UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB/A
(Mark
One)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2007
|
or
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|
|
|
|
For
the transition period from _______________ to
_______________
|
Commission
File Number:
000-30172
Renewal
Fuels, Inc.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
|
22-1436279
|
(State or other jurisdiction of incorporation or organization)
|
|
(IRS Employer Identification No.)
|
1818
North Farwell Avenue, Milwaukee, WI 53202
(Address
of principal executive offices)
(414)
283-2625
(Issuer’s
telephone number)
Tech
Laboratories, Inc.
(Former
name if changed from last report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
o
No
x
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 28,832,455 shares of common stock, $0.001
par
value per share, as of November 16, 2007.
Transitional
Small Business Disclosure Format (Check one): Yes
o
No
x
Explanatory
Notes
Renewal
Fuels, Inc. (hereinafter referred to as “us,” “we,” the “Company” or “Renewal”)
is filing this Amendment No. 1 on Form 10-QSB/A (the “First Amendment”) to its
Quarterly Report for the fiscal period ended September 30, 2007, which was
filed
with the Securities and Exchange Commission (“SEC”) on November 16, 2007 (the
“Original Report”) in response to certain comments raised by the staff of the
SEC. As more fully discussed in Note 13 to the
accompanying condensed consolidated financial statements, the purpose of this
Amendment is to restate our unaudited financial statements and notes included
in
Part I, Item 1
Financial Statements
and Part
I, Item 2
Management’s
Discussion and Analysis
to
address the following matters.
|
·
|
We
previously concluded that an important trademark acquired in a business
combination had an indefinite life. The accompanying financial statements
and notes have been revised to provide for an expected life for this
trademark of ten years. Amortization of this intangible asset is
reflected
in statements of operations.
|
|
·
|
We
previously recognized as an asset certain deferred financing costs
in
connection with our reverse merger with Tech Labs, Inc. Since principles
of accounting for reverse merger preclude the recognition of assets
other
than those of the accounting acquiree, we have revised our balance
sheet
to eliminate this asset.
|
|
·
|
We
have certain debt agreements and registration rights agreements that
are
in default. We have modified our disclosures to provide more information
about the nature of defaults, the remedies of the investors and our
conclusions related to the accounting consequences.
|
This
Amendment speaks only of the original filing date of the Original Report and,
except for those Items disclosed in this explanatory note, is unchanged from
the
Original Report. This First Amendment does not reflect events after the filing
of the Original Report or modify or update those disclosures affected by
subsequent events. Therefore, you should read this First Amendment
together with our other reports that update and supersede the information
contained in this First Amendment.
RENEWAL
FUELS, INC.
FORM
10-QSB/A
QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2007
TABLE
OF CONTENTS
|
PART
1 FINANCIAL INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
|
|
|
Consolidated
Balance Sheet (Restated)
|
5
|
|
|
|
|
Consolidated
Statements of Operations (Restated)
|
6
|
|
|
|
|
Consolidated
Statement of Stockholders’ Equity (Deficit) (Restated)
|
7
|
|
|
|
|
Consolidated
Statements of Cash Flows (Restated)
|
9
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
11
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
31
|
|
|
|
Item
3.
|
Controls
and Procedures
|
51
|
|
|
|
|
PART
II OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
52
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
52
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
52
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
52
|
|
|
|
Item
5.
|
Other
Information
|
52
|
|
|
|
Item
6.
|
Exhibits
|
52
|
|
|
|
SIGNATURES
|
|
55
|
PART
1.
FINANCIAL INFORMATION
FORWARD-LOOKING
STATEMENTS
This
Form
10-QSB contains “forward-looking statements” relating to Renewal Fuels, Inc.
(formerly Tech Laboratories, Inc.) (referred to as the “Company” or “we”, “us”
or “our” in this Form 10-QSB), which represent the Company’s current
expectations or beliefs including, but not limited to, statements concerning
the
Company’s operations, performance, financial condition and growth. For this
purpose, any statements contained in this Form 10-QSB that are not statements
of
historical fact are forward-looking statements. Without limiting the generality
of the foregoing, words such as “may”, “anticipation”, “intend”, “could”,
“estimate”, or “continue” or the negative or other comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, such as credit losses,
dependence on management and key personnel, variability of quarterly results,
and the ability of the Company to continue its growth strategy and competition,
certain of which are beyond the Company’s control. Should one or more of these
risks or uncertainties materialize or should the underlying assumptions prove
incorrect, actual outcomes and results could differ materially from those
indicated in the forward-looking statements.
Any
forward-looking statement speaks only as of the date on which such statement
is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of
each
such factor on the business or the extent to which any factor, or combination
of
factors, may cause actual results to differ materially from those contained
in
any forward-looking statements.
ITEM
1. FINANCIAL STATEMENTS
RENEWAL
FUELS, INC.
UNAUDITED
CONSOLIDATED BALANCE SHEET
AS
OF SEPTEMBER 30, 2007
(Restated)
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash
|
|
$
|
540,056
|
|
Inventories
|
|
|
47,282
|
|
Prepaid
expenses and other current assets
|
|
|
83,016
|
|
Total
current assets
|
|
|
670,354
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
240,986
|
|
Finance
fees, net of accumulated amortization of $73,757
|
|
|
376,243
|
|
Intangibles,
net of accumulated amortization of $58,707
|
|
|
462,293
|
|
Goodwill
|
|
|
323,684
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,073,560
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
|
$
|
280,571
|
|
Other
payables
|
|
|
88,931
|
|
Convertible
debt, in default
|
|
|
1,099,626
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,469,128
|
|
|
|
|
|
|
Convertible
debt
|
|
|
1,348,487
|
|
Convertible
preferred stock of subsidiary (preference in liquidation -
$1,000,000)
|
|
|
800,000
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,617,615
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
Capital
stock:
|
|
|
|
|
Preferred
stock - par value of $.001; 20,000,000 shares authorized;
no shares
issued and outstanding
|
|
|
—
|
|
Common
stock - par value of $.001; 3,000,000,000 shares authorized;
27,488,705
shares issued and outstanding
|
|
|
27,488
|
|
Common
stock - 1,343,750 shares to be issued
|
|
|
215,000
|
|
Additional
paid-in capital
|
|
|
8,376,581
|
|
Accumulated
deficit
|
|
|
(10,163,124
|
)
|
Total
stockholders’ equity (deficit)
|
|
|
(1,544,055
|
)
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
2,073,560
|
|
See
accompanying notes to consolidated financial statements.
RENEWAL
FUELS, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Successor
Business
|
|
Predecessor
Business
|
|
|
|
Three
Months
Ended
September
30,
2007 (Restated)
|
|
March 9,
2007(Date
of Inception)
to
September
30,
2007 (Restated)
|
|
Three
Months
Ended
March
31,
2007
|
|
Three
Months
Ended
September
30,
2006
|
|
Nine
Months
Ended
September
30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
148,800
|
|
$
|
392,887
|
|
$
|
104,360
|
|
$
|
571,386
|
|
$
|
1,638,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
109,048
|
|
|
251,390
|
|
|
76,802
|
|
|
350,804
|
|
|
1,034,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
39,752
|
|
|
141,497
|
|
|
27,558
|
|
|
220,582
|
|
|
604,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
243,101
|
|
|
277,373
|
|
|
52,320
|
|
|
65,405
|
|
|
197,103
|
|
Stock-based
transaction expense
|
|
|
-
|
|
|
5,131,231
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Occupancy
and equipment
|
|
|
71,045
|
|
|
79,302
|
|
|
18,666
|
|
|
24,705
|
|
|
98,481
|
|
Advertising
|
|
|
96,187
|
|
|
140,170
|
|
|
8,474
|
|
|
37,452
|
|
|
55,542
|
|
Research
and development
|
|
|
3,140,000
|
|
|
3,140,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Professional
fees
|
|
|
80,150
|
|
|
429,891
|
|
|
8,474
|
|
|
6,588
|
|
|
18,617
|
|
Other
general and administrative
|
|
|
217,665
|
|
|
315,209
|
|
|
19,085
|
|
|
34,918
|
|
|
119,299
|
|
Amortization
of intangible assets
|
|
|
45,268
|
|
|
58,707
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
operating expenses
|
|
|
3,893,416
|
|
|
9,571,883
|
|
|
107,019
|
|
|
169,068
|
|
|
489,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
(3,853,664
|
)
|
|
(9,430,386
|
)
|
|
(79,461
|
)
|
|
51,514
|
|
|
115,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
68
|
|
|
823
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
expense
|
|
|
(221,050
|
)
|
|
(636,477
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Financing
fees
|
|
|
(55,750
|
)
|
|
(73,757
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
expense
|
|
|
(23,326
|
)
|
|
(23,326
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,153,722
|
)
|
$
|
(10,163,124
|
)
|
$
|
(79,461
|
)
|
$
|
51,514
|
|
$
|
115,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.16
|
)
|
$
|
(0.41
|
)
|
$
|
(0.01
|
)
|
$
|
0.01
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
(0.16
|
)
|
$
|
(0.41
|
)
|
$
|
(0.01
|
)
|
$
|
0.01
|
|
$
|
0.02
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,228,929
|
|
|
24,795,793
|
|
|
7,000,000
|
|
|
7,000,000
|
|
|
7,000,000
|
|
Diluted
|
|
|
26,228,929
|
|
|
24,795,793
|
|
|
7,000,000
|
|
|
7,000,000
|
|
|
7,000,000
|
|
See
accompanying notes to consolidated financial statements.
RENEWAL
FUELS, INC.
UNAUDITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD
FROM INCEPTION (MARCH 9, 2007) TO SEPTEMBER 30, 2007
(Restated)
|
|
Preferred
Stock
|
|
Common Stock
|
|
Common
Stock to be
|
|
Additional
Paid-In
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Issued
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
March 9, 2007 (Inception)
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold on March 9, 2007 to founders for cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
57,279
|
|
|
-
|
|
|
57,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption
of net liabilities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,677,020
|
)
|
|
-
|
|
|
(1,677,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
transaction expense related to common stock sold to founders
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,131,231
|
|
|
-
|
|
|
5,131,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in exchange for net liabilities in a recapitalization
on
April 20, 2007
|
|
|
-
|
|
|
-
|
|
|
673,356
|
|
|
673
|
|
|
-
|
|
|
(673
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock issued in reverse merger on April 20, 2007
|
|
|
343,610
|
|
|
343
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(343
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrants issued on April 20, 2007 in connection with issuance
of
convertible debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
238,932
|
|
|
-
|
|
|
238,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible debt instruments issued or assumed
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
923,841
|
|
|
-
|
|
|
923,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock on June 21, 2007
|
|
|
(343,610
|
)
|
|
(343
|
)
|
|
22,907,323
|
|
|
22,907
|
|
|
-
|
|
|
(22,564
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued on conversion of convertible debentures
|
|
|
-
|
|
|
-
|
|
|
224,447
|
|
|
225
|
|
|
-
|
|
|
82,675
|
|
|
-
|
|
|
82,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for purchase of BSI on July 2, 2007
|
|
|
-
|
|
|
-
|
|
|
3,333,333
|
|
|
3,333
|
|
|
-
|
|
|
1,996,667
|
|
|
-
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of options granted in conjunction with the purchase of BSI
on July
2, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,181
|
|
|
-
|
|
|
48,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrants issued on July 2, 2007 in connection with issuance
of
convertible debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,104,405
|
|
|
-
|
|
|
1,104,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible debentures issued on July 2,
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
348,287
|
|
|
-
|
|
|
348,287
|
|
(
continued)
RENEWAL
FUELS, INC.
UNAUDITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD
FROM INCEPTION (MARCH 9, 2007 TO SEPTEMBER 30, 2007)
(Restated)
(
continued)
Shares
issued on conversion of convertible debentures on July 12 and July
13,
2007
|
|
|
-
|
|
|
-
|
|
|
350,360
|
|
|
350
|
|
|
-
|
|
|
145,750
|
|
|
-
|
|
|
146,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid in lieu of fractional shares from the 1-for-15 reverse stock
split on
July 31, 2007
|
|
|
-
|
|
|
-
|
|
|
(114
|
)
|
|
-
|
|
|
-
|
|
|
(68
|
)
|
|
-
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued on October 5, 2007 for conversion of convertible debentures
on September 21, 2007 - 1,343,750 shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
215,000
|
|
|
-
|
|
|
-
|
|
|
215,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,163,124
|
)
|
|
(10,163,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2007
|
|
|
-
|
|
$
|
-
|
|
|
27,488,705
|
|
$
|
27,488
|
|
$
|
215,000
|
|
$
|
8,376,581
|
|
$
|
(10,163,124
|
)
|
$
|
(1,544,055
|
)
|
See
accompanying notes to consolidated financial statements.
RENEWAL
FUELS, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Successor
Business
|
|
Predecessor
Business
|
|
|
|
March
9, 2007
(Date
of
Inception)
to
September 30,
2007 (Restated)
|
|
Three
Months
Ended
March 31, 2007
|
|
Nine
Months
Ended
September
30,
2006
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(10,163,124
|
)
|
$
|
(79,461
|
)
|
$
|
115,551
|
|
Adjustments
to reconcile net income (loss) to net cash
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
68,599
|
|
|
471
|
|
|
16,344
|
|
Amortization
financing fees
|
|
|
73,757
|
|
|
-
|
|
|
-
|
|
Accrued
interest and amortization of debt discounts
|
|
|
634,550
|
|
|
-
|
|
|
-
|
|
Stock-based
transaction expense
|
|
|
5,131,231
|
|
|
-
|
|
|
-
|
|
Research
and development expense
|
|
|
3,140,000
|
|
|
-
|
|
|
-
|
|
Write
off of acquired fixed assets
|
|
|
22,931
|
|
|
-
|
|
|
-
|
|
Changes
in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
-
|
|
|
-
|
|
|
11,198
|
|
Inventories
|
|
|
(12,856
|
)
|
|
26,151
|
|
|
26,320
|
|
Other
current assets
|
|
|
(83,016
|
)
|
|
11,915
|
|
|
(1,252
|
)
|
Accounts
payable and accrued expenses
|
|
|
(316,707
|
)
|
|
(5,857
|
)
|
|
154,124
|
|
Customer
deposits
|
|
|
-
|
|
|
(12,224
|
)
|
|
(31,488
|
)
|
Net
Cash Provided By (Used In) Operating Activities
|
|
|
(1,504,634
|
)
|
|
(59,005
|
)
|
|
290,797
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of FuelMeister assets
|
|
|
(494,426
|
)
|
|
-
|
|
|
-
|
|
Acquisition
of Biodiesel Solutions
|
|
|
(422,014
|
)
|
|
-
|
|
|
-
|
|
Purchases
of property and equipment
|
|
|
(46,081
|
)
|
|
-
|
|
|
(28,623
|
)
|
Net
Cash Provided By (Used In) Investing Activities
|
|
|
(962,521
|
)
|
|
-
|
|
|
(28,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
57,279
|
|
|
-
|
|
|
-
|
|
Proceeds
from issuance of warrants
|
|
|
1,343,337
|
|
|
-
|
|
|
-
|
|
Proceeds
from issuance of beneficial conversion feature
|
|
|
938,554
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
1,118,109
|
|
|
-
|
|
|
-
|
|
Payment
of debt issuance costs
|
|
|
(450,000
|
)
|
|
-
|
|
|
-
|
|
Payment
for fractional shares
|
|
|
(68
|
)
|
|
-
|
|
|
-
|
|
Net
contributions (distributions) from (to) owner
|
|
|
-
|
|
|
31,953
|
|
|
(348,584
|
)
|
Net
Cash Provided By (Used In) Financing Activities
|
|
|
3,007,211
|
|
|
31,953
|
|
|
(348,584
|
)
|
RENEWAL
FUELS, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(-continued)
|
|
Successor
Business
|
|
Predecessor
Business
|
|
Net
Increase (Decrease) In Cash
|
|
|
540,056
|
|
|
(27,052
|
)
|
|
(86,410
|
)
|
Cash
- Beginning of period
|
|
|
-
|
|
|
52,626
|
|
|
276,850
|
|
Cash
- End of period
|
|
$
|
540,056
|
|
$
|
25,574
|
|
$
|
190,440
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure Of Cash Flow Information -
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
1,927
|
|
$
|
-
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures Of Non-Cash Investing And
Financing
Activities:
|
|
|
|
|
|
|
Net
liabilities assumed in a recapitalization
|
|
$
|
1,677,020
|
|
$
|
-
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
NOTE
1
NATURE
OF BUSINESS AND GOING CONCERN
Reorganization
of Tech Laboratories, Inc. and Reverse Merger with Renewal Biodiesel,
Inc.
On
April
20, 2007, Renewal Fuels, Inc., formerly Tech Laboratories, Inc. (the “Company”
or “we”, “us”, “our”), and its wholly-owned subsidiary, Renewal Fuels
Acquisitions, Inc. (“Renewal Acquisitions”), entered into a merger agreement
(the “Renewal Merger Agreement”) with Renewal Biodiesel, Inc. (formerly Renewal
Fuels, Inc.) (“Renewal Biodiesel”). Renewal Biodiesel was incorporated in the
state of Delaware on March 9, 2007 for the purpose of the acquisition of the
FuelMeister Business described below. Pursuant to the Renewal Merger Agreement,
Renewal Acquisitions was merged with and into Renewal Biodiesel. The former
shareholders of Renewal Biodiesel were issued an aggregate of 343,610 shares
of
the Company’s series A convertible preferred stock (the “Preferred Stock”),
which were immediately convertible at the option of the holders into an
aggregate of 268,588 shares of our common stock. Following approval of the
Renewal Merger Agreement by our shareholders, the Preferred Stock became
convertible at the option of the holders into an aggregate of 22,907,323 shares
of our common stock. On June 21, 2007, all of the holders converted their shares
of Preferred Stock into 22,907,323 shares of the Company’s common
stock.
Tech
Laboratories had no active business operations immediately prior to the merger.
Mr. John King, Chief Executive Officer and Mr. David Marks, Chairman were
officers and directors and were minority shareholders of Renewal Biodiesel,
Inc.
On
July
9, 2007, the Company, which was a New Jersey entity (“Tech Labs-NJ”), entered
into an Agreement and Plan of Merger with Tech Laboratories, Inc., a
Delaware entity (“Tech Labs - DE”) under which Tech Labs - NJ and Tech Labs - DE
were merged with and into the surviving corporation, Tech Labs - DE, whose
name
was subsequently changed on August 1, 2007 to Renewal Fuels, Inc. The
certificate of incorporation and bylaws of the surviving corporation became
the
certificate of incorporation and bylaws of the Company, and the directors and
officers in office of the surviving corporation became the directors and
officers of the Company.
On
July
10, 2007, the majority stockholders of the Company authorized a 1-for-15 reverse
stock split pursuant to which, on August 1, 2007, the shares of common stock
of
the Company that were outstanding at July 31, 2007 (the “Old Shares”)
automatically converted into new shares of common stock (the "New Shares").
All common share and per share amounts in these financial statements have been
retroactively restated to reflect this reverse stock split. The New Shares
issued pursuant to the reverse stock split are fully paid and non-assessable.
All New Shares have the same par value, voting rights and other rights as the
Old Shares. Stockholders of the Company do not have preemptive rights to acquire
additional shares of common stock which may be issued. Also on August 1, 2007,
the Company changed its name from Tech Laboratories, Inc. to Renewal Fuels,
Inc.
and the Company’s quotation symbol on the OTC Bulletin Board was changed from
TLBT to RNWF.
Acquisition
of FuelMeister Business
Renewal
Biodiesel, Inc. (formerly Renewal Fuels, Inc.)(“Renewal Biodiesel” and, as
described below, the “Predecessor”) acquired all tangible and intangible assets
of the FuelMeister Business of Biodiesel Solutions, Inc. (“BSI”), a Nevada
corporation and unrelated and autonomous business entity, effective March 30,
2007. As a result, Renewal Biodiesel is engaged in the business of designing,
developing, manufacturing and marketing personal biodiesel processing equipment
and accessories to convert used and fresh vegetable oil into clean-burning
biodiesel. Renewal Biodiesel’s products allow customers to make biodiesel fuel,
which is capable of powering all diesel fuel engines, for a current cost of
approximately 70 cents per gallon. Renewal Biodiesel has a network of dealers
in
the United States for sale and distribution of its products. Renewal Biodiesel’s
manufacturing facilities are currently located in Sparks, Nevada.
At
the time of the FuelMeister
acquisition, which was transacted before the reverse merger discussed above,
our
current Chief Executive Officer (John King) and one of our directors (David
Marks) served as officers, directors and minority shareholders (individually
and
collectively) of Renewal Biodiesel. However, they had no affiliation with BSI.
While influential, these relationships did not give rise to common control,
which is defined as majority common ownership levels.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Acquisition
of BSI
On
July
2, 2007, the Company and its wholly-owned subsidiary BSI Acquisitions, Inc.
(“BSI Acquisitions”) entered into a merger agreement (the “BSI Merger
Agreement”) with BSI (from whom Renewal Biodiesel had acquired the FuelMeister
Business). Pursuant to the BSI Merger Agreement, BSI Acquisitions was merged
with and into BSI and the Company thus acquired all of the remaining business
of
BSI, other than the FuelMeister Business which was previously acquired as a
result of the reverse merger with Renewal Biodiesel. The former shareholders
of
BSI were issued an aggregate of 3,333,333 shares of common stock of the Company,
1,333,333 shares of a new BSI convertible preferred stock (the “BSI Preferred
Stock”), options to purchase 94,600 shares of the Company’s common stock and
$500,000 in cash. The BSI Preferred Stock is immediately convertible at the
option of the holders into common stock of the Company at a conversion price
equal to the greater of (i) $0.75 or (ii) the average closing price of the
common stock during the ten trading days immediately preceding the conversion
date. Prior to the acquisition of BSI, the Company had loaned $200,000 to BSI
under an 8% 180 day secured promissory note, due November 24, 2007. Upon the
acquisition of BSI, the note receivable was reclassified as a capital
contribution to BSI.
BSI
will
manufacture the BiodieselMaster®, a factory-built biodiesel processing plant
that is designed to produce 350,000 gallons of biodiesel per year and is
designed to be appropriately scaled for a variety of customers, including small
communities, farms, farm co-ops and trucking fleets. The design will provide
a
biodiesel production system that is continuous, flexible, efficient, affordable,
and fully-automated. The automated control system will minimize labor costs
and
facilitates remote diagnostics.
Predecessor
Business
As
described above, under the terms of the Renewal Merger Agreement, we acquired
100% of the common stock of Renewal Biodiesel in exchange for the issuance
by us
of 22,907,323 common shares. Although we were the legal acquirer, Renewal
Biodiesel was considered to be the accounting acquirer and, as such, the
acquisition was accounted for as a reverse merger and recapitalization. As
a
result, the accompanying unaudited consolidated financial statements represent
the results of operations and cash flows of the accounting acquirer and
Successor (Renewal Biodiesel) from the date of its inception on March 9, 2007
through September 30, 2007. The FuelMeister Business acquired by Renewal
Biodiesel constitutes our Predecessor business. The accompanying unaudited
consolidated financial statements, as of September 30, 2007 and for the period
March 9, 2007 (date of inception) through September 30, 2007, are those of
the
Successor. The statements of operations for the three months ended March 31,
2007 and for the three and nine months ended September 30, 2006, and the
statements of cash flows for the three months ended March 31, 2007 and for
the
nine months ended September 30, 2006 are those of our Predecessor, the
FuelMeister Business.
Going
Concern
Our
financial statements are prepared using accounting principles generally accepted
in the United States of America applicable to a going concern, which contemplate
the realization of assets and the liquidation of liabilities in the normal
course of business. Since inception, we have incurred losses from operations.
Furthermore, we will require a significant amount of capital to proceed with
our
business plan. As such, our ability to continue as a going concern is contingent
upon us being able to secure an adequate amount of debt or equity capital to
enable us to meet our operating cash requirements and successfully implement
our
business plan. In addition, our ability to continue as a going concern must
be
considered in light of the challenges, expenses and complications frequently
encountered by entrance into new markets and the competitive environment in
which we operate.
Our
Predecessor historically funded its cash requirements through operations and
contributions from the former owner. In connection with the acquisition of
the
FuelMeister Business and BSI, we obtained debt financing. We expect we will
need
to obtain additional funding through private or public equity and/or debt
financing to pay for the infrastructure needed to support our planned growth
but, as a public company, we believe we will have better access to additional
debt or equity capital.
There
can
be no assurance that our plans will materialize and/or that we will be
successful in raising required capital to grow our business and/or that any
such
capital will be available on terms acceptable to us. These factors, among
others, indicate that we may be unable to continue as a going concern for a
reasonable period of time. Our financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
NOTE
2
ACQUISITIONS
Reverse
Merger and Recapitalization
On
April
20, 2007, we entered into a Merger Agreement with Renewal Biodiesel, a Delaware
corporation formed in 2007 for the purposes of the asset acquisition of the
FuelMeister Business described below. Under the terms of the agreement, we
acquired 100% of the common stock of Renewal Biodiesel in exchange for the
issuance by us of 343,610 shares of our series A convertible preferred stock,
which was subsequently converted into 22,907,323 common shares. The officers
and
directors of Renewal Biodiesel assumed similar positions with us. Although
we
were the legal acquirer, Renewal Biodiesel was considered the accounting
acquirer and as such the acquisition was accounted for as a reverse merger
and
recapitalization. As a result, the accompanying consolidated financial
statements represent the results of operations and cash flows of the accounting
acquirer (Renewal Biodiesel) from the date of its inception on March 9, 2007.
Immediately prior to the reorganization, we had 673,356 shares of common stock
outstanding and net liabilities of $1,677,020, consisting of the following,
at
fair value:
Net
liabilities assumed:
|
|
|
|
Accounts
payable
|
|
$
|
203,992
|
|
Long
term debt, including accrued interest
|
|
|
1,473,028
|
|
Net
liabilities assumed
|
|
$
|
1,677,020
|
|
The
net
liabilities assumed primarily represent debt obligations to YA Global
Investments, L.P. (f/k/a Cornell Capital Partners L.P) (herein “YA Global”) and
were assumed in connection with the provision of additional long-term debt
financing provided by YA Global (see Note 7), which additional funding was
provided simultaneously with the reverse merger and recapitalization. In
addition, the Company paid $180,000 in fees in connection with the additional
debt funding provided by YA Global.
Acquisition
of Assets of FuelMeister Business
On
March
9, 2007, Crivello Group, LLC (“Crivello”) and its wholly-owned subsidiary,
Renewal Biodiesel, entered into an Asset Purchase Agreement with Biodiesel
Solutions, Inc. (“BSI”), which was effective March 30, 2007. Pursuant to the
Asset Purchase Agreement, BSI sold substantially all of the assets and property
of its FuelMeister operations (the “FuelMeister Business”, the “Predecessor” or
the “Predecessor Business”, an unrelated Company) to Renewal Biodiesel, in
exchange for an aggregate purchase price of $500,000, subject to adjustment.
Under the terms of the Agreement, the purchase price was subsequently adjusted
to $494,426 to reflect the inventory on hand at closing. Of the adjusted
purchase price, $100,000 was paid on execution of the Agreement as a down
payment, $100,000 was paid at closing, $50,000 was paid on April 11, 2007,
and
the balance of the purchase price was paid by delivery of a promissory note,
as
amended, in the amount of $244,426. The promissory note was subsequently paid
on
April 20, 2007. The $250,000 cash portion of the $494,426 purchase price of
the
assets was funded by loans received from Crivello of $200,000 and cash of
$57,279 received by Renewal Biodiesel from our founders for common stock. The
loans from Crivello, together with the promissory note for $244,426, were repaid
from the proceeds of loans from YA Global (see Note 7). The difference of
$5,131,231 between the fair value of the 22,907,323 common shares issued to
our
founders as a result of the reverse merger described above, determined based
on
the trading price of $0.2265 per share immediately prior to the reorganization
and reverse merger, and the amount they paid for their shares of Renewal
Biodiesel of $57,279 has been recorded as stock-based transaction
expense.
Renewal
Biodiesel also entered into a management services agreement with BSI, pursuant
to which BSI agreed to provide general management and administrative services
to
Renewal Biodiesel, as well as the use of its facilities. Renewal Biodiesel
reimbursed BSI for the direct cost of services and facilities, as provided.
The
agreement terminated 90 days after the FuelMeister acquisition or upon ten
days
notice by Renewal Biodiesel. As discussed in Note 1, we acquired BSI on July
2,
2007, which effectively resulted in termination of the agreement.
The
acquisition of the FuelMeister Business was accounted for by the purchase method
in accordance with Financial Accounting Standards Board Statement No. 141 ("FAS
141") and the results of its operations are included in these consolidated
financial statements from the date of acquisition. The aggregate purchase price
determined in accordance with FAS 141 was $494,426.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
The
following is a summary of the net assets acquired at the date of acquisition,
at
fair value:
Net
assets acquired:
|
|
|
|
Inventory
|
|
$
|
34,426
|
|
Fixed
assets
|
|
|
9,145
|
|
Website
domain
|
|
|
50,150
|
|
Trade
name
|
|
|
118,000
|
|
Customer
lists, engineering drawings and other intangibles
|
|
|
189,000
|
|
Goodwill
|
|
|
93,705
|
|
Net
assets acquired
|
|
$
|
494,426
|
|
Acquisition
of BSI
On
July
2, 2007, we entered into a merger agreement with BSI, as a result of which
we
acquired the remainder of BSI's business (i.e., other than the FuelMeister
Business acquired previously). BSI is engaged in the business of designing,
manufacturing and marketing processing equipment and accessories, including
personal biodiesel processors and “community scale” biodiesel processor systems,
which convert fresh and used vegetable oils into clean burning biodiesel fuel.
It complements and optimizes Renewal’s ability to design, develop, manufacture
and market both personal and community scale biodiesel processing equipment
and
accessories.
As
consideration for the acquisition of BSI, we issued an aggregate of 3,333,333
shares of common stock, 1,000,000 new preferred shares of BSI convertible into
1,333,333 shares of our common stock, options to purchase 94,600 shares of
our
common stock and $500,000 in cash. The BSI Preferred Stock is immediately
convertible at the option of the holders into common stock of the Company at
a
conversion price equal to the greater of (i) $0.75, or (ii) the average closing
price of the common stock during the ten trading days immediately preceding
the
conversion date. Prior to the acquisition of BSI, the Company loaned $200,000
to
BSI under an 8% 180 day secured promissory note, due November 24, 2007. Upon
the
acquisition of BSI, the note receivable was reclassified as a capital
contribution to BSI.
Also
on
July 2, 2007, we entered into a Securities Purchase Agreement with YA Global
providing for the sale to YA Global of secured convertible debentures in the
aggregate principal amount of $2,700,000, of which $2,000,000 was advanced
immediately. The second installment of $700,000 will be funded within two
business days after the Company has unconditionally booked and received at
least
a 50% deposit for the sale of at least one BiodieselMaster® unit. We also issued
to YA Global five-year warrants to purchase 2,250,000 shares of our common
stock
at $0.90 per share. The Debentures bear interest at the prime rate plus 2.75%
(but not less than 10%) and mature two years from the date of issuance (the
"Maturity Date"). The Company is not required to make any payments until the
Maturity Date. The holder of the Debentures may convert at any time amounts
outstanding into shares of Common Stock at a conversion price per share equal
to
the lesser of (i) $0.05, or (ii) 80% of the lowest closing bid price of the
Common Stock during the ten trading days immediately preceding the conversion
date.
The
aggregate purchase price for the BSI Acquisition was determined based on the
fair value of the consideration issued, which consisted of common stock,
preferred shares of BSI convertible into our common stock, options to purchase
our common stock and cash, as follows:
3,333,333
shares of common stock
|
|
$
|
2,000,000
|
|
1,000,000
shares of preferred stock of BSI
|
|
|
800,000
|
|
96,400
common stock options
|
|
|
48,181
|
|
Note
receivable from BSI reclassified to contributed capital
|
|
|
200,000
|
|
Cash
paid, net of $77,986 cash acquired
|
|
|
422,014
|
|
Total
purchase price
|
|
$
|
3,470,195
|
|
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
The
purchase price was allocated to BSI’s net tangible and intangible assets based
on their estimated fair values as of the date of the completion of the
acquisition. The amount allocated to purchased “in process research and
development costs” was valued at fair value using a debt free cash flow method.
As required by current accounting literature, these costs are immediately
expensed in the current period’s income statement. The allocation of the total
purchase price is summarized below:
|
|
Purchase
Price
|
|
Asset Life
|
|
|
|
Allocation
|
|
In
Years
|
|
Working
capital, net and excluding cash acquired
|
|
$
|
(204,231
|
)
|
|
-
|
|
Fixed
assets
|
|
|
90,447
|
|
|
3
-
10
|
|
In
process research and development
|
|
|
3,140,000
|
|
|
-
|
|
Employee
contracts
|
|
|
114,000
|
|
|
2
|
|
Non-compete
agreements
|
|
|
100,000
|
|
|
1.5
|
|
Goodwill
|
|
|
229,979
|
|
|
Indefinite
|
|
Net
Assets Acquired
|
|
$
|
3,470,195
|
|
|
|
|
Purchase
Accounting For Acquisitions
The
results of operations of the 2007 Acquisitions are included in the Company's
results of operations beginning from their respective acquisition dates. The
following unaudited pro forma information combines the consolidated results
of
operations of the Company and the companies that it acquired as if the
acquisitions had occurred at the beginning of fiscal year 2006:
|
|
Three Months
Ended September, 30,
|
|
For The Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
148,800
|
|
$
|
459,539
|
|
$
|
500,292
|
|
$
|
1,378,617
|
|
Loss
from Operations
|
|
$
|
(615,896
|
)
|
$
|
(178,488
|
)
|
$
|
(1,452,114
|
)
|
$
|
(8,794,637
|
)
|
Net
Loss
|
|
$
|
(1,216,899
|
)
|
$
|
(743,966
|
)
|
$
|
(3,389,752
|
)
|
$
|
(10,491,193
|
)
|
Per
Share - basic and fully diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.12
|
)
|
$
|
(0.07
|
)
|
$
|
(0.38
|
)
|
Weighted
average shares outstanding
|
|
|
27,488,705
|
|
|
27,488,705
|
|
|
27,488,705
|
|
|
27,488,705
|
|
The
unaudited pro forma information does not purport to be indicative of the results
that would actually have been achieved had the acquisitions occurred as of
the
date of the periods indicated.
NOTE
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America for interim financial information and the instructions to Form 10-QSB
and Rule 310 of Regulation SB of the Securities and Exchange Commission (the
"SEC"). Accordingly, these consolidated financial statements do not include
all
of the footnotes required by accounting principles generally accepted in the
United States of America. In management’s opinion, all adjustments (consisting
of normal and recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three months ended
September 30, 2007 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2007.
The
accompanying unaudited consolidated financial statements, as of September 30,
2007 and for the period March 9, 2007 (date of inception) through September
30,
2007, are those of Renewal Fuels, Inc., the Successor. The statements of
operations and of cash flows for the three months ended March 31, 2007 and
for
the three and nine months ended September 30, 2006 are those of the FuelMeister
Business, our Predecessor.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Accounting
Policies
We
have
generally adopted the accounting policies of the Predecessor. Unless
specifically stated, the accounting policies described below are the accounting
policies of both the Successor and the Predecessor, which do not differ during
all periods presented.
Principles
of Consolidation
Successor
The
consolidated financial statements include the accounts of Renewal Fuels, Inc.
(“Renewal”) from April 20, 2007, the date of the reverse merger between Renewal
and its wholly owned subsidiary Renewal Biodiesel, Inc. (“Renewal Biodiesel”),
the accounts of Renewal Biodiesel from March 9, 2007, the date that Renewal
Biodiesel was incorporated and the accounts of Biodiesel Solutions, Inc. (“BSI”)
from July 2, 2007, the date of its acquisition. All inter-company accounts
and
transactions have been eliminated in consolidation.
Predecessor
The
accompanying financial statements of the FuelMeister business (the “FuelMeister
Business” or the “Predecessor”, a carve-out business of Biodiesel Solutions,
Inc. and a predecessor business of Renewal Biodiesel, which carve-out business
was acquired by Renewal Biodiesel on March 30, 2007), are presented on a
carved-out basis as if it had been an independent reporting entity for the
periods presented. Certain revenue and expenses of Biodiesel have been allocated
by management between the FuelMeister Business and the operations retained
by
Biodiesel, based either on specific attribution of those revenues and expenses
or, where necessary and appropriate, based on management’s best estimate of an
appropriate allocation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods
presented. Estimates that are critical to the accompanying financial statements
arise from our belief that we will secure an adequate amount of cash to continue
as a going concern, and that all long-lived assets and inventories are
recoverable. The markets for our products are characterized by intense
competition, rapid technological development, evolving standards and short
product life cycles, all of which could impact the future realization of our
assets. Estimates and assumptions are reviewed periodically and the effects
of
revisions are reflected in the period that they are determined to be necessary.
It is at least reasonably possible that our estimates could change in the near
term with respect to these matters.
Revenue
Recognition
Revenue
from equipment and parts and accessories sales are generally recognized at
the
date of shipment and revenue from services is recognized when the services
are
performed and all substantial contractual obligations have been
satisfied.
Our
revenue recognition policy is consistent with the criteria set forth in SEC
Staff Accounting Bulletin 104, “Revenue Recognition in Financial Statements”
(“SAB 104”) for determining when revenue is realized or realizable and earned.
In accordance with the requirements of SAB 104, we recognize revenue when (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
our
price to the buyer is fixed or determinable and (4) collectibility of the
receivables is reasonably assured.
Product
Warranties
At
the
time a sale is recognized, the company records the estimated future warranty
costs. These costs are estimated based on historical warranty claims. For the
current period we used the historical warranty experience of the Predecessor
company. Warranty provisions are included as a component of cost of
sales.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts is evaluated on a regular basis and adjusted
based upon management's best estimate of probable losses inherent in
receivables, based on historical experience, including the historical loss
experience of the Predecessor. Receivables are determined to be past due if
they
have not been paid by the payment due dates. Debts are written off against
the
allowance when deemed to be uncollectible. Subsequent recoveries, if any, are
credited to the allowance when received.
Cash
and Cash Equivalents
We
consider all highly liquid instruments purchased with an original maturity
of
three months or less to be cash equivalents.
Inventories
Inventories
are stated at the lower of cost or market with cost determined using a first-in,
first-out basis. At September 30, 2007, inventories consisted of inventory
and
displays amounting to $45,749 and $1,533, respectively.
Inventory
Obsolescence
We
evaluate our inventory for excess and obsolescence on a quarterly basis. In
preparing our evaluation, we look at the expected demand for our products for
the next six to twelve months in order to determine whether or not such raw
materials, WIP and finished goods require a change in the inventory reserve
in
order to record the inventory at net realizable value. After discussions with
the senior management team, a reserve is established so that inventory is
appropriately stated at the lower of cost or net realizable value.
Property
and Equipment
Property
and equipment are stated at cost. Major additions are capitalized, while minor
additions and maintenance and repairs, which do not extend the useful life
of an
asset, are expensed as incurred. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the respective
assets, which range from 3 to 10 years.
We
evaluate the carrying value of property and equipment when events and
circumstances warrant such a review. If the carrying values of the assets are
considered to be impaired, a loss is recognized based on the amount by which
the
carrying value exceeds the fair market value of the asset. We have not
experienced any impairment of our property and equipment.
Intangible
Assets
Intangible
assets, consisting primarily of customer lists, engineering drawings and other
intangibles acquired as part of the acquisition of the FuelMeister Business
and
of BSI, are amortized over their estimated useful lives, which range from 1
to
15 years.
Stock-Based
Compensation
In
accordance with Financial Accounting Standards Board Statement No. 123 (“FAS 123
(Revised)”),
Share-Based Payments
, we
account for equity instruments issued to employees for services based on the
fair value of the equity instruments issued, and account for equity instruments
issued to those other than employees based on the fair value of the
consideration received, or the fair value of the equity instruments, whichever
is more readily measurable. We anticipate that the shares issued upon exercise
of any stock option would be obtained from our authorized and unissued
shares.
Derivative
Instruments and Beneficial Conversion Features
We
do not
use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
We
review
the terms of convertible debt and equity instruments we issue to determine
whether there are embedded derivative instruments, including the embedded
conversion option, that are required to be bifurcated and accounted for
separately as a derivative financial instrument. When the ability to physical
or
net-share settle the conversion option is deemed to be not within the control
of
the company, the embedded conversion option may be required to be accounted
for
as a derivative financial instrument liability. In circumstances where the
convertible instrument contains more than one embedded derivative instrument,
including the conversion option, that is required to be bifurcated, the
bifurcated derivative instruments are accounted for as a single, compound
derivative instrument. In connection with the sale of convertible debt and
equity instruments, we may also issue freestanding options or warrants. We
may
also issue options or warrants to non-employees in connection with consulting
or
other services they provide. Depending on their terms, these options and
warrants may be accounted for as derivative instrument liabilities, rather
than
as equity.
Certain
instruments, including convertible debt and equity instruments and the
freestanding options and warrants issued in connection with those convertible
instruments, may be subject to registration rights agreements, which impose
penalties for failure to register the underlying common stock by a defined
date.
These potential cash penalties are accounted for in accordance with FAS No.
5,
Accounting for Contingencies.
When
the
embedded conversion option in a convertible debt instrument is not required
to
be bifurcated and accounted for separately as a derivative instrument, we review
the terms of the instrument to determine whether it is necessary to record
a
beneficial conversion feature, in accordance with EITF Issues 98-05 and 00-27.
When the effective conversion rate of the instrument at the time it is issued
is
less than the fair value of the common stock into which it is convertible,
we
recognize a beneficial conversion feature, which is credited to equity and
reduces the initial carrying value of the instrument.
When
convertible debt is initially recorded at less than its face value as a result
of allocating some or all of the proceeds received to derivative instrument
liabilities, to a beneficial conversion feature or to other instruments, the
discount from the face amount, together with the stated interest on the
convertible debt, is amortized over the life of the instrument through periodic
charges to income, using the effective interest method.
Registration
Payment Arrangements
Certain
instruments, including convertible debt and equity instruments and the
freestanding options and warrants issued in connection with those convertible
instruments, are subject to registration rights agreements, which impose
penalties for our failure to register the underlying common stock by a defined
date. These potential cash penalties, which are referred to as registration
payment arrangements, are recorded when payments are both probable and
reasonably estimable, in accordance with FAS No. 5,
Accounting
for Contingencies.
As
of
September 30, 2007 we are in default of certain registration rights agreements
and the investors had certain rights to demand payments. However, the investors
have not demanded payment, nor have they indicated that they will demand
payment. After consultation with investors and other actions we considered
necessary, we have concluded that the probability of payment has not risen
to a
level that would require an accrual. Further, on November 13, 2007, we obtained
an agreement with the investors wherein they explicitly waived their rights
to
any payments that they may otherwise be entitled to as of that date. Such rights
were not waived as to periods subsequent to November 13, 2007 and, accordingly,
we will continue to evaluate the need to accrue payments in future periods
until
all of our obligations under the registration rights agreements have been
fulfilled. (See Note 7-Long Term Debt for additional information.)
Research
and Development Costs
Research
and development costs related to product development are expensed as incurred.
The only such costs incurred during the periods covered by these financial
statements were the purchased “in process research & development costs”
incurred in the acquisition of BSI in the amount of $3,140,000 as discussed
in
Note 2.
Advertising
Costs
Advertising
costs are expensed as incurred. For the three months ended September 30, 2007
and the period from March 9, 2007 (date of inception) to September 30, 2007,
advertising costs were $96,188 and $140,171, respectively.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Shipping
and Handling Costs
Shipping
and handling costs are reported as a component of cost of sales.
Net
Income (Loss) Per Share
We
compute net income (loss) per share in accordance with FAS No. 128,
Earnings per Share
(“FAS
128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions
of FAS 128 and SAB 98, basic net income (loss) per share is computed by dividing
the net income (loss) available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed by dividing the net loss for the period
by the number of common and common equivalent shares outstanding during the
period. Because of our net losses in 2007, none of these common stock equivalent
shares are dilutive; accordingly basic and diluted net loss per share are
identical for each of the periods in the accompanying statements of
operations.
Income
Taxes
Successor
We
account for income taxes under the liability method, in accordance with FAS
No.
109,
Accounting for Income Taxes
.
Under
the liability method of FAS 109, deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory rates
applicable to future years to differences between the tax bases of assets and
liabilities and their financial statement carrying amounts. Also, the effect
on
deferred taxes of a change in tax rates is recognized in income in the period
that included the enactment date.
Predecessor
Through
December 31, 2006, the Predecessor’s stockholder elected under the Internal
Revenue Code to be taxed as an S Corporation. In lieu of corporate income taxes,
the stockholders of S Corporations are taxed on their proportionate share of
a
company’s taxable income. Accordingly, no provision or liability for federal
income taxes has been included in the accompanying Predecessor financial
statements.
Effective
January 1, 2007, and in connection with the amendment and restatement of the
Predecessor’s articles of incorporation, the Predecessor became a C corporation
and therefore became subject to income taxes. From January 1, 2007, the
Predecessor accounted for income taxes under the liability method. The
Predecessor’s financial statements do not include a pro forma provision for
income taxes (as if it were a C corporation for the periods presented) in
accordance with FAS 109, because the overall provision (benefit) for all periods
presented would have been zero as (1) any current income taxes due would have
been reduced to zero through a deferred income tax benefit (as a result of
a
carry forward of prior year net operating losses) and because (2) the net
deferred income tax assets arising from the remaining net operating loss
carryforwards and other temporary differences existing at March 31, 2007 would
have been fully reserved by a valuation allowance.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Impact
of Recently Issued Accounting Pronouncements
The
Financial Accounting Standards Board has recently issued several Financial
Accounting Standards, as summarized below. None of these statements have had,
or
are expected to have, a significant effect on our financial
statements.
Issued
|
|
Statement
|
|
|
|
February
2006
|
|
FAS
155 - “Accounting for Certain Hybrid Financial Instruments; an amendment
of Financial Accounting Standard Nos. 133 and 140"
|
|
|
|
March
2006
|
|
FAS
156 - “Accounting for Servicing of Financial Assets, an amendment of FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities”
|
|
|
|
June
2006
|
|
FAS
Interpretation 48 - "Accounting for Uncertainty in Income
Taxes"
|
|
|
|
September
2006
|
|
FAS
157 - “Fair Value Measurements”
|
|
|
|
September
2006
|
|
FAS
158 - “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans” - an amendment of FASB Statements No. 87, 88, 106,
and 132(R)”
|
|
|
|
February
2007
|
|
FAS
159 - “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No.
115”
|
NOTE
4 FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
We
believe the book value of our cash, accounts payable and accrued expenses
approximates their fair values due to their short-term
nature.
We
sell
products to value added distributors and other customers and generally require
payment in advance or at the time of sale. Periodically, we extend credit based
on an evaluation of the customer's financial condition, generally without
requiring collateral. Our terms for our accounts receivable are generally net
30
days. As such, exposure to losses on receivables is principally dependent on
each customer's financial condition. We monitor our exposure to credit
losses and maintain allowances for any anticipated losses. At September
30, 2007, we did not have any accounts receivable. Our ability to collect
receivables arising in the future may be affected by economic
fluctuations.
We
maintain all of our cash in deposit accounts with one financial institution,
which deposit accounts at times may exceed federally insured limits. We have
not
experienced any losses in such accounts.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
NOTE
5 PROPERTY AND EQUIPMENT
At
September 30, 2007, property and equipment consists of the
following:
Computer
equipment and software
|
|
$
|
39,929
|
|
Production
and shop equipment
|
|
|
64,061
|
|
Vehicles
|
|
|
3,303
|
|
Tenant
Improvements
|
|
|
12,810
|
|
Greenhouses
and improvements
|
|
|
64,247
|
|
Office
furniture and equipment
|
|
|
15,878
|
|
Website
domain
|
|
|
50,150
|
|
|
|
|
250,378
|
|
Less
accumulated depreciation and amortization
|
|
|
9,392
|
|
Property
and equipment - net
|
|
$
|
240,986
|
|
Depreciation
expense of $8,163 and $9,392, respectively, for the three month period ended
September 30, 2007 and for the period from March 9, 2007 (Inception) to
September 30 2007, respectively, is included in other operating expenses in
the
accompanying consolidated statements of operations.
NOTE
6
INTANGIBLE
ASSETS
The
following table summarizes amortized and unamortized intangible
assets:
|
|
As of September 30, 2007
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
|
|
|
|
|
|
Amortized
Intangible Assets:
|
|
|
|
|
|
|
|
Customer
lists
|
|
$
|
70,000
|
|
$
|
2,333
|
|
$
|
67,667
|
|
Engineering
drawings
|
|
|
70,000
|
|
|
7,000
|
|
|
63,000
|
|
Non-compete
agreement
|
|
|
146,000
|
|
|
27,938
|
|
|
118,062
|
|
Trade
name
|
|
|
118,000
|
|
|
5,900
|
|
|
112,100
|
|
Patent
application
|
|
|
3,000
|
|
|
1,500
|
|
|
1,500
|
|
Employment
agreements
|
|
|
114,000
|
|
|
14,036
|
|
|
99,964
|
|
|
|
$
|
521,000
|
|
$
|
58,707
|
|
$
|
462,293
|
|
Unamortized
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
323,684
|
|
|
|
|
|
|
|
Aggregate
Amortization Expense:
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended September 30, 2007
|
|
$
|
58,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Amortization Expense:
|
|
|
|
|
|
|
|
|
|
|
Quarter
ending December 31, 2007
|
|
|
|
|
|
|
|
$
|
44,918
|
|
Year
ending December 31, 2008
|
|
|
|
|
|
|
|
|
177,975
|
|
Year
ending December 31, 2009
|
|
|
|
|
|
|
|
|
64,834
|
|
Year
ending December 31, 2010
|
|
|
|
|
|
|
|
|
30,467
|
|
Year
ending December 31, 2011
|
|
|
|
|
|
|
|
|
30,467
|
|
Year
ending December 31, 2012
|
|
|
|
|
|
|
|
|
19,967
|
|
Thereafter
|
|
|
|
|
|
|
|
|
93,665
|
|
|
|
|
|
|
|
|
|
$
|
462,293
|
|
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Amortized
intangible assets acquired during the period ended September 30, 2007 have
a
weighted-average amortization period of 4.0 years.
NOTE
7
LONG-TERM
DEBT
At
September 30, 2007, long-term debt consists of the following:
New
Obligations:
|
|
|
|
YA
Global Investments, L.P., $1,000,000 convertible debenture, due
April 20,
2009, including interest at prime + 2.75% (11% at September 30,
2007)
|
|
$
|
1,048,945
|
|
Less
unamortized discount from warrants and beneficial conversion
feature
|
|
|
(372,825
|
)
|
|
|
|
676,120
|
|
|
|
|
|
|
YA
Global Investments, L.P.,, $400,000 convertible debenture, due
May 31,
2009, including interest at prime + 2.75% (11% at September 30,
2007)
|
|
|
414,515
|
|
Less
unamortized discount from beneficial conversion feature
|
|
|
(400,000
|
)
|
|
|
|
14,515
|
|
YA
Global Investments, L.P., $2,000,000 convertible debenture, due
July 2,
2009, including interest at prime + 2.75% (11% at September 30,
2007)
|
|
|
2,053,890
|
|
Less
unamortized discount from warrants and beneficial conversion
feature
|
|
|
(1,396,038
|
)
|
|
|
|
657,852
|
|
Prior
Obligations (in default):
|
|
|
|
|
Montgomery
Equity Partners, Ltd., $322,220 15% convertible debenture, due
on demand,
including accrued interest of $140,722
|
|
|
462,942
|
|
|
|
|
|
|
Montgomery
Equity Partners, Ltd., $300,000 15% convertible debenture, due
on demand,
including accrued interest of $79,027
|
|
|
379,027
|
|
|
|
|
|
|
LH
Financial, $156,080 18% convertible promissory note, due on demand,
including accrued interest of $101,577
|
|
|
257,657
|
|
|
|
|
|
|
|
|
|
2,448,113
|
|
|
|
|
|
|
Less:
prior obligations in default classified as current
|
|
|
1,099,626
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
1,348,487
|
|
New
Obligations
On
April
20, 2007, the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement") with YA Global providing for the sale by the Company
to YA
Global of its secured convertible debentures in the aggregate principal amount
of $1,400,000 (the "New Debentures") of which $1,000,000 was advanced
immediately. The second installment of $400,000 was funded on May 31, 2007,
following clearance by the Securities and Exchange Commission (the “SEC”) of an
information statement disclosing shareholder approval of the issuance of the
Preferred Stock to the former shareholders of Renewal Biodiesel.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
The
New
Debentures bear interest at the prime rate plus 2.75% (but not less than 10%)
and mature on April 20, 2009 and May 31, 2009 (the "Maturity Dates"). The
Company is not required to make any payments until the Maturity Dates. The
holder of the New Debentures (the "Holder") may convert at any time principal
amounts outstanding under the New Debentures into shares of common stock of
the
Company at a conversion price per share equal to the lower of (a) $0.60 or
(b)
80% of the lowest closing bid price of the common stock during the ten trading
days immediately preceding the conversion date. The Company has the right to
redeem a portion or all amounts outstanding under the New Debentures prior
to
the Maturity Dates at a 15% redemption premium provided that (i) the closing
bid
price of the common stock is less than the fixed conversion price of the New
Debentures; (ii) the underlying shares are subject to an effective registration
statement; and (iii) no event of default has occurred and is continuing. The
New
Debentures contain standard anti-dilution adjustments for stock splits and
similar events. In the event that the Company sells or otherwise issues common
stock at a price below the current conversion price, the fixed conversion price
will be reduced to such lower price. If an Event of Default occurs, as defined
in the New Debentures, the holder may demand immediate repayment of all amounts
due under the New Debentures. In addition to non-payment of principal or
interest when due, defaults under other obligations and bankruptcy or similar
events, the Events of Default include a Change in Control of the Company, the
Company’s failure to file, achieve or maintain effectiveness of the required
registration statement (see below) if registration has been demanded by the
Holder of the New Debentures, and the failure to maintain the listing of the
Company’s common stock on a recognized exchange. Certain of these Events may
constitute derivative instruments. When the risks and rewards of such derivative
instruments are not clearly and closely related to the risks and rewards
associated with the New Debentures, the effect of these Events is considered
in
valuing any compound derivative instrument that may be bifurcated from the
New
Debentures.
The
obligations to YA Global, together with prior obligations to YA Global described
below, are secured by a security interest in the Company’s assets, including its
intellectual property. In addition, the Company pledged the shares of Renewal
Biodiesel to YA Global as additional security for the obligations to YA
Global.
Under
the
Purchase Agreement, the Company also issued to YA Global five-year warrants
to
purchase 1,200,000 shares of common stock at an exercise price of $0.15 per
share. The warrants were valued at $238,932 using the Cox-Ross-Rubenstein
binomial model, based on the market price at the time they were issued of
$0.2265, estimated volatility of 123%, a risk free rate of 4.75% and the five
year life of the warrants.
In
connection with the Purchase Agreement, the Company also entered into a
registration rights agreement with YA Global (the "Registration Rights
Agreement") providing for the filing of a registration statement (the
"Registration Statement") with the SEC registering the common stock issuable
upon conversion of the New Debentures and exercise of the warrants. Upon written
demand from the Holder, the Company is obligated to file a Registration
Statement within 45 days of such demand and to use its best efforts to cause
the
Registration Statement to be declared effective no later than 150 days following
receipt of such demand. The Company is also required to ensure that the
Registration Statement remains in effect until all of the shares of common
stock
issuable upon conversion of the New Debentures and exercise of the warrants
have
been sold or may be sold without volume restrictions pursuant to Rule 144(k)
promulgated by the SEC. In the event of a default of its obligations under
the
Registration Rights Agreement, including its agreement with respect to the
filing and effectiveness dates for the Registration Statement, the Company
is
required to pay to YA Global, as liquidated damages, for each thirty day period
that the Registration Statement has not been filed or declared effective, as
the
case may be, a cash amount equal to 2% of the face amount of the Debentures,
not
to exceed 24%. As of November 14, 2007, no demand for registration has been
received by the Company.
On
July
2, 2007, the Company entered into an additional Securities Purchase Agreement
(the "Additional Purchase Agreement") with YA Global providing for the sale
by
the Company to YA Global of its secured convertible debentures in the aggregate
principal amount of $2,700,000 (the "Additional Debentures") of which $2,000,000
was advanced immediately. The second installment of $700,000 will be funded
within two business days after the Company has unconditionally booked and
received at least a 50% deposit for the sale of at least one BiodieselMaster®
unit.
The
interest rate, repayment terms, conversion rights, conversion price,
anti-dilution provisions, redemption provisions, events of default and
registration requirements of the Additional Debentures are identical to those
of
the New Debentures described above, except that the fixed element of the
conversion price is $0.75, not $0.60.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
The
obligations to YA Global, together with prior obligations to YA Global, are
secured by a security interest in the Company’s assets and the assets of its
subsidiaries, including their intellectual property. In addition, the Company
pledged the shares of BSI to YA Global as additional security for the
obligations to YA Global.
Under
the
Additional Purchase Agreement, the Company also issued to YA Global five-year
warrants to purchase 2,250,000 shares of common stock at an exercise price
of
$0.90 per share. The warrants were valued at $1,104,405 using the
Cox-Ross-Rubenstein binomial model, based on the market price at the time they
were issued of $0.60, estimated volatility of 123%, a risk free rate of 4.90%
and the five year life of the warrants.
Prior
Obligations (in default)
On
April
20, 2007, as part of the net liabilities assumed on the reverse merger, the
Company assumed certain existing obligations to YA Global and other entities.
These obligations included two existing 15% convertible debenture obligations
dated December 27, 2005 due to Montgomery Equity Partners, Ltd, an affiliate
of
YA Global (the “Old Debentures”), in the face amounts of $537,220 and $300,000,
together with accrued interest at April 20, 2007 of $105,310 and $58,808,
respectively. The Old Debentures were due on December 27, 2006 and, accordingly,
are in default for non-payment of principal and interest. In connection with
one
of these Old Debentures, the Company previously issued warrants to purchase
6,667 shares of common stock at an exercise price of $0.015 per share. As
amended on May 31, 2007, the Old Debentures are convertible into shares of
common stock at a conversion price per share equal to the lesser of (a) $0.60
or
(b) 80% of the lowest closing bid price of the common stock during the ten
trading days immediately preceding the conversion date.
In
connection with these Old Debentures, the Company was obligated to file a
Registration Statement with the SEC, registering the shares issuable on
conversion of the Old Debentures and the Old Warrants. The Company did not
file
the required registration statement (which was required to be filed by March
27,
2006 and effective by May 26, 2006). As a result, under the terms of the Old
Debentures, the Company was required to pay to YA Global, as liquidated damages,
for each thirty day period that the Registration Statement has not been filed
or
declared effective, as the case may be, a cash amount equal to 2% of the face
amount of the Old Debentures. However, recognition of damages is subject to
consideration of both the probability of incurring damages and whether amounts
are estimable. Based upon direct dialog, and as further discussed in the next
paragraph, the Company did not record damages in any of the periods
presented.
On
November 13, 2007, the Company confirmed its conclusions related to
non-recognition of liquidated damages that could arise from registration rights
afforded investors of the Prior Obligations, in default, described in Note
7,
and obtained a formal waiver of any amounts due under those arrangements through
the date of the waiver. The waiver does not extend to periods beyond the
effective date and, accordingly, those investors may acquire rights to
liquidated damages in future periods. As provided in the Company’s policies for
accounting for registration payment arrangements, continuous evaluation of
the
probability of incurring damages is required and will be performed
periodically.
The
Company also assumed the remaining portions of a convertible promissory note
that was originally issued in 2000. A portion of the note is held by YA Global
and a portion is held by entities associated with LH Financial. The notes are
convertible into shares of common stock at a conversion price per share equal
to
85% of the average of the five lowest closing bid prices of the common stock
during the 22 trading days immediately preceding the conversion date. During
the
period April 21, 2007 to September 30, 2007, YA Global converted their entire
principal amount of $168,000 plus all accrued interest thereon of $61,000 into
574,807 common shares.
On
September 21, 2007, YA Global converted $215,000 of the $537,220 principal
amount of the Old Debentures held by it into 1,343,750 shares of common stock
at
$0.16 per share (the lesser of $0.60 or 80% of the lowest closing bid price
of
the common stock during the ten trading days immediately preceding the
conversion date, which was $0.20). These shares were issued by the transfer
agent on October 5, 2007. As of November 14, 2007, there have been no
conversions of convertible debentures subsequent to September 30,
2007.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
The
remaining Prior Obligations as of September 30, 2007 are in default for
non-payment of principal and interest when such amounts became due. The
investors rights under these circumstances provide for acceleration (or
post-maturity date, demand payment) in cash at the face value plus accrued
interest or shares, based upon the contractual conversion option embedded in
the
arrangements. On November 13, 2007, the Company received a waiver of default
remedies under the remaining Prior Obligations that was effective for periods
through that date. The waiver does not extend to periods subsequent to November
13, 2007. While the investors have not indicated their intention to call the
Prior Obligations, they have the right to do so and, accordingly, the Company
is
required to carry these obligations as current liabilities until receipt of
a
waiver that is effective for a period beyond a year or the settlement of the
arrangement through payment or conversion.
Derivative
Instrument Liabilities and Beneficial Conversion Feature
In
accounting for the Convertible Debentures and the associated Warrants, the
Company has considered the requirements of EITF Issue 00-19, "Accounting for
Derivative Financial Instruments Indexed To, and Potentially Settled In, a
Company's Own Common Stock". Because the number of shares that may be required
to be issued on conversion of the Convertible Debentures is dependent on the
price of the Company’s common stock, the number of shares ultimately required is
indeterminate. However, full conversion of the outstanding Convertible
Debentures and exercise of outstanding Warrants, together with currently
outstanding common stock and all other currently existing requirements to issue
common stock, require the Company to have approximately 52 million common shares
authorized. The Company is authorized to issue 3 billion common shares. As
a
result, management of the Company believes it will have sufficient authorized
shares available to physically settle all contracts that currently require
delivery of common shares. Furthermore, management of the Company, together
with
investors associated with management, control a majority of the outstanding
common shares of the Company. Accordingly, management of the Company believes
it
is in a position to secure shareholder approval of an increase in the authorized
number of shares, should such an increase be required in the future. As a result
of management’s conclusion that it will have sufficient authorized shares
available to settle all outstanding contracts requiring delivery of common
shares, the conversion option embedded in the Convertible Debentures has not
been bifurcated and the Warrants issued in connection with the Convertible
Debentures have been accounted for as equity instruments.
The
Company has also reviewed the terms of the Convertible Debentures to determine
whether there are embedded derivative instruments, other than the conversion
option, that may be required to be bifurcated and accounted for separately
as
derivative instrument liabilities. Certain events of default associated with
the
Convertible Debentures, including failure to effect or maintain registration
when required, the failure to maintain the listing of the Company’s common stock
on a recognized exchange and similar events, have risks and rewards that are
not
clearly and closely associated with the risks and rewards of the debt
instruments in which they are embedded. However, events of default serve only
to
permit the holder to demand repayment and do not require the Company to pay
any
premium on default. Accordingly, these embedded derivative instruments are
considered to have minimal, if any, value.
If
the
conversion option embedded in the Convertible Debentures has not been
bifurcated, then if the effective conversion price for a Convertible Debenture
is less than the market value of the underlying shares at the time the debenture
is issued (usually as a result of the allocation of part of the proceeds
received to common stock warrants or other instruments), the Company recognizes
a beneficial conversion feature in accordance with EITF Issues 98-05 and 00-27.
The value of the beneficial conversion feature, which is credited to additional
paid-in capital, reduces the initial carrying amount of the debenture. During
the period ended June 30, 2007 and the three months ended September 30, 2007,
the Company recorded beneficial conversion features aggregating $923,841 and
$348,287, respectively.
The
discount from the face amount of the Convertible Debentures represented by
the
value initially assigned to any associated Warrants and to any beneficial
conversion feature is amortized over the period to the due date of each
Convertible Debenture, using the effective interest method. Included in the
beneficial conversion feature of $923,841 recorded during the period ended
June
30, 2007 was $333,574 related to debentures assumed by the Company on the
reverse merger described in Note 2. Because those debentures are past due,
the
discount from the face amount of the debentures was immediately expensed and
is
included in interest expense for the period.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
For
warrants and option-based derivative instruments, the Company estimates fair
value using the Cox-Ross-Rubinstein binomial valuation model, based on the
market price of the common stock on the valuation date, an expected dividend
yield of 0%, a risk-free interest rate based on constant maturity rates
published by the U.S. Federal Reserve applicable to the remaining term of the
instruments (which rates ranged from 4.57% to 4.9%), and an expected life equal
to the remaining term of the instruments. Because of the limited historical
trading period of our common stock, the expected volatility of our common stock
over the remaining life of the conversion options and Warrants was estimated
at
123%, based on a review of the volatility of entities considered by management
as most comparable to our business.
NOTE
8
LEASE
COMMITMENTS
Prior
to
the acquisition of BSI on July 2, 2007, the Company leased operating space
and
other services from BSI and, subsequent to the acquisition, has continued to
operate from the 30,000 square foot facility leased by BSI. The BSI lease is
accounted for as an operating lease, expires on October 31, 2008 and requires
payments of approximately $11,000 per month, plus a share of operating costs
estimated to be $3,000 per month.
NOTE
9
STOCKHOLDERS’
EQUITY
The
authorized capital stock of the Company is 3,020,000,000 shares, consisting
of
3,000,000,000 shares of Common Stock, par value $0.001 per shares and 20,000,000
shares of Preferred Stock, par value $0.001 per share.
The
Board
of Directors is authorized to divide the 20,000,000 shares of Preferred Stock
into one or more series, and to determine for each such series its designation,
the number of shares of such series, the powers, preferences and rights and
the
qualifications, limitations or restrictions for the shares of such
series.
Common
Stock
Holders
of the Company’s common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of the Company’s common stock representing a majority of the
voting power of the Company’s capital stock issued, outstanding and entitled to
vote, represented in person or by proxy, are necessary to constitute a quorum
at
any meeting of stockholders. A vote by the holders of a majority of the
Company’s outstanding shares is required to effectuate certain fundamental
corporate changes such as liquidation, merger or an amendment to the Company’s
articles of incorporation. Additionally, holders of the Company’s common
stock are entitled to share in all dividends that the Board of Directors, in
its
discretion, declares from legally available funds. In the event of liquidation,
dissolution or winding up, each outstanding share entitles its holder to
participate pro rata in all assets that remain after payment of liabilities
and
after providing for each class of stock, if any, having preference over the
common stock. The Company’s common stock has no pre-emptive rights, no
conversion rights and there are no redemption provisions applicable to the
Company’s common stock.
On
March
09, 2007, immediately prior to the reorganization, which was accounted for
as a
reverse merger and recapitalization, Renewal Biodiesel issued shares of its
common stock to 23 accredited investors for an aggregate consideration of
$57,279. Additionally, the fair value of the common stock issued to the
shareholders of Renewal Biodiesel, was estimated to be $0.2265 per share, based
on the trading price of our common stock immediately prior to the reorganization
and reverse merger. The difference between the fair value of the shares issued
and the amount paid by the shareholders of Renewal Biodiesel for their shares
resulted in an immediate non-cash expense of $5,131,231.
On
April
20, 2007, free standing warrants, with a fair value of $238,932 were issued
in
conjunction with a convertible debenture as discussed in Note 7. Additionally,
the beneficial conversion feature for this convertible debenture in the amount
of $238,932 and prior obligations in the amount of $923,841 were
recorded.
During
May and June, 2006, $82,900 of the Company’s convertible debentures were
converted into 224,447 shares at a per share price ranging between $0.192 and
$0.501, calculated at the average five lowest bid prices in the twenty two
days
preceding the notice of conversion.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
On
June
21, 2007 all of the holders converted 343,610 shares of Series A Convertible
Preferred Stock into 22,907,323 shares of the Company’s common
stock.
On
July
2, 2007, in conjunction with the acquisition of BSI, 3,333,333 shares of the
Company’s common stock , with a fair value of $0.60, were issued as discussed in
Note 2. Additionally, 96,400 Common Stock options, not part of the Company’s
employee stock option plan, were granted to BSI employees in connection with
the
acquisition. These options were valued at $48,181, using the Cox-Ross-Rubinstein
binomial model, based on an expected term of 3 years, an estimated volatility
of
123% and a risk-free rate of 4.90%
On
July
2, 2007, freestanding warrants, with a fair value of $1,104,405 were issued
in
conjunction with a convertible debenture as discussed in Note 7. Additionally,
the beneficial conversion feature for this convertible debenture in the amount
of $348,287 was recorded.
On
July
12 and July 13, 2007, $146,100 of the Company’s convertible debentures were
converted into 350,360 shares at a per share price of $0.417, calculated at
the
average five lowest bid prices in the twenty two days preceding the notice
of
conversion.
On
July
31, 2007, in conjunction with the 1-for-15 reverse stock split, $68 was paid
out
in lieu of 114 fractional shares.
On
September 21, 2007, $215,000 of the Company’s convertible debentures were
converted into 1,343,750 shares at a per share price of $0.16 (calculated at
the
lower of $0.60 or 80% of the lowest bid price of the common stock during the
ten
trading days immediately preceding the conversion date, which was $0.20). The
conversion was completed by the transfer agent on October 5, 2007.
Preferred
Stock
Holders
of the Company’s Preferred Stock are entitled to one vote for each share on all
matters submitted to a preferred stockholder vote. Holders do not have a right
to vote with the common stockholders. Holders of Preferred Stock do not have
cumulative voting rights. Holders of the Company’s Preferred Stock representing
a majority of the voting power of the Company’s Preferred Stock issued,
outstanding and entitled to vote, represented in person or by proxy, are
necessary to constitute a quorum at any meeting of Preferred stockholders.
Holders of the Company’s Preferred Stock are entitled to share in all dividends
that the Board of Directors, in its discretion, declares from legally available
funds.
The
Board
of Directors previously designated 343,610 shares as Series A Convertible
Preferred Stock. These shares were issued in exchange for the acquisition of
Renewal Biodiesel, as described in Notes 1 and 2 and were subsequently converted
into shares of the Company’s Common Stock on June 21, 2007.
On
July
2, 2007, in conjunction with the acquisition of BSI, the former shareholders
of
BSI were issued an aggregate of 1,000,000 shares of a new BSI Series B
convertible preferred stock (the “BSI Preferred Stock”). The BSI Preferred Stock
is immediately convertible at the option of the holders into common stock of
the
Company at a conversion price equal to the greater of (i) $0.75, or (ii) the
average closing price of the common stock during the ten trading days
immediately preceding the conversion date.
NOTE
10
STOCK
OPTION PLANS
On
July
10, 2007, the majority stockholders approved the 2007 Stock Incentive Stock
Plan
(the "2007 Incentive Plan") and authorized 1,000,000 shares of common stock
for
issuance of stock awards and stock options thereunder. As of November 14, 2007,
no stock awards or stock options have been issued under the 2007 Incentive
Plan.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Under
the
2007 Incentive Plan, options may be granted which are intended to qualify as
Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue
Code
of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as
Incentive Stock Options thereunder. The primary purpose of the 2007 Incentive
Plan is to attract and retain the best available personnel for the Company
by
granting stock awards and stock options in order to promote the success of
the
Company's business and to facilitate the ownership of the Company's stock by
employees. The 2007 Incentive Plan will be administered by the Company's Board
of Directors, as the Board of Directors may be composed from time to
time.
Under
the
2007 Incentive Plan, stock awards and options may be granted to key employees,
officers, directors or consultants of the Company. The purchase price of the
common shares subject to each ISO shall not be less than the fair market value
(as set forth in the 2007 Incentive Plan), or in the case of the grant of an
ISO
to a Principal Stockholder, not less that 110% of fair market value of such
common shares at the time such Option is granted. The purchase price of the
common shares subject to each Non-ISO shall be determined at the time such
Option is granted, but in no case less than 85% of the fair market value of
such
common shares at the time such Option is granted.
The
following table summarizes information concerning all options and warrants
at
September 30, 2007:
|
|
Stock Options
|
|
Warrants
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
Average Exercise Price
|
|
Average Exercise Price
|
|
|
|
|
|
|
|
Shares
|
|
Per Share
|
|
Shares
|
|
Per Share
|
|
Total
|
|
Exercisable
|
|
Balance
at 03/09/2007 (Inception):
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
96,400
|
|
$
|
0.750
|
|
|
3,553,667
|
|
$
|
0.590
|
|
|
3,456,667
|
|
|
3,456,667
|
|
Excercised
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Balance
at 06/30/2007:
|
|
|
96,400
|
|
$
|
0.750
|
|
|
3,553,667
|
|
$
|
0.590
|
|
|
3,553,067
|
|
|
1,230,767
|
|
The
following table summarizes information concerning options and warrants
outstanding and excercisable at September 30,
2007:
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Weighted
|
|
Number
|
|
Average
|
|
Number
|
|
Exercise
|
|
|
|
Average
|
|
of
|
|
Exercise
|
|
of
|
|
Price Per
|
|
Range of Exercise Prices
|
|
Remaining Life
|
|
Options
|
|
Price Per Share
|
|
Options
|
|
Share
|
|
$0.750
|
|
|
4.75
|
|
|
96,400
|
|
$
|
0.750
|
|
|
24,100
|
|
$
|
0.750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.750
|
|
|
4.75
|
|
|
96,400
|
|
$
|
0.750
|
|
|
24,100
|
|
$
|
0.750
|
|
|
|
|
|
Warrants
Outstanding
|
|
Warrants
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
Remaining
|
|
Number
of
|
|
Exercise
Price
Per
|
|
Number
of
|
|
Exercise
Price
Per
|
|
Range
of Exercise Prices
|
|
Life
|
|
Warrants
|
|
Share
|
|
Warrants
|
|
Share
|
|
$0.015
|
|
|
4.75
|
|
|
6,667
|
|
$
|
0.015
|
|
|
6,667
|
|
$
|
0.015
|
|
$0.150
|
|
|
4.75
|
|
|
1,200,000
|
|
$
|
0.150
|
|
|
1,200,000
|
|
$
|
0.150
|
|
$0.900
|
|
|
4.75
|
|
|
2,250,000
|
|
$
|
0.900
|
|
|
2,250,000
|
|
$
|
0.900
|
|
$0.015
- 0.900
|
|
|
4.75
|
|
|
3,456,667
|
|
$
|
0.586
|
|
|
3,456,667
|
|
$
|
0.149
|
|
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
NOTE
11
OTHER
COMMITMENTS AND CONTINGENCIES
As
described in Note 7, the Company entered into a Registration Rights Agreement
with YA Global providing for the filing of a registration statement with the
SEC
registering the common stock issuable upon conversion of the debentures and
exercise of the warrants sold to YA Global. Upon written demand from YA Global,
the Company is obligated to file a Registration Statement within 45 days and
to
use its best efforts to cause the Registration Statement to be declared
effective no later than 150 days following receipt of such demand. The Company
is also required to ensure that the Registration Statement remains in effect
until all of the shares of common stock issuable upon conversion of the
debentures and exercise of the warrants have been sold or may be sold without
volume restrictions pursuant to Rule 144(k). In the event of a default of its
obligations under the Registration Rights Agreement, the Company is required to
pay to YA Global, for each thirty day period that the Registration Statement
has
not been filed or declared effective, a cash amount equal to 2% of the face
amount of the Debentures, not to exceed 24%. As of November 14, 2007, no demand
for registration has been received by the Company. See Note 12, below, for
related events.
On
July
10, 2007 the Company executed a letter of intent to acquire North Shore Energy
Technologies ("North Shore"), a sustainable energy company planning to build
a
bio-refinery capable of economically converting wood waste into highly-versatile
methanol. However, the signed letter of intent expired and the company has
no
plans to pursue this acquisition
NOTE
12
SUBSEQUENT
EVENTS
As
described in Note 7, on October 5, 2007, 1,343,750 of the Company’s common
shares were issued by the transfer agent upon completion of a request received
on September 21, 2007 to convert $215,000 of the Company’s convertible
debentures.
As
further discussed in Note 7, on November 13, 2007, the Company received a
written waiver affirming that any damages, payments or penalties associated
with
default notes and related arrangements, including registration rights agreements
were waived through November 13, 2007. However, no demand for any amounts had
been made by the investors. The Company can not give any assurances that the
investors will not demand registration related payments or payment of principal
and interest on debentures following the effective date of the
waiver.
NOTE
13 RESTATEMENTS
The
accompanying unaudited consolidated financial statements have been restated
for
the matters discussed below. All associated footnote disclosures have been
revised for the matters giving rise to the financial statement restatements.
In
addition, certain of our footnotes have been augmented to provide expanded
information about certain transactions and accounting therefore.
Intangible
assets and related amortization expense:
As
discussed in Note 2 Acquisitions, on March 9, 2007 we acquired the net assets
of
Fuelmiester and accounted for the acquisition as a business combination under
FASB 141. As part of this transaction, we recorded the fair value assigned
to
the Trade Name acquired and concluded that the Trade Name had an indefinite
life
and accordingly recorded no amortization related to this intangible. We have
subsequently determined that the an estimated life of 10 years is more
reasonable and, accordingly the unaudited financial statements and notes to
the
financial statements included in Part 1, Item 1
Financial
Statements
of the
Original Report are hereby restated to reflect a life of 10 years and to record
the related amortization expense of the Trade Name.
Deferred
finance costs, related amortization and paid-in capital:
As
discussed in Note 2
Acquisitions
,
on
April 20, 2007, we entered into a Merger Agreement in 2007. Under the terms
of
the agreement, we acquired 100% of the common stock of Renewal Biodiesel in
exchange for the issuance by us of
343,610
shares of our series A convertible preferred stock, which was subsequently
converted into 22,907,323
common
shares. The net liabilities assumed primarily represented debt obligations
and
were assumed in connection with the provision of additional long-term debt
financing provided by Cornell, which additional funding was provided
simultaneously with the reverse merger and recapitalization. In our original
filing, the net liabilities assumed were recorded as deferred financing costs
incurred in connection with the additional debt funding rather than paid-in
capital (arising from the reverse merger reorganization) and were then amortized
by periodic charges to income on a straight-line basis over the life of that
debt funding. We have subsequently determined that the acquired debt should
have
been recorded as a reduction to stockholders equity and, accordingly
t
he
unaudited financial statements and notes have been restated to reclassify the
acquired debt as a reduction to stockholders equity and to reverse the
amortization charges taken against income.
RENEWAL
FUELS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
Reconciliation
of accounts as previously reported and as restated:
The
following table illustrates the effects on the account classifications resulting
from the above restatements:
|
|
As
Reported
|
|
Restatement
Adjustments
|
|
As
Restated
|
|
Balance
Sheet as of September 30, 2007
|
|
|
|
|
|
|
|
Finance
fees net
|
|
$
|
1,679,695
|
|
$
|
(1,303,452
|
)(A)
|
|
376,243
|
|
Intangible
assets, net
|
|
|
350,193
|
|
|
112,100
|
(B)
|
|
462,293
|
|
Paid-in
capital
|
|
|
10,053,601
|
|
|
(1,677,020
|
)(A)
|
|
8,376,581
|
|
Accumulated
Deficit
|
|
|
(10,530,791
|
)
|
|
367,667
|
(C)
|
|
(10,163,124
|
)
|
Statement
of Operations, Three Months Ended September 30,
2007
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
52,807
|
|
|
(7,539
|
)(B)
|
|
45,268
|
|
Financing
fees
|
|
|
266,076
|
|
|
(210,326
|
)(A)
|
|
55,750
|
|
Net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.17
|
)
|
|
0.01
|
(C)
|
|
(0.16
|
)
|
Diluted
|
|
|
(0.17
|
)
|
|
0.01
|
(C)
|
|
(0.16
|
)
|
Statement
of Operations, March 9, 2007 (Date of Inception) to September 30,
2007
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
52,807
|
|
|
5,900
|
(B)
|
|
58,707
|
|
Financing
fees
|
|
|
447,325
|
|
|
(373,568
|
)(A)
|
|
73,757
|
|
Net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.43
|
)
|
|
0.02
|
(C)
|
|
(0.41
|
)
|
Diluted
|
|
|
(0.43
|
)
|
|
0.02
|
(C)
|
|
(0.41
|
)
|
Notes
to
adjustments:
(A)
Net
liabilities assumed in the acquisition of FuelMeister were originally recorded
as deferred financing fees and were amortized over the life of the financing
arrangement obtained for the purpose of funding the acquisition. We have
reclassified these net liabilities and reduced stockholders' equity with a
charge to additional paid in capital. We have reversed the amortization charges
taken against income.
(B)
Trade
name acquired in the acquisition of FuelMeister was originally assigned an
indefinite life. We have now assigned a life of 10 years to the intangible
asset
and we are amortizing this asset on a straight line basis over 10
years.
(C)
Net
income and Retained Earnings has been adjusted to reflect the impact of the
reversal of financing fees and charge for amortization expense.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We
believe transparency and clarity are the primary goals of successful financial
reporting. We remain committed to increasing the transparency of our financial
reporting, providing our shareholders with informative financial disclosures
and
presenting an accurate view of our financial position and operating
results.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is designed to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity, and certain other factors that may affect
our
future results. Our MD&A is presented in the following
sections:
|
·
|
Business
Strategy, Core Philosophies, and Current
Operations
|
|
·
|
Going
Concern Statement
|
|
·
|
Critical
Accounting Policies and Estimates
|
|
·
|
Recent
Accounting Pronouncements
|
|
·
|
Liquidity
and Capital Resources
|
|
·
|
Off-Balance-Sheet
Arrangements
|
|
·
|
Qualitative
and Quantitative Disclosures About Market
Risk
|
The
following discussion and other sections of this Form 10-QSB contain
forward-looking statements that involve a number of risks and uncertainties.
These forward-looking statements are made pursuant to the “safe-harbor”
provisions of the Private Securities Litigation Reform Act of 1995 and are
made
based on management’s current expectations or beliefs, as well as assumptions
made by, and information currently available to, management. All statements
regarding future events, our future financial performance and operating results,
our business strategy and our financing plans are forward-looking statements.
In
many cases, you can identify forward-looking statements by terminology, such
as
“may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative
of such terms and other comparable terminology. These statements are only
predictions. Known and unknown risks, uncertainties and other factors could
cause our actual results to differ materially from those projected in the
forward-looking statements.
THE
INFORMATION CONTAINED IN THIS FORM 10-QSB IS NOT A COMPLETE DESCRIPTION OF
OUR
BUSINESS OR THE RISKS ASSOCIATED WITH AN INVESTMENT IN US. READERS ARE REFERRED
TO DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION,
WHICH IDENTIFY IMPORTANT RISK FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS.
OVERVIEW
As
of the
end of the quarter, September 30, 2007, Renewal Fuels, Inc. (“Renewal”) had two
wholly-owned subsidiaries - Renewal Biodiesel, Inc. (“Renewal Biodiesel”) and
Biodiesel Solutions, Inc. (“BSI”).
Renewal
Biodiesel was incorporated in the state of Delaware on March 9, 2007 and
acquired the business, fixed assets and inventory of the FuelMeister business
of
BSI, effective March 30, 2007. Renewal Biodiesel is engaged in the business
of
designing, developing, manufacturing and marketing personal biodiesel processing
equipment and accessories to convert used and fresh vegetable oil into
clean-burning biodiesel. Renewal Biodiesel’s products allow customers to make
biodiesel fuel, which is capable of powering all diesel fuel engines, for a
current cost of approximately 70 cents per gallon. Renewal Biodiesel has
developed a network of dealers in the United States for sale and distribution
of
its products. Renewal Biodiesel’s manufacturing facilities are currently located
in Sparks, Nevada.
BSI
is
developing and will manufacture a factory-built biodiesel processing plant
that
is designed to produce 350,000 gallons of biodiesel per year, appropriately
scaled for a variety of customers, including small communities, farms, farm
co-ops and trucking fleets. The design will provide a biodiesel production
system that is continuous, flexible, efficient, affordable, and fully-automated.
The automated control system will minimize labor costs and facilitates remote
diagnostics. BSI’s manufacturing facilities are currently located in Sparks,
Nevada, adjacent to the manufacturing facilities for Renewal
Biodiesel.
HISTORY
Reorganization
of Tech Laboratories, Inc. and Reverse Merger with Renewal Biodiesel,
Inc.
On
April
20, 2007, Tech Laboratories, Inc. entered into a Merger Agreement with Renewal
Biodiesel, a Delaware corporation formed in 2007 for the purposes of the asset
acquisition of the FuelMeister Business described below. Under the terms of
the
agreement, we acquired 100% of the common stock of Renewal Biodiesel in exchange
for the issuance by us of 343,610 shares of our series A convertible preferred
stock, which was subsequently converted into 22,907,323 common shares. The
officers and directors of Renewal Biodiesel assumed similar positions with
us.
Although we were the legal acquirer, Renewal Biodiesel was considered the
accounting acquirer and as such the acquisition was accounted for as a reverse
merger and recapitalization. As a result, the accompanying consolidated
financial statements represent the results of operations and cash flows of
the
accounting acquirer (Renewal Biodiesel) from the date of its inception on March
9, 2007. Immediately prior to the reorganization, we had 673,356 shares of
common stock outstanding and net liabilities of $1,677,020, consisting of the
following, at fair value:
Net
liabilities assumed:
|
|
|
|
Accounts
payable
|
|
$
|
203,992
|
|
Long
term debt, including accrued interest
|
|
|
1,473,028
|
|
Net
liabilities assumed
|
|
$
|
1,677,020
|
|
The
net
liabilities assumed primarily represent debt obligations to YA Global
Investments, L.P. (“YA Global”) and were assumed in connection with the
provision of additional long-term debt financing provided by YA Global (see
Note
7 in our accompanying consolidated financial statements included in this
Report), which additional funding was provided simultaneously with the reverse
merger and recapitalization. In addition, the Company paid $180,000 in fees
in
connection with the additional debt funding provided by YA Global.
Tech
Laboratories had no active business operations immediately prior to the merger.
Mr. John King, Chief Executive Officer and Mr. David Marks, Chairman were
officers and directors and were minority shareholders of Renewal
Biodiesel.
Immediately
prior to the reorganization, Renewal Biodiesel issued an aggregate of 5,727,979
shares of its common stock to 23 accredited investors for an aggregate
consideration of $57,279. Under the terms of the agreement, we acquired 100%
of
the 5,727,979 shares of common stock of Renewal Biodiesel in exchange for the
issuance by us of 343,610 shares of series A preferred stock, which were
subsequently converted into 23,907,323 common shares (approximately 97% of
the
outstanding common shares immediately after the reorganization). The average
share price paid for the 5,727,979 shares of Renewal Biodiesel exchanged for
our
common shares was $0.01. Current officers, directors and principal stockholders
of ours, who beneficially own in the aggregate approximately 80% of our
outstanding common stock, owned the following aggregate shares of common stock
of Renewal Biodiesel:
Name
|
|
Common
Shares
Received
|
|
Renewal
Biodiesel
Shares
Owned
|
|
Average
Price
Paid
|
|
|
|
|
|
|
|
|
|
Crivello
Group LLC (1)
|
|
|
666,666
|
|
|
166,700
|
|
$
|
0.01
|
|
Frank
P. Crivello SEP IRA (1)
|
|
|
13,333,333
|
|
|
3,334,000
|
|
$
|
0.01
|
|
John
King
|
|
|
2,300,000
|
|
|
575,115
|
|
$
|
0.01
|
|
David
Marks (2)
|
|
|
2,700,000
|
|
|
675,135
|
|
$
|
0.01
|
|
Other
investors as a group (17)
|
|
|
3,907,324
|
|
|
977,029
|
|
$
|
0.01
|
|
|
|
|
22,907,323
|
|
|
5,727,979
|
|
|
|
|
(1)
|
Mr.
Crivello is also the managing member of Crivello Group,
LLC.
|
|
|
(2)
|
Of
the shares attributed to Mr. Marks, 200,000 shares are registered
in the
name of the Irrevocable Children’s Trust of which Mr. Marks is a trustee
and 200,000 are registered in the name of Phoenix Investors, LLC
of which
Mr. Marks is Managing
Director.
|
Although
we were the legal acquirer, Renewal Biodiesel was considered the accounting
acquirer and as such the acquisition was accounted for as a reverse merger
and
recapitalization. The officers and directors of Renewal Biodiesel assumed
similar positions with us. As a result, the accompanying consolidated financial
statements represent the results of operations and cash flows of the accounting
acquirer (Renewal Biodiesel) from the date of its inception on March 9,
2007.
The
fair
value of the common stock issued to the shareholders of Renewal Biodiesel was
estimated to be $0.2265 per share, based on the trading price of our common
stock immediately prior to the reorganization and reverse merger. The difference
between the fair value of the shares issued and the amount paid by the
shareholders of Renewal Biodiesel for their shares resulted in an immediate
expense of $5,131,231.
On
July
9, 2007, the Company, which was a New Jersey entity (“Tech Labs-NJ”), entered
into an Agreement and Plan of Merger with Tech Laboratories, Inc., a
Delaware entity (“Tech Labs - DE”) under which Tech Labs - NJ and Tech Labs - DE
were merged with and into the surviving corporation, Tech Labs - DE, whose
name
was subsequently changed on August 1, 2007 to Renewal Fuels, Inc. The
certificate of incorporation and bylaws of the surviving corporation became
the
certificate of incorporation and bylaws of the Company, and the directors and
officers in office of the surviving corporation became the directors and
officers of the Company.
On
July
10, 2007, the majority stockholders of the Company authorized a 1-for-15 reverse
stock split which was effective on August 1, 2007. As a result, the shares
of common stock of the Company (the "Old Shares") that were outstanding at
July
31, 2007 automatically converted into 23,805,126 shares of common stock
(the "New Shares"). All common share and per share amounts in our financial
statements have been retroactively restated to reflect this reverse stock split.
The New Shares issued pursuant to the reverse stock split are fully paid and
non-assessable. All New Shares have the same par value, voting rights and other
rights as the Old Shares. Stockholders of the Company do not have preemptive
rights to acquire additional shares of common stock which may be issued. Also
on
August 1, 2007, the Company changed its name from Tech Laboratories, Inc. to
Renewal Fuels, Inc. and the Company’s quotation symbol on the OTC Bulletin Board
was changed from TLBT to RNWF.
Acquisition
of Assets of FuelMeister Business
On
March
9, 2007, Crivello Group, LLC (“Crivello”) and its wholly-owned subsidiary,
Renewal Biodiesel, entered into an Asset Purchase Agreement with Biodiesel
Solutions, Inc. (“BSI”), which was effective March 30, 2007. Pursuant to the
Asset Purchase Agreement, BSI sold substantially all of the assets and property
of its FuelMeister operations (the “FuelMeister Business” , the “Predecessor” or
the “Predecessor Business”, an unrelated Company) to Renewal Biodiesel, in
exchange for an aggregate purchase price of $500,000, subject to adjustment.
Under the terms of the Agreement, the purchase price was subsequently adjusted
to $494,426 to reflect the inventory on hand at closing. Of the adjusted
purchase price, $100,000 was paid on execution of the Agreement as a down
payment, $100,000 was paid at closing, $50,000 was paid on April 11, 2007,
and
the balance of the purchase price was paid by delivery of a promissory note,
as
amended, in the amount of $244,426. The promissory note was subsequently paid
on
April 20, 2007. The $250,000 cash portion of the $494,426 purchase price of
the
assets was funded by loans received from Crivello of $200,000 and cash of
$57,279 received by Renewal Biodiesel from our founders for common stock. The
loans from Crivello, together with the promissory note for $244,426, were repaid
from the proceeds of loans from YA Global (see Note 7 in the accompanying
consolidated financial statements). The difference of $5,131,231 between the
fair value of the 22,907,323 common shares issued to our founders as a result
of
the reverse merger described above, determined based on the trading price of
$0.2265 per share immediately prior to the reorganization and reverse merger,
and the amount they paid for their shares of Renewal Biodiesel of $57,279 has
been recorded as stock-based transaction expense.
Renewal
Biodiesel also entered into a management services agreement with BSI, pursuant
to which BSI agreed to provide general management and administrative services
to
Renewal Biodiesel, as well as the use of its facilities. Renewal Biodiesel
reimbursed BSI for the direct cost of services and facilities, as provided.
The
agreement terminated 90 days after the FuelMeister acquisition or upon ten
days
notice by Renewal Biodiesel. As discussed in Note 1 to the financial statements,
we acquired BSI on July 2, 2007, which effectively resulted in termination
of
the agreement.
The
acquisition of the FuelMeister Business was accounted for by the purchase method
in accordance with Financial Accounting Standards Board Statement No. 141 ("FAS
141") and the results of its operations are included in these consolidated
financial statements from the date of acquisition. The aggregate purchase price
determined in accordance with FAS 141 was $494,426.
The
following is a summary of the net assets acquired at the date of acquisition,
at
fair value:
Net
assets acquired:
|
|
|
|
Inventory
|
|
$
|
34,426
|
|
Fixed
assets
|
|
|
9,145
|
|
Website
domain
|
|
|
50,150
|
|
Tradename
|
|
|
118,000
|
|
Customer
lists, engineering drawings and other intangibles
|
|
|
189,000
|
|
Goodwill
|
|
|
93,705
|
|
Net
assets acquired
|
|
$
|
494,426
|
|
Acquisition
of BSI
On
July
2, 2007, we entered into a merger agreement with BSI, as a result of which
we
acquired the remainder of BSI's business (i.e., other than the FuelMeister
Business acquired previously). BSI is engaged in the business of designing,
manufacturing and marketing processing equipment and accessories, including
personal biodiesel processors and “community scale” biodiesel processor systems,
which convert fresh and used vegetable oils into clean burning biodiesel fuel.
It complements and optimizes Renewal’s ability to design, develop, manufacture
and market both personal and community scale biodiesel processing equipment
and
accessories.
As
consideration for the acquisition of BSI, we issued an aggregate of 3,333,333
shares of common stock, 1,000,000 new Series B preferred shares of BSI,
initially convertible into 1,333,333 shares of our common stock, options to
purchase 94,600 shares of our common stock and $500,000 in cash. The BSI
Preferred Stock is immediately convertible at the option of the holders into
common stock of the Company at a conversion price equal to the greater of (i)
$0.75, or (ii) the average closing price of the common stock during the ten
trading days immediately preceding the conversion date. Prior to the acquisition
of BSI, the Company loaned $200,000 to BSI under an 8% 180 day secured
promissory note, due November 24, 2007. Upon the acquisition of BSI, the note
receivable was reclassified as a capital contribution to BSI.
Also
on
July 2, 2007, we entered into a Securities Purchase Agreement with YA Global
providing for the sale to YA Global of secured convertible debentures in the
aggregate principal amount of $2,700,000, of which $2,000,000 was advanced
immediately. The second installment of $700,000 will be funded within two
business days after the Company has unconditionally booked and received at
least
a 50% deposit for the sale of at least one BiodieselMaster® unit. We also issued
to YA Global five-year warrants to purchase 2,250,000 shares of our common
stock
at $0.90 per share. The Debentures bear interest at the prime rate plus 2.75%
(but not less than 10%) and mature two years from the date of issuance (the
"Maturity Date"). The Company is not required to make any payments until the
Maturity Date. The holder of the Debentures may convert at any time amounts
outstanding into shares of Common Stock at a conversion price per share equal
to
the lesser of (i) $0.75, or (ii) 80% of the lowest closing bid price of the
Common Stock during the ten trading days immediately preceding the conversion
date.
The
aggregate purchase price for the BSI acquisition was determined based on the
fair value of the consideration issued, which consisted of common stock,
preferred shares of BSI convertible into our common stock, options to purchase
our common stock and cash, as follows:
3,333,333
shares of common stock
|
|
$
|
2,000,000
|
|
1,000,000
shares of preferred stock of BSI
|
|
|
800,000
|
|
96,400
common stock options
|
|
|
48,181
|
|
Note
receivable from BSI reclassified to contributed capital
|
|
|
200,000
|
|
Cash
paid, net of $77,986 cash acquired
|
|
|
422,014
|
|
Total
purchase price
|
|
$
|
3,470,195
|
|
The
purchase price was allocated to BSI’s net tangible and intangible assets based
on their estimated fair values as of the date of the completion of the
acquisition. The amount allocated to purchased “in process research and
development costs” was valued at fair value using a debt free cash flow method.
As required by current accounting literature, these costs are immediately
expensed in the current period’s income statement. The allocation of the total
purchase price is summarized below:
|
|
Purchase
Price
|
|
Asset
Life
|
|
|
|
Allocation
|
|
In
Years
|
|
Working
capital, net and excluding cash acquired
|
|
$
|
(204,231
|
)
|
|
-
|
|
Fixed
assets
|
|
|
90,447
|
|
|
3
- 10
|
|
In
process research and development
|
|
|
3,140,000
|
|
|
-
|
|
Employee
contracts
|
|
|
114,000
|
|
|
2
|
|
Non-compete
agreements
|
|
|
100,000
|
|
|
1.5
|
|
Goodwill
|
|
|
229,979
|
|
|
Indefinite
|
|
Net
Assets Acquired
|
|
$
|
3,470,195
|
|
|
|
|
Purchase
Accounting For Acquisitions
The
results of operations of the 2007 Acquisitions are included in the Company's
results of operations beginning after their respective acquisition dates. The
following unaudited pro forma information combines the consolidated results
of
operations of the Company and the companies that it acquired as if the
acquisitions had occurred at the beginning of fiscal year 2006:
|
|
Three Months
Ended September, 30,
|
|
For The Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
148,800
|
|
$
|
459,539
|
|
$
|
500,292
|
|
$
|
1,378,617
|
|
Loss
from Operations
|
|
$
|
(615,896
|
)
|
$
|
(178,488
|
)
|
$
|
(1,452,114
|
)
|
$
|
(8,794,637
|
)
|
Net
Loss
|
|
$
|
(1,216,899
|
)
|
$
|
(743,966
|
)
|
$
|
(3,389,752
|
)
|
$
|
(10,491,193
|
)
|
Per
Share - basic and fully diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.12
|
)
|
$
|
(0.07
|
)
|
$
|
(0.38
|
)
|
Weighted
average shares outstanding
|
|
|
27,488,705
|
|
|
27,488,705
|
|
|
27,488,705
|
|
|
27,488,705
|
|
The
unaudited pro forma information does not purport to be indicative of the results
that would actually have been achieved had the acquisitions occurred as of
the
date of the periods indicated.
Predecessor
Business
As
described above, under the terms of the Renewal Merger Agreement, we acquired
100% of the common stock of Renewal Biodiesel in exchange for the issuance
by us
of 22,907,323 common shares. Although we were the legal acquirer, Renewal
Biodiesel was considered to be the accounting acquirer and, as such, the
acquisition was accounted for as a reverse merger and recapitalization. As
a
result, the accompanying unaudited consolidated financial statements represent
the results of operations and cash flows of the accounting acquirer and
Successor (Renewal Biodiesel) from the date of its inception on March 9, 2007
through September 30, 2007. The FuelMeister Business acquired by Renewal
Biodiesel constitutes our Predecessor business. The accompanying unaudited
consolidated financial statements, as of September 30, 2007 and for the period
March 9, 2007 (date of inception) through September 30, 2007, are those of
the
Successor. The statements of operations for the three months ended March 31,
2007 and for the three and nine months ended September 30, 2006, and the
statements of cash flows for the three months ended March 31, 2007 and for
the
nine months ended September 30, 2006 are those of our Predecessor, the
FuelMeister Business.
BUSINESS
STRATEGY, CORE PHILOSOPHIES, CURRENT OPERATIONS
Renewal
Fuels is dedicated to technologies that enable the production of high quality
fuels from a variety of non-food feedstock sources and waste streams. We believe
that developed and emerging technologies to produce fuels from waste will
provide an important alternative to feedstock sources which compete with uses
for food.
Renewal
Fuels’ business model includes strategic partnerships and acquisitions in the
expanding biofuels industry. Increasing political and social responsiveness,
combined with exciting developments in biofuel technology, has created an
unprecedented environment for organic growth as well as growth through
acquisitions. Our focused business model is designed to facilitate high profit
margins and security of feedstock pricing.
The
management of Renewal Fuels is establishing relationships with multiple biofuel
entities with projects, products, and technologies at various stages of
development, fitting the Company’s mission. The company is currently seeking
additional technologies and businesses to add to its portfolio, which currently
includes the businesses described below.
Renewal
manufactures and markets the FuelMeister® line of personal biodiesel processors
from its facility in Sparks, NV. The FuelMeister allows a user to make biodiesel
from waste vegetable oil, for personal use. The FuelMeister line of biodiesel
processors are produced from industrial-grade materials. In general, it takes
approximately 1/2 hour hands-on time per batch of biodiesel fuel production.
The
products offered are not do-it-yourself kits, but complete systems with all
key
components needed to make biodiesel ‘at home’ with ease and
confidence.
FuelMeister
biodiesel processors are supplied with a user safety kit, oil titration and
field test kit, high quality steel methanol pump, and easy prime oil draw tube.
Quick disconnect fittings allow for future expansion and more convenient
connection of tanks. If capacity needs change, additional modular tanks, lids,
and accessories can be added to the FuelMeister II platform. A customer can
start making biodiesel the same day the system arrives. All that is required
is
a barrel of used fryer oil (typically collected at no charge from local
restaurants), lye (at a typical cost of 20¢/gallon of biodiesel), a barrel of
racing methanol (at a typical cost of 50¢ /gallon of biodiesel), a barrel for
the finished biodiesel, AC power, and a water hose. Renewal’s products are
designed specifically to allow shipment by UPS in order to minimize customers’
freight expenses. This design was accomplished during an extensive upgrade
to
the product’s specifications in 2006. Any machines operating on diesel fuel,
including cars, trucks, generators, tractors, furnaces, etc. may be powered
with
the biodiesel produced with the FuelMeister II biodiesel production
system.
BSI,
which was acquired on July 2, 2007, manufactures a complementary product to
FuelMeister called BiodieselMaster®. This product is a factory-built biodiesel
processing plant that is appropriately scaled for a variety of customers,
including small communities, farms, farm co-ops and trucking fleets. The
BiodieselMaster® is a community-scale biodiesel processing unit that is designed
to produce 350,000 gallons of biodiesel per year. The design provides a
biodiesel production system that is continuous, flexible, efficient, affordable,
and fully-automated. The automated control system minimizes labor costs and
facilitates remote diagnostics.
RESULTS
OF OPERATIONS
Although
the revenue generating activities of the FuelMeister Business, the Predecessor
business, remained significantly intact after the acquisition, there have been
changes in our marketing strategy, administrative costs (including those
expenses related to public equity market participation) and financing
activities. As a result, we believe that the expenses of the Predecessor
business are not representative of our current business, financial condition
or
results of operations. Accordingly, where practicable we have included various
forward looking statements regarding the effects of our new operating
structure.
The
discussion that follows of Results of Operations is in the following
sections:
|
·
|
Results
of operations for the three months ended September 30, 2007
(Successor)
|
|
·
|
Results
of operations for the period March 9, 2007 (date of inception) through
September 30, 2007 (Successor)
|
|
·
|
Results
of operations for the three months ended September 30, 2006
(Predecessor);
|
|
·
|
Results
of operations for the three months ended March 31, 2007
(Predecessor);
|
|
·
|
Results
of operations for the nine months ended September 30, 2006
(Predecessor);
|
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2007
The
information contained in this section is that of the Successor, Renewal Fuels,
Inc., for the three months ended September 30, 2007 (unaudited).
Net
Sales
|
|
$
|
148,800
|
|
|
100.0
|
%
|
Cost
of sales
|
|
|
109,048
|
|
|
73.3
|
%
|
Gross
Profit
|
|
|
39,752
|
|
|
26.7
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
243,101
|
|
|
163.4
|
%
|
Occupancy
and equipment
|
|
|
71,045
|
|
|
47.7
|
%
|
Advertising
|
|
|
96,187
|
|
|
64.6
|
%
|
Research
and development
|
|
|
3,140,000
|
|
|
2110.2
|
%
|
Professional
fees
|
|
|
80,150
|
|
|
53.9
|
%
|
Other
general and administrative expenses
|
|
|
217,665
|
|
|
146.3
|
%
|
Amortization
of intangible assets
|
|
|
45,268
|
|
|
30.4
|
%
|
Total
Operating Expenses
|
|
|
3,893,4160
|
|
|
2616.5
|
%
|
Operating
Income (Loss)
|
|
|
(3,853,664
|
)
|
|
(2589.8
|
)%
|
Interest
income
|
|
|
68
|
|
|
0.0
|
%
|
Deferred
financing fees
|
|
|
(55,750
|
)
|
|
(37.8
|
)%
|
Interest
expense
|
|
|
(221,050
|
)
|
|
(148.6
|
)%
|
Other
expenses
|
|
|
(23,326
|
)
|
|
(15.7
|
)%
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(4,153,722
|
)
|
|
(2791.5
|
)%
|
Revenues
For
the
three months ended September 30, 2007, revenues were $148,800, a decrease when
compared with the Predecessor’s three months ended September 30, 2006, due to
management’s focus on the commercial BiodieselMaster® product and less on the
FuelMeister product.
Cost
of Sales and Gross Profit
Cost
of
sales for the three months ended September 30, 2007 was $109,048 or 73.3% of
revenues for the quarter, resulting in a gross profit margin of $39,752 or
26.7%
for the three months ended September 30, 2007.
Employee
Compensation and Benefits
Employee
compensation and benefits were $243,101 or 163.4% of revenues for the three
months ended September 30, 2007,. These expenses have increased when compared
with the Predecessor’s three months ended September 30, 2006 due to increased
engineering and labor costs associated with the BiodieselMaster®
product.
Occupancy
and Equipment
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $71,045 or 47.7% of revenues for
the
three months ended September 30, 2007, an increase when compared with the
Predecessor’s three months ended September 30, 2006 due to facility expansion
for the BiodieselMaster ® product.
Advertising
Expenses
Advertising
expenses were $96,187, or 64.6% of revenues, for the three months ended
September 30, 2007 and increased when compared with the Predecessor’s three
months ended September 30, 2006 due to website costs and management’s re-launch
of the FuelMeister product.
Research
and Development Expenses
Research
and development expenses for the three months ended September 30, 2007 were
$3,140,000, representing in-process research and development costs incurred
in
the acquisition of BSI on July 2, 2007.
Professional
Fees
Professional
fees, consisting primarily of accounting, attorney and valuation fees, were
$80,150 or 53.9% of revenues for the three months ended September 30, 2007
and
increased compared with the Predecessor’s three months ended September 30, 2006
due to increased costs associated with SEC compliance and related
matters.
General
and Administrative Expenses
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $217,665 or 146.3% of
revenue
for the three months ended September 30, 2007 and increased compared with
the
Predecessor’s three months ended September 30, 2006 due to additional costs
associated with the BiodieselMaster® product.
Amortization
of Intangible Assets
Amortization
of intangible assets was $45,268 or 30.4% of revenue for the three months
ended
September 30, 2007, primarily due to the amortization of assets acquired
in the
acquisition of BSI
Net
Financial (Income) Expense
Net
financial (income) expense, consisting primarily of interest expense of $221,050
and amortization of financing fees of $56,250, amounted to a net expense
of
$277,300 for the three months ended September 30, 2007, and increased compared
with the Predecessor’s three months ended September 30, 2006, due to the
amortization of deferred financing costs and debt discount associated with
our
convertible debenture obligations.
Provision
for Income Taxes
During
the three months ended September 30, 2007, we experienced an operating loss
for
tax purposes. FuelMeister, our Predecessor, had historically experienced
operating losses, and as FuelMeister’s management were uncertain as to whether
FuelMeister would be able to utilize these tax losses before they expire,
they
provided a reserve for the income tax benefits associated with FuelMeister’s net
future tax assets which primarily related to its cumulative net operating
losses. We have adopted the same policy to reserve such net tax assets until
such time as profitability is reasonably assured and it becomes more likely
than
not that we will be able to utilize such assets.
Net
Loss
As
a
result of the above, we reported a net loss of $4,153,722 for the three months
ended September 30, 2007.
RESULTS
OF OPERATIONS FOR THE PERIOD MARCH 9, 2007 (DATE OF INCEPTION) THROUGH SEPTEMBER
30, 2007
The
information contained in this section is that of the Successor, Renewal Fuels,
Inc., for the period March 9, 2007 (date of inception) through September
30,
2007 (unaudited).
Net
Sales
|
|
$
|
392,887
|
|
|
100.0
|
%
|
Cost
of Sales
|
|
|
251,390
|
|
|
64.0
|
%
|
Gross
Profit
|
|
|
141,497
|
|
|
36.0
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
277,373
|
|
|
70.6
|
%
|
Stock-based
transaction expense
|
|
|
5,131,231
|
|
|
1306.0
|
%
|
Occupancy
and equipment
|
|
|
79,302
|
|
|
20.2
|
%
|
Advertising
|
|
|
140,170
|
|
|
35.7
|
%
|
Research
and development
|
|
|
3,140,000
|
|
|
799.2
|
%
|
Professional
fees
|
|
|
429,891
|
|
|
109.4
|
%
|
Other
general and administrative expenses
|
|
|
315,209
|
|
|
80.2
|
%
|
Amortization
of intangible assets
|
|
|
58,707
|
|
|
14.9
|
%
|
Total
Operating Expenses
|
|
|
9,571,883
|
|
|
2436.3
|
%
|
Operating
Income (Loss)
|
|
|
(9,430,386
|
)
|
|
(2400.3
|
)%
|
Interest
income
|
|
|
823
|
|
|
0.2
|
%
|
Deferred
financing fees
|
|
|
(73,757
|
)
|
|
(18.8
|
)%
|
Interest
expense
|
|
|
(636,477
|
)
|
|
(162.0
|
)%
|
Other
expenses
|
|
|
(23,326
|
)
|
|
(5.9
|
)%
|
|
|
|
|
|
|
0.0
|
%
|
Net
Income (Loss)
|
|
$
|
(10,163,124
|
)
|
|
(2586.8
|
)%
|
Net
Sales
For
the
period from March 9, 2007 (inception) through September 30, 2007, net sales
were
$392,887 and decreased when compared with the Predecessor’s nine months ended
September 30, 2006 due to management’s focus on the commercial BiodieselMaster®
product and less on the FuelMeister product.
Cost
of Sales and Gross Profit
Cost
of
sales for the three months ended September 30, 2007 was $251,390 or 64.0%
of
revenues and decreased compared with the Predecessor’s nine months ended
September 30, 2006 due to management’s focus on the commercial BiodieselMaster®
product and less on the FuelMeister product. Gross profit margin was $141,497
or
36.0% for the period from March 9, 2007 (inception) through September 30,
2007.
Employee
Compensation and Benefits
Employee
compensation and benefits were $277,373 or 70.6% of revenues for the period
from
March 9, 2007 (inception) through September 30, 2007 and increased compared
with
the Predecessor’s nine months ended September 30, 2006 due to increased
engineering and labor costs associated with the BiodieselMaster®
product.
Stock
Based Transaction Expense
Stock
based transaction expense related to the reverse merger and recapitalization
was
$5,131,231 for the period from March 9, 2007 (inception) through September
30,
2007.
Occupancy
and Equipment
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $79,302 or 20.2% of revenues for
the
period from March 9, 2007 (inception) through September 30, 2007 and increased
compared with the Predecessor’s nine months ended September 30, 2006 due to
facility expansion for the BiodieselMaster ® product.
Advertising
Expenses
Advertising
expenses were $140,170, or 35.7% of revenues, for the period from March 9,
2007
(inception) through September 30, 2007 and increased compared with the
Predecessor’s nine months ended September 30, 2006 due to website costs and
management’s re-launch of the FuelMeister product.
Research
and Development Expenses
Research
and development expenses for the period from March 9, 2007 (inception) through
September 30, 2007were $3,140,000 representing in-process research and
development costs incurred in the acquisition of BSI on July 2,
2007..
Professional
Fees
Professional
fees, consisting primarily of accounting, attorney and valuation fees, were
$429,891 or 109.4% of revenues for the period from March 9, 2007 (inception)
through September 30, 2007 and increased compared with the Predecessor’s nine
months ended September 30, 2006 due to increased costs associated with SEC
compliance and related matters.
General
and Administrative Expenses
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $315,209 or 80.2% of revenue
for the period from March 9, 2007 (inception) through September 30, 2007
and
increased compared with the Predecessor’s three months ended September 30, 2006
due to additional costs associated with the BiodieselMaster®
product.
Amortization
of Intangible Assets Expense
Amortization
of intangible assets was $58,707 or 14.9% of revenue for the period from
March
9, 2007 (inception) through September 30, 2007, primarily related to the
amortization of assets related to the acquisition of BSI on July 2,
2007.
Net
Financial (Income) Expense
Net
financial (income) expense, consisting primarily of interest expense of $636,477
and amortization of financing fees of $73,757, amounted to a net expense
of
$710,234 for the period from March 9, 2007 (inception) through September
30,
2007.
Provision
for Income Taxes
During
the period from March 9, 2007 (inception) through September 30, 2007, we
experienced an operating loss for tax purposes. FuelMeister, our Predecessor,
had historically experienced operating losses, and as FuelMeister’s management
were uncertain as to whether FuelMeister would be able to utilize these tax
losses before they expire, they provided a reserve for the income tax benefits
associated with FuelMeister’s net future tax assets which primarily related to
its cumulative net operating losses. We have adopted the same policy to reserve
such net tax assets until such time as profitability is reasonably assured
and
it becomes more likely than not that we will be able to utilize such
assets.
Net
Loss
As
a
result of the above, we reported a net loss of $10,163,124 for the period
from
March 9, 2007 (inception) through September 30, 2007.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
(PREDECESSOR)
The
information contained in this section is that of our Predecessor, the
FuelMeister Business, for the three months ended September 30, 2006
(unaudited).
Net
Sales
|
|
$
|
571,386
|
|
|
100
|
%
|
Cost
of sales
|
|
|
350,804
|
|
|
61.4
|
%
|
Gross
Profit
|
|
|
220,582
|
|
|
38.6
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
65,405
|
|
|
11.4
|
%
|
Occupancy
and equipment
|
|
|
24,705
|
|
|
4.3
|
%
|
Advertising
|
|
|
37,452
|
|
|
6.6
|
%
|
Professional
fees
|
|
|
6,588
|
|
|
1.2
|
%
|
Other
general and administrative expenses
|
|
|
34,918
|
|
|
6.1
|
%
|
Total
Operating Expenses
|
|
|
169,069
|
|
|
29.6
|
%
|
Operating
Income (Loss)
|
|
|
51,513
|
|
|
9.0
|
%
|
Net
Income (Loss)
|
|
$
|
51,513
|
|
|
9.0
|
%
|
Revenues
For
the
three months ended September 30, 2006, FuelMeister’s revenue was
$571,386.
Cost
of Sales and Gross Profit
Cost
of
sales for the three months ended September 30, 2007 was $350,804 or 61.4%
of
revenues for the quarter. As a result, gross profit margin was $220,581 or
38.6%.
Employee
Compensation and Benefits
Employee
compensation and benefits were $65,405 or 11.4% of revenues for the three
months
ended September 30, 2006.
Occupancy
and Equipment
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $24,705 or 4.3% of revenues for
the
three months ended September 30, 2006.
Professional
Fees
Professional
fees, consisting primarily of accounting and attorney fees of $6,588 were
1.2%
of revenues for the three months ended September 30, 2006.
General
and Administrative Expenses
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $34,918, or 6.1% of revenue
for the three months ended September 30, 2006.
Provision
for Income Taxes
During
the three months ended September 30, 2006, FuelMeister experienced an operating
loss for tax purposes. FuelMeister had historically experienced operating
losses, and as FuelMeister’s management were uncertain as to whether FuelMeister
would be able to utilize these tax losses before they expire, they provided
a
reserve for the income tax benefits associated with FuelMeister’s net future tax
assets which primarily related to its cumulative net operating
losses.
Net
Income
As
a
result of the above, FuelMeister reported net income of $51,513 or 9.1% of
revenues for the three months ended September 30, 2006.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007
(PREDECESSOR)
The
information contained in this section is that of our Predecessor, the
FuelMeister Business, for the three months ended March 31, 2007
(unaudited).
Net
Sales
|
|
$
|
104,360
|
|
|
100.0
|
%
|
Cost
of Sales
|
|
|
76,802
|
|
|
73.6
|
%
|
Gross
Profit
|
|
|
27,558
|
|
|
26.4
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Occupancy
and equipment
|
|
|
18,666
|
|
|
17.9
|
%
|
Advertising
|
|
|
8,474
|
|
|
8.1
|
%
|
Other
general and administrative expenses
|
|
|
79,879
|
|
|
76.5
|
%
|
Total
Operating Expenses
|
|
|
107,019
|
|
|
102.5
|
%
|
Operating
Income (Loss)
|
|
|
(79,461
|
)
|
|
(76.1
|
)
%
|
Net
Income (Loss)
|
|
$
|
(79,461
|
)
|
|
(76.1
|
)
%
|
Revenues
For
the
three months ended March 31, 2007, FuelMeister’s revenue was
$104,360.
Cost
of Sales and Gross Profit
Cost
of
sales for the three months ended March 31, 2007 was $76,802, or 73.6% of
revenues, resulting in a gross profit margin of $27,558 or 26.4%.
Advertising
Expenses
Advertising
expenses were $8,474, or 8.1% of revenues, for the three months ended March
31,
2007.
General
and Administrative Expenses
General
and administrative expenses, consisting of payroll, administrative expenses,
insurance, legal and other non-manufacturing related expenses were $79,879
for
the three months ended March 31, 2007. Payroll accounted for most of the
expense
with $52,320 for the three months ended March 31, 2007.
Occupancy
and Equipment
Occupancy
and equipment expense, consisting of rent, depreciation, amortization, and
other
miscellaneous expenses, amounted to $18,666 for the three months ended March
31,
2007.
Provision
for Income Taxes
During
the three months ended March 31, 2007, FuelMeister experienced operating
and tax
losses. FuelMeister had historically experienced operating losses, and as
FuelMeister’s management were uncertain as to whether FuelMeister would be able
to utilize these tax losses before they expire, they provided a reserve for
the
income tax benefits associated with FuelMeister’s net future tax assets which
primarily relate to its cumulative net operating losses.
Net
Loss
As
a
result of the above, FuelMeister reported a net loss of $79,461 for the three
months ended March 31, 2007.
RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
(PREDECESSOR)
The
information contained in this section is that of our Predecessor, FuelMeister,
for the nine months ended September 30, 2006 (unaudited).
Net
Sales
|
|
$
|
1,638,813
|
|
|
100
|
%
|
Cost
of Sales
|
|
|
1,034,220
|
|
|
63.1
|
%
|
Gross
Profit
|
|
|
604,593
|
|
|
36.9
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
197,103
|
|
|
12.0
|
%
|
Occupancy
and equipment
|
|
|
98,481
|
|
|
6.0
|
%
|
Advertising
|
|
|
55,542
|
|
|
3.4
|
%
|
Professional
fees
|
|
|
18,617
|
|
|
1.1
|
%
|
Other
general and administrative expenses
|
|
|
119,299
|
|
|
7.3
|
%
|
Total
Operating Expenses
|
|
|
489,042
|
|
|
29.8
|
%
|
Operating
Income (Loss)
|
|
|
115,551
|
|
|
7.1
|
%
|
Net
Income (Loss)
|
|
$
|
115,551
|
|
|
7.1
|
%
|
Revenues
For
the
nine months ended September 30, 2006, FuelMeister’s revenue was
$1,638,813.
Cost
of Sales and Gross Profit
Cost
of
sales for the nine months ended September 30, 2006 was $1,034,220 or 63.1%
of
revenues for the quarter. As a result, gross profit margin was $604,593 or
36.9%.
Employee
Compensation and Benefits
Employee
compensation and benefits were $197,103 or 12.0% of revenues for the nine
months
ended September 30, 2006.
Occupancy
and Equipment
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $98,481 or 6.0% of revenues for
the
nine months ended September 30, 2006.
Professional
Fees
Professional
fees, consisting primarily of accounting and attorney fees of $18,617 were
1.1%
of revenues for the nine months ended September 30, 2006.
General
and Administrative Expenses
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $119,299 or 7.3% of revenue
for the nine months ended September 30, 2006.
Provision
for Income Taxes
During
the nine months ended September 30, 2006, we experienced an operating loss
for
tax purposes. FuelMeister, our Predecessor, had historically experienced
operating losses, and as FuelMeister’s management were uncertain as to whether
FuelMeister would be able to utilize these tax losses before they expire,
they
provided a reserve for the income tax benefits associated with FuelMeister’s net
future tax assets which primarily related to its cumulative net operating
losses. We have adopted the same policy to reserve such net tax assets until
such time profitability is reasonably assured and it becomes more likely
than
not that we will be able to utilize such assets.
Net
Income
As
a
result of the above, we reported net income of $115,552 for the nine months
ended September 30, 2006.
GOING
CONCERN
Our
financial statements are prepared using accounting principles generally accepted
in the United States of America applicable to a going concern, which contemplate
the realization of assets and the liquidation of liabilities in the normal
course of business. Since inception, we have incurred losses from operations.
Furthermore, we will require a significant amount of capital to proceed with
our
business plan. As such, our ability to continue as a going concern is contingent
upon us being able to secure an adequate amount of debt or equity capital
to
enable us to meet our operating cash requirements and successfully implement
our
business plan. In addition, our ability to continue as a going concern must
be
considered in light of the challenges, expenses and complications frequently
encountered by entrance into new markets and the competitive environment
in
which we operate.
Our
Predecessor historically funded its cash requirements through operations
and
contributions from the former owner. In connection with the acquisition of
the
FuelMeister Business and BSI, we obtained debt financing. We expect we will
need
to obtain additional funding through private or public equity and/or debt
financing to pay for the infrastructure needed to support our planned growth
but, as a public company, we believe we will have better access to additional
debt or equity capital.
There
can
be no assurance that our plans will materialize and/or that we will be
successful in raising required capital to grow our business and/or that any
such
capital will be available on terms acceptable to us. These factors, among
others, indicate that we may be unable to continue as a going concern for
a
reasonable period of time. Our financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset
amounts or the amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Our
management routinely makes judgments and estimates about the effects of matters
that are inherently uncertain.
Our
critical accounting policies are those where we have made the most difficult,
subjective or complex judgments in making estimates, and/or where these
estimates can significantly impact our financial results under different
assumptions and conditions. Our critical accounting policies are:
|
·
|
Allowance
for Doubtful Accounts
|
|
·
|
Derivative
Financial Instruments
|
Revenue
Recognition
In
accordance with Staff Accounting Bulletin 104 - Revenue Recognition in Financial
Statements (“SAB 104”), revenue is generally recognized and earned when all of
the following criteria are satisfied a) persuasive evidence of sales
arrangements exist; b) delivery has occurred; c) the sales price is fixed
or
determinable, and d) collectibility is reasonably assured. It is the fourth
criterion that requires us to make significant estimates. In those cases
where
all four criteria are not met, we defer recognition of revenue until the
period
these criteria are satisfied. In some cases where collectibility is an issue,
we
defer revenue recognition until the cash is actually received.
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts is evaluated on a regular basis and adjusted
based upon management's best estimate of probable losses inherent in
receivables, based on historical experience, including the historical loss
experience of the Predecessor. Receivables are determined to be past due
if they
have not been paid by the payment due dates. Debts are written off against
the
allowance when deemed to be uncollectible. Subsequent recoveries, if any,
are
credited to the allowance when received.
Derivative
Financial Instruments
In
connection with the sale of debt or equity instruments, we may sell options
or
warrants to purchase our common stock. In certain circumstances, these options
or warrants may be classified as derivative liabilities, rather than as equity.
Additionally, the debt or equity instruments may contain embedded derivative
instruments, such as conversion options, which in certain circumstances may
be
required to be bifurcated from the associated host instrument and accounted
for
separately as a derivative instrument liability.
The
identification of, and accounting for, derivative instruments is complex.
Any
derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded
as
charges or credits to income, in the period in which the changes occur. For
options, warrants and bifurcated conversion options that are accounted for
as
derivative instrument liabilities, we determine the fair value of these
instruments using the Cox-Ross-Rubinstein binomial option pricing model.
That
model requires assumptions related to the remaining term of the instruments
and
risk-free rates of return, our current common stock price and expected dividend
yield, and the expected volatility of our common stock price over the life
of
the instruments. Because of the limited trading history for our common stock,
we
have estimated the future volatility of our common stock price based on not
only
the history of our stock price but also the experience of other entities
considered comparable to us. The identification of, and accounting for,
derivative instruments and the assumptions used to value them can significantly
affect our financial statements.
Product
Warranties
At
the
time a sale is recognized, the company records the estimated future warranty
costs. These costs are estimated based on historical warranty claims. For
the
current period we used the historical warranty experience of the Predecessor
company. Warranty provisions are included as a component of cost of
sales.
Inventory
Obsolescence
We
evaluate our inventory for excess and obsolescence on a quarterly basis.
In
preparing our evaluation, we look at the expected demand for our products
for
the next six to twelve months in order to determine whether or not such raw
materials, WIP and finished goods require a change in the inventory reserve
in
order to record the inventory at net realizable value. After discussions
with
the senior management team, a reserve is established so that inventory is
appropriately stated at the lower of cost or net realizable value.
RECENT
ACCOUNTING PRONOUNCEMENTS
Impact
of Recently Issued Accounting Pronouncements
-
The
Financial Accounting Standards Board has recently issued several Financial
Accounting Standards, as summarized below. None of these statements have
had, or
are expected to have, a significant effect on our financial statements or
those
of our Predecessor.
Issued
|
|
Statement
|
|
|
|
February
2006
|
|
FAS
155 - “Accounting for Certain Hybrid Financial Instruments; an amendment
of Financial Accounting Standard Nos. 133 and 140" (“FAS
155”)
|
|
|
|
March
2006
|
|
FAS
156 - “Accounting for Servicing of Financial Assets, an amendment of FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities”
|
|
|
|
June
2006
|
|
FAS
Interpretation 48 - "Accounting for Uncertainty in Income
Taxes"
|
|
|
|
September
2006
|
|
FAS
157 - “Fair Value Measurements”
|
|
|
|
September
2006
|
|
FAS
158 - “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans” - an amendment of FASB Statements No. 87, 88, 106,
and 132(R)”
|
|
|
|
February
2007
|
|
FAS
159 - “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No.
115”
|
LIQUIDITY
AND CAPITAL RESOURCES
Cash
and Cash Flows From Operations:
The
accompanying condensed consolidated financial statements have been prepared
assuming we will continue as a going concern. During the period from inception
on March 9, 2007 through September 30, 2007, we had a net loss of $10,163,124
which included non-cash items totaling $8,396,011, consisting primarily of
stock-based transaction expense, acquired in process R&D, and amortization
of deferred financing fees and intangible assets. Our existence is dependent
on
management’s ability to develop profitable operations and successful integration
of our acquired businesses.
Net
cash
used in investing activities was $962,521, of which $494,426 was used in the
acquisition of the assets of the FuelMeister Business, our Predecessor, $46,081
was used for fixed asset acquisitions, and $422,014 was used in the acquisition
of BSI.
Net
cash
provided by financing activities was $3,007,211 consisting of $1,118,109 of
proceeds from the sale of convertible debt, beneficial conversion
feature, and warrants to YA Global, less $450,000 of fees incurred,
issuance of warrants for $1,343,337, issuance of a beneficial conversion
feature for $938,554, and $57,279 in proceeds from the sale of our common stock
to our founders. At September 30, 2007, our primary debt has terms of
approximately 21 months with interest rates ranging from 11% to 15%. All of
our
debt is convertible by the holder into shares of our common stock. Substantially
all of our debt has variable interest rates and, accordingly, a change in
interest rates will affect our results of operations. However, interest is
generally payable on maturity, rather than currently, and thus our cash flows
from operations would not be immediately impacted in the short-term by an
adverse change in interest rates.
Financing
Through Equity
On
March
09, 2007, founders stock and stock based transaction expenses were incurred
in
the amount of $57,279 and $5,131,231, respectively, as a result of the reverse
merger.
Financing
Through Convertible Debentures
New
Obligations
On
April
20, 2007, the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement") with YA Global providing for the sale by the Company
to YA
Global of its secured convertible debentures in the aggregate principal amount
of $1,400,000 (the "New Debentures") of which $1,000,000 was advanced
immediately. The second instalment of $400,000 was funded on May 31, 2007,
following clearance by the Securities and Exchange Commission (the “SEC”) of an
information statement disclosing shareholder approval of the issuance of the
Preferred Stock to the former shareholders of Renewal Biodiesel.
The
New
Debentures bear interest at the prime rate plus 2.75% (but not less than 10%)
and mature on April 20, 2009 and May 31, 2009 (the "Maturity Dates"). The
Company is not required to make any payments until the Maturity Dates. The
holder of the New Debentures (the "Holder") may convert at any time principal
amounts outstanding under the New Debentures into shares of common stock of
the
Company at a conversion price per share equal to the lower of (a) $0.60 or
(b)
80% of the lowest closing bid price of the common stock during the ten trading
days immediately preceding the conversion date. The Company has the right to
redeem a portion or all amounts outstanding under the New Debentures prior
to
the Maturity Dates at a 15% redemption premium provided that (i) the closing
bid
price of the common stock is less than the fixed conversion price of the New
Debentures; (ii) the underlying shares are subject to an effective registration
statement; and (iii) no event of default has occurred and is continuing. The
New
Debentures contain standard anti-dilution adjustments for stock splits and
similar events. In the event that the Company sells or otherwise issues common
stock at a price below the current conversion price, the fixed conversion price
will be reduced to such lower price. If an Event of Default occurs, as defined
in the New Debentures, the holder may demand immediate repayment of all amounts
due under the New Debentures. In addition to non-payment of principal or
interest when due, defaults under other obligations and bankruptcy or similar
events, the Events of Default include a Change in Control of the Company, the
Company’s failure to file, achieve or maintain effectiveness of the required
registration statement (see below) if registration has been demanded by the
Holder of the New Debentures, and the failure to maintain the listing of the
Company’s common stock on a recognized exchange. Certain of these Events may
constitute derivative instruments. When the risks and rewards of such derivative
instruments are not clearly and closely related to the risks and rewards
associated with the New Debentures, the effect of these Events is considered
in
valuing any compound derivative instrument that may be bifurcated from the
New
Debentures.
The
obligations to YA Global, together with prior obligations to YA Global described
below, are secured by a security interest in the Company’s assets, including its
intellectual property. In addition, the Company pledged the shares of Renewal
Biodiesel to YA Global as additional security for the obligations to YA
Global.
Under
the
Purchase Agreement, the Company also issued to YA Global five-year warrants
to
purchase 1,200,000 shares of common stock at an exercise price of $0.15 per
share. The warrants were valued at $238,932 using the Cox-Ross-Rubenstein
binomial model, based on the market price at the time they were issued of
$0.2265, estimated volatility of 123%, a risk free rate of 4.75% and the five
year life of the warrants.
In
connection with the Purchase Agreement, the Company also entered into a
registration rights agreement with YA Global (the "Registration Rights
Agreement") providing for the filing of a registration statement (the
"Registration Statement") with the SEC registering the common stock issuable
upon conversion of the New Debentures and exercise of the warrants. Upon written
demand from the Holder, the Company is obligated to file a Registration
Statement within 45 days of such demand and to use its best efforts to cause
the
Registration Statement to be declared effective no later than 150 days following
receipt of such demand. The Company is also required to ensure that the
Registration Statement remains in effect until all of the shares of common
stock
issuable upon conversion of the New Debentures and exercise of the warrants
have
been sold or may be sold without volume restrictions pursuant to Rule 144(k)
promulgated by the SEC. In the event of a default of its obligations under
the
Registration Rights Agreement, including its agreement with respect to the
filing and effectiveness dates for the Registration Statement, the Company
is
required to pay to YA Global, as liquidated damages, for each thirty day period
that the Registration Statement has not been filed or declared effective, as
the
case may be, a cash amount equal to 2% of the face amount of the Debentures,
not
to exceed 24%. As of November 14, 2007, no demand for registration has been
received by the Company.
On
July
2, 2007, the Company entered into an additional Securities Purchase Agreement
(the "Additional Purchase Agreement") with YA Global providing for the sale
by
the Company to YA Global of its secured convertible debentures in the aggregate
principal amount of $2,700,000 (the "Additional Debentures") of which $2,000,000
was advanced immediately. The second installment of $700,000 will be funded
within two business days after the Company has unconditionally booked and
received at least a 50% deposit for the sale of at least one BiodieselMaster®
unit.
The
interest rate, repayment terms, conversion rights, conversion price,
anti-dilution provisions, redemption provisions, events of default and
registration requirements of the Additional Debentures are identical to those
of
the New Debentures described above, except that the fixed element of the
conversion price is $0.75, not $0.60.
The
obligations to YA Global, together with prior obligations to YA Global, are
secured by a security interest in the Company’s assets and the assets of its
subsidiaries, including their intellectual property. In addition, the Company
pledged the shares of BSI to YA Global as additional security for the
obligations to YA Global.
Under
the
Additional Purchase Agreement, the Company also issued to YA Global five-year
warrants to purchase 2,250,000 shares of common stock at an exercise price
of
$0.90 per share. The warrants were valued at $1,104,405 using the
Cox-Ross-Rubenstein binomial model, based on the market price at the time they
were issued of $0.60, estimated volatility of 123%, a risk free rate of 4.90%
and the five year life of the warrants.
Prior
Obligations
On
April
20, 2007, as part of the net liabilities assumed on the reverse merger, the
Company assumed certain existing obligations to YA Global and other entities.
These obligations included two existing 15% convertible debenture obligations
dated December 27, 2005 due to Montgomery Equity Partners, Ltd, an affiliate
of
YA Global (the “Old Debentures”), in the face amounts of $537,220 and $300,000,
together with accrued interest at April 20, 2007 of $105,310 and $58,808,
respectively. The Old Debentures were due on December 27, 2006. In connection
with one of these Old Debentures, the Company previously issued warrants to
purchase 6,666 shares of common stock at an exercise price of $0.015 per share.
As amended on May 31, 2007, the Old Debentures are convertible into shares
of
common stock at a conversion price per share equal to the lesser of (a) $0.60
or
(b) 80% of the lowest closing bid price of the common stock during the ten
trading days immediately preceding the conversion date.
In
connection with these Old Debentures, the Company is obligated to file a
Registration Statement with the SEC, registering the shares issuable on
conversion of the Old Debentures and the Old Warrants. The Company has not
filed
the required registration statement (which was required to be filed by March
27,
2006 and effective by May 26, 2006). Under the terms of the Old Debentures,
the
Company is required to pay to YA Global, as liquidated damages, for each thirty
day period that the Registration Statement has not been filed or declared
effective, as the case may be, a cash amount equal to 2% of the face amount
of
the Old Debentures. The Company has received a letter from YA
Global waiving all rights to collect any and all liquidated damages,
whether in shares of stock or cash, arising from any default under any of the
convertible debenture agreements.
The
Company also assumed the remaining portions of a convertible promissory note
that was originally issued in 2000. A portion of the note is held by YA Global
and a portion is held by entities associated with LH Financial. The notes are
convertible into shares of common stock at a conversion price per share equal
to
85% of the average of the five lowest closing bid prices of the common stock
during the 22 trading days immediately preceding the conversion date. During
the
period April 21, 2007 to September 30, 2007, YA Global converted their entire
principal amount of $168,000 plus all accrued interest thereon of $61,000 into
574,807 common shares.
On
September 21, 2007, YA Global converted $215,000 of the $537,220 principal
amount of the Old Debentures held by it into 1,343,750 shares of common stock
at
$0.16 per share (the lesser of $0.60 or 80% of the lowest closing bid price
of
the common stock during the ten trading days immediately preceding the
conversion date, which was $0.20). These shares were issued by the transfer
agent on October 5, 2007. As of November 14, 2007 there have been no conversions
of convertible debentures subsequent to September 30, 2007.
Derivative
Instrument Liabilities and Beneficial Conversion Feature
In
accounting for the Convertible Debentures and the associated Warrants, the
Company has considered the requirements of EITF Issue 00-19, "Accounting for
Derivative Financial Instruments Indexed To, and Potentially Settled In, a
Company's Own Common Stock". Because the number of shares that may be required
to be issued on conversion of the Convertible Debentures is dependent on the
price of the Company’s common stock, the number of shares ultimately required is
indeterminate. However, full conversion of the outstanding Convertible
Debentures and exercise of outstanding Warrants, together with currently
outstanding common stock and all other currently existing requirements to issue
common stock, require the Company to have approximately 52 million common shares
authorized. The Company is authorized to issue 3 billion common shares. As
a
result, management of the Company believes it will have sufficient authorized
shares available to physically settle all contracts that currently require
delivery of common shares. Furthermore, management of the Company, together
with
investors associated with management, control a majority of the outstanding
common shares of the Company. Accordingly, management of the Company believes
it
is in a position to secure shareholder approval of an increase in the authorized
number of shares, should such an increase be required in the future. As a result
of management’s conclusion that it will have sufficient authorized shares
available to settle all outstanding contracts requiring delivery of common
shares, the conversion option embedded in the Convertible Debentures has not
been bifurcated and the Warrants issued in connection with the Convertible
Debentures have been accounted for as equity instruments.
The
Company has also reviewed the terms of the Convertible Debentures to determine
whether there are embedded derivative instruments, other than the conversion
option, that may be required to be bifurcated and accounted for separately
as
derivative instrument liabilities. Certain events of default associated with
the
Convertible Debentures, including failure to effect or maintain registration
when required, the failure to maintain the listing of the Company’s common stock
on a recognized exchange and similar events, have risks and rewards that are
not
clearly and closely associated with the risks and rewards of the debt
instruments in which they are embedded. However, events of default serve only
to
permit the holder to demand repayment and do not require the Company to pay
any
premium on default. Accordingly, these embedded derivative instruments are
considered to have minimal, if any, value.
If
the
conversion option embedded in the Convertible Debentures has not been
bifurcated, then the effective conversion price for a Convertible Debenture
is
less than the market value of the underlying shares at the time the debenture
is
issued (usually as a result of the allocation of part of the proceeds received
to common stock warrants or other instruments), the Company recognizes a
beneficial conversion feature in accordance with EITF Issues 98-05 and 00-27.
The value of the beneficial conversion feature, which is credited to additional
paid-in capital, reduces the initial carrying amount of the debenture. During
the period ended June 30, 2007 and the three months September 30, 2007, the
Company recorded beneficial conversion features aggregating $923,841 and
$348,287, respectively.
The
discount from the face amount of the Convertible Debentures represented by
the
value initially assigned to any associated Warrants and to any beneficial
conversion feature is amortized over the period to the due date of each
Convertible Debenture, using the effective interest method. Included in the
beneficial conversion feature of $923,841 recorded during the period ended
June
30, 2007 was $333,574 related to debentures assumed by the Company on the
reverse merger described above. Because those debentures are past due, the
discount from the face amount of the debentures was immediately expensed and
is
included in interest expense for the period.
For
warrants and option-based derivative instruments, the Company estimates fair
value using the Cox-Ross-Rubinstein binomial valuation model, based on the
market price of the common stock on the valuation date, an expected dividend
yield of 0%, a risk-free interest rate based on constant maturity rates
published by the U.S. Federal Reserve applicable to the remaining term of the
instruments, (which rates ranged from 4.57% to 4.90%), and an expected life
equal to the remaining term of the instruments. Because of the limited
historical trading period of our common stock, the expected volatility of our
common stock over the remaining life of the conversion options and Warrants
was
estimated at 123%, based on a review of the volatility of entities considered
by
management as most comparable to our business.
Investing
Acquisition
of Assets of FuelMeister Business
As
noted
above, on March 9, 2007, Crivello Group, LLC (“Crivello”) and its wholly-owned
subsidiary, Renewal Biodiesel, entered into an Asset Purchase Agreement with
Biodiesel Solutions, Inc. (“BSI”), which was effective March 30, 2007. Pursuant
to the Asset Purchase Agreement, BSI sold substantially all of the assets and
property of its FuelMeister operations (the “FuelMeister Business”, the
“Predecessor” or the “Predecessor Business”, an unrelated Company) to Renewal
Biodiesel, in exchange for an aggregate purchase price of $500,000, subject
to
adjustment. Under the terms of the Agreement, the purchase price was
subsequently adjusted to $494,426 to reflect the inventory on hand at
closing.
Acquisition
of BSI
As
noted
above, on July 2, 2007, we entered into a merger agreement with BSI, as a result
of which we acquired the remainder of BSI's business (i.e., other than the
FuelMeister Business acquired previously). BSI is engaged in the business of
designing, manufacturing and marketing processing equipment and accessories,
including personal biodiesel processors and “community scale” biodiesel
processor systems, which convert fresh and used vegetable oils into clean
burning biodiesel fuel. It complements and optimizes Renewal’s ability to
design, develop, manufacture and market both personal and community scale
biodiesel processing equipment and accessories.
OFF-BALANCE
SHEET ARRANGEMENTS
We
currently have no off balance sheet arrangements, other than the property leases
described in the footnotes to the financial statements.
QUALITATIVE
AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
We
are
exposed to certain market risks which exist as part of our ongoing business
operations. We currently do not engage in derivative and hedging transactions
to
mitigate the affects of the risks below. Because the operating structure of
our
business is different from that of our Predecessor, FuelMeister, we have
described only those risks as they apply to our current operating
environment.
Interest
Rates
Changes
in U.S. interest rates would affect the interest paid on our borrowings and/or
earned on our cash and cash equivalents. Based on our overall interest rate
exposure at September 30, 2007, a near-term change in interest rates, based
on
historical small movements, would not materially affect our operations or the
fair value of interest rate sensitive instruments. Our debt instruments have
variable interest rates and terms and, therefore, a significant change in
interest rates could have a material adverse effect on our financial position
or
results of operations if we are unable to change the prices we charge to
customers for our products.
We
considered the historical volatility of short term interest rates and determined
that it was reasonably possible that an adverse change of 100 basis points
could
be experienced in the near term. Based on our borrowings at September 30, 2007,
a hypothetical 1.00% (100 basis-points) increase in interest rates would result
in additional expenses of approximately $10,000 for the quarter or an annual
increase in expenses of approximately $40,000.
Foreign
Currency Fluctuations
Currently
we do not have significant transactions in currencies other than the U.S.
dollar.
We
currently do not engage in hedging. However, we may do so in the
future.
OUTLOOK
Activities
in each of our businesses over the months since inception have been focused
on
establishing a strong foundation for growth. For Renewal Biodiesel, this
foundation is based on a strong dealer network, well-designed marketing/sales
plans, and expansion of the product line. We have made great strides
in each of these areas, and have recovered from a difficult transition period
from previous management, caused in part by lack of advertising spending in
the
first half of 2007. We have established a strong management and operations
team, and re-energized the marketing and sales efforts. We have also
established new distribution models and begun planning for new product
introductions in the next six months. Management of Renewal Biodiesel has
been able to accomplish these gains while keeping Sales, General, and
Administrative spending low, thereby creating a strong platform for
profitability in the months ahead. In addition, the recent increases in
fuel prices have created a surge in buyer awareness and interest in the
FuelMeister line of products. We expect to see strong growth in the next
year at Renewal Biodiesel, on the strength of the established
foundation.
Since
our
acquisition of BSI, our focus has been on completion of the demonstration
version of the BiodieselMaster®. These efforts have included completion of
production-model specifications, construction of the demonstration unit, and
commissioning activities. We have now completed the majority of these
activities as well as establishment of a pipeline of customers. As
expected, we are ready to enter the market with BiodieselMaster® in the
fourth quarter, and the level of interest in the product to date bodes well
for
our sales growth and profitability in this business.
Finally, we
are actively negotiating with various parties to add to our portfolio of
businesses and technologies. We remain very excited by the opportunities
in the biofuels sector, particularly those focused on production of biofuels
from non-food feedstock. When evaluating partnership and acquisition
opportunities, our criteria include sustainability of the business model,
sustainability of feedstock sources, and sustainability of the
environment. We are committed to making biofuels a viable and common part
of the solution to cure the planet of its addiction to oil.
ITEM
3. Controls and Procedures.
Disclosure
Controls and Procedures
We
carried out an evaluation of the effectiveness of the design and operation
of
our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934 (the “Exchange Act”) under the supervision and with the
participation of our chief executive officer, chief financial officer and other
members of our management team. Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required
to be
disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under
the
Exchange Act is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure. Accordingly, our disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
objectives. However, any system of controls can provide only reasonable, and
not
absolute, assurance that the objectives of the control system are met. In
addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events.
Based
upon the initial evaluation of the effectiveness of the design and operation
of
our disclosure controls and procedures as relating to our Quarterly Report
on
Form 10-QSB for the Quarterly Period ended September 30, 2007, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective in timely alerting them to material
information required to be included in our Exchange Act filings. Notwithstanding
the aforementioned process, certain errors subsequently came to our attention
that, ultimately, required the filing of restated quarterly financial statements
for this period and augmentation of certain disclosures, each of which is more
fully described in the accompanying financial statements. As a result, we have
reconsidered our process for evaluation and our conclusions.
We
continue to believe that our disclosure controls and procedures are reasonably
effective to achieve the objectives set forth in the first paragraph above.
Our
basis for this conclusion is largely based on the fact that those matters giving
rise to the restatements were, in fact, included in our overall review and
evaluation. However, the outcome of the original accounting for these matters
and transactions followed interpretations of accounting guidance that ultimately
was incorrect. We intend to further evaluate our disclosure controls and
procedures process in order to develop measures that will afford a higher level
of assurance in meeting the objective of this process. However, those measures
have not yet been identified or implemented at this time.
Management’s
Report on Internal Control Over Financial Reporting
We
will
be required by the Sarbanes-Oxley Act to include an assessment of our internal
control over financial reporting in our Annual Report on Form 10-KSB beginning
with our filing for our fiscal year ending December 31, 2007 and attestation
from an independent registered public accounting firm in our Annual Report
on
Form 10-KSB beginning with our filing for our fiscal year ending December
31, 2008.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal controls over financial reporting during
the quarter ended September 30, 2007, which have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1. Legal Proceedings.
None.
ITEM
2. Unregistered Sales Of Equity Securities And Use Of
Proceeds.
None.
ITEM
3. Defaults Upon Senior Securities.
None.
ITEM
4. Submission Of Matters To A Vote Of Security Holders.
On
July
31, 2007, the majority stockholders of the Company approved a 1-for-15 reverse
stock split pursuant to a written consent in lieu of a special meeting of
stockholders and, as a result, all outstanding shares of Common Stock (the
"Old
Shares") were automatically converted into 23,805,126 shares of common
stock (the "New Shares"). The authorized number of shares of common stock was
not impacted by the reverse stock split. The reason for the reverse stock split
was to increase the per share stock price to generate greater interest among
professional investors and institutions. All New Shares have the same par value,
voting rights and other rights as the Old Shares.
On
July
31, 2007, the majority stockholders of the Company approved the 2007 Stock
Incentive Stock Plan (the "2007 Incentive Plan") and authorized 1,000,000 shares
of Common Stock, for issuance of stock awards and stock options thereunder.
The
primary purpose of the 2007 Incentive Plan is to attract and retain the best
available personnel for the Company by granting stock awards and stock options
in order to promote the success of the Company's business and to facilitate
the
ownership of the Company's stock by employees.
ITEM
5. Other Information.
None.
ITEM
6. Exhibits.
Exhibit Number
|
|
Description
|
|
|
|
3.1
|
|
Amendment
to Certificate of Incorporation of Tech Laboratories, Inc.
(1)
|
|
|
|
3.2
|
|
Amended
and Restated By-laws of Tech Laboratories, Inc. (1)
|
|
|
|
10.1
|
|
Agreement
and Plan of Merger, dated April 20, 2007, among Tech Laboratories,
Inc.,
Renewal Fuels Acquisitions, Inc. and Renewal Fuels, Inc.
(1)
|
|
|
|
10.2
|
|
Asset
Purchase Agreement, dated March 30, 2007, among Crivello Group, LLC,
Renewal Fuels, Inc. and Biodiesel Solutions, Inc. (1)
|
|
|
|
10.3
|
|
Securities
Purchase Agreement, dated April 20, 2007, by and between Tech
Laboratories, Inc. and Cornell Capital Partners L.P.
(1)
|
|
|
|
10.4
|
|
$1,000,000
principal amount Secured Convertible Debenture, dated April 20, 2007,
by
and between Tech Laboratories, Inc. and Cornell Capital Partners
L.P.
(1)
|
|
|
|
10.5
|
|
Warrant
to purchase 18,000,000 shares of Common Stock of Tech Laboratories,
Inc.
dated April 20, 2007 (1)
|
|
|
|
10.6
|
|
Registration
Rights Agreement, dated April 20, 2007, by and between Tech Laboratories,
Inc. and Cornell Capital Partners L.P.
(1)
|
10.7
|
|
Pledge
and Escrow Agreement, dated April 20, 2007, by and between Tech
Laboratories, Inc., David Gonzalez and Cornell Capital Partners L.P.
(1)
|
|
|
|
10.8
|
|
Restated
Security Agreement, dated April 20, 2007, by and between Tech
Laboratories, Inc. and Cornell Capital Partners L.P.
(1)
|
|
|
|
10.9
|
|
Services
Agreement between Renewal Fuels, Inc. and Biodiesel Solutions, Inc.,
dated
as of March 30, 2007 (1)
|
|
|
|
10.10
|
|
Settlement
Agreement between Tech Laboratories, Inc. and Stursburg & Veith, dated
as of April 25, 2007 (1)
|
|
|
|
10.11
|
|
Amendment
No. 1 to Secured Convertible Debenture No. TCHL-1-1, dated May 31,
2007,
by and between Tech Laboratories, Inc. and Cornell Capital Partners
L.P.
(2)
|
|
|
|
10.12
|
|
Amended
and Restated $1,000,000 principal amount Secured Convertible Debenture,
dated May 31, 2007, by and between Tech Laboratories, Inc. and Cornell
Capital Partners L.P. (2)
|
|
|
|
10.13
|
|
Amendment
No. 1 to Secured Convertible Debenture No. TCHL-1-2, dated May 31,
2007,
by and between Tech Laboratories, Inc. and Cornell Capital Partners
L.P.
(2)
|
|
|
|
10.14
|
|
$400,000
principal amount Secured Convertible Debenture, dated May 31, 2007,
by and
between Tech Laboratories, Inc. and Cornell Capital Partners L.P.
(2)
|
|
|
|
10.15
|
|
$300,000
principal amount Secured Convertible Debenture, dated December 27,
2005,
by and between Tech Laboratories, Inc. and Montgomery Equity Partners,
Ltd. (incorporated by reference to the exhibits to Registrant’s Form 8-K
filed on January 10, 2006).
|
|
|
|
10.16
|
|
Amendment
No. 1 to Secured Convertible Debenture No. MEP-2, dated May 31, 2007,
by
and between Tech Laboratories, Inc. and Montgomery Equity Partners,
Ltd.
(2)
|
|
|
|
10.17
|
|
Amended
and Restated $537,220 principal amount Secured Convertible Debenture,
dated December 27, 2005, by and between Tech Laboratories, Inc. and
Montgomery Equity Partners, Ltd. (incorporated by reference to the
exhibits to Registrant’s Form 8-K filed on January 10,
2006).
|
|
|
|
10.18
|
|
Amendment
No. 1 to Secured Convertible Debenture No. MEP-3, dated May 31, 2007,
by
and between Tech Laboratories, Inc. and Montgomery Equity Partners,
Ltd.
(2)
|
|
|
|
10.19
|
|
Agreement
and Plan of Merger, dated July 2, 2007, among Tech Laboratories,
Inc., BSI
Acquisitions, Inc. and Biodiesel Solutions, Inc. (3)
|
|
|
|
10.20
|
|
Securities
Purchase Agreement, dated July 2, 2007, by and between Tech Laboratories,
Inc. and Cornell Capital Partners L.P. (3)
|
|
|
|
10.21
|
|
$2,000,000
principal amount Secured Convertible Debenture, dated July 2, 2007,
by and
between Tech Laboratories, Inc. and Cornell Capital Partners L.P.
(3)
|
|
|
|
10.22
|
|
Warrant
to purchase 33,750,000 shares of Common Stock of Tech Laboratories,
Inc.
dated July 2, 2007 (3)
|
|
|
|
10.23
|
|
Amendment
No. 1 to Registration Rights Agreement, dated July 2, 2007, by and
between
Tech Laboratories, Inc. and Cornell Capital Partners L.P.
(3)
|
10.24
|
|
Security
Agreement, dated July 2, 2007, by and between Biodeisel Solutions,
Inc.,
Renewal Fuels, Inc. and Cornell Capital Partners L.P.
(3)
|
|
|
|
10.25
|
|
Waiver
of Penalties, dated November 13, 2007, between the Company and Montgomery
Equity Partners, Ltd.
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer and Chief Financial Officer pursuant to
Rule
13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification
by Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
(1) Incorporated
by reference to Form 8-K filed on April 26, 2007
(2) Incorporated
by reference to Form 8-K filed on June 8, 2007
(3) Incorporated
by reference to Form 8-K filed on July 6, 2007
SIGNATURE
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.
|
RENEWAL
FUELS, INC.
|
|
|
|
Dated: April
8, 2008
|
By:
|
/s/ John
King
|
|
|
John
King,
|
|
|
Chief
Executive Officer and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
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