extinguishments of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As result, the
criteria in Opinion 30 will now be used to classify those gains and losses.
Statement 64 amended Statement 4, and is no longer necessary because
Statement 4 has been rescinded.
18
FUELNATION INC.
(A Development Stage Company)
(Formerly Regenesis Holdings, Inc.)
March 31, 2002
(Unaudited)
Note 7. New Authoritative Accounting Pronouncements (Continued)
Statement 44 was issued to establish accounting requirements for the
effects of transition to the provisions of the Motor Carrier Act of 1980.
Because the transition has been completed, Statement 44 is no longer
necessary.
Statement 145 amends Statement 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. This amendment is consistent with the FASB's goal of
requiring similar accounting treatment for transactions that have similar
economic effects.
This Statement also makes technical corrections to exiting pronouncements.
While those corrections are not substantive in nature, in some instances,
they may change accounting practice.
The Company is not currently affected by this Statement's requirements.
Item 8. Subsequent Events
In April 2002, the holders of a majority of the Company's outstanding common
stock approved the adoption of the 2002 Stock Option Plan, wherein the Company
reserved an aggregate of 27,000,000 shares of its common stock for issuance
under said Plan. This action was taken in accordance with the laws of the State
of Florida.
19
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FUELNATION, INC.
(Registrant)
Dated: May 15, 2002
By:s/ Christopher R. Salmonson
-------------------------------
Christopher R. Salmonson,
President
20