Item
2.
Management’s
Discussion and Analysis or Plan of Operations.
As
used
in this Form 10-QSB, references to the “Company,” “Energtek,” “we,” “our” or
“us” refer to Energtek Inc. or to Energtek Inc. together with its subsidiaries,
unless the context otherwise indicates.
This
Management’s Discussion and Analysis or Plan of Operation should be read in
conjunction with the financial statements and the notes thereto.
Forward-Looking
Statements
This
Form
10-QSB contains forward-looking statements. For this purpose, any statements
contained in this Form 10-QSB that are not statements of historical fact may
be
deemed to be forward-looking statements. You can identify forward-looking
statements by those that are not historical in nature, particularly those that
use terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,”
“potential,” or “continue” or the negative of these similar terms. In evaluating
these forward-looking statements, you should consider various factors, including
the following: (a) those risks and uncertainties related to general economic
conditions, (b) whether we are able to manage our planned growth efficiently
and
operate profitable operations, (c) whether we are able to generate sufficient
revenues or obtain financing to sustain and grow our operations, (d) whether
we
are able to successfully fulfill our primary requirements for cash. The
Company’s actual results may differ significantly from the results projected in
the forward-looking statements. The Company assumes no obligation to update
forward-looking statements, except as otherwise required under the applicable
federal securities laws.
Overview
We
were
incorporated under the laws of the state of Florida on November 18, 1996 under
the name “Elderwatch, Inc.” On September 20, 2006, we changed our Company’s
state of incorporation from Florida to Nevada by the merger of Elderwatch,
Inc.
with and into its wholly-owned subsidiary, Energtek Inc., a Nevada corporation,
which was formed for such purpose. Simultaneously with such merger, we changed
our Company name from "Elderwatch, Inc." to "Energtek Inc." in order to better
reflect our proposed business operations. We also increased the number of our
shares of authorized common stock from 50,000,000 shares to 250,000,000 shares,
and we decreased the number of our shares of authorized preferred stock from
10,000,000 shares to 5,000,000 shares. On October 30, 2006, we implemented
a one
for three forward stock split of our common stock and further increased the
authorized shares of our common stock to 750,000,000 shares, par value
$0.001.
On
or
about May 24, 2006, we changed our focus to the field of clean energy
technologies, with special emphasis being put on the field of Natural Gas
Vehicles (NGV). We are currently preparing our infrastructure for operations
through some of our subsidiaries and we are also looking at various alternatives
in this field
On
August
23, 2007, the Board of Directors of the Company approved an agreement with
Radel
LLC, a New York limited liability company (“Radel”), to acquire all of the
shares of Angstore Technologies, Ltd. (“Angstore”) owned by Radel. On August 27,
2007, we entered into a Share Purchase Agreement with Radel pursuant to which
the Company purchased the 9,000 shares of common stock of Angstore owned by
Radel. The purchase price to be paid in exchange for the purchased shares is
$275,000, paid by the issuance of 550,000 shares of the Company’s common stock
to Radel.
In
addition, on August 27, 2007, we purchased an additional 4,364 shares of
Angstore’s common stock for an aggregate purchase price of $120,010. This
purchase was made pursuant to, and in accordance with, the terms and provisions
of the Investment Agreement we signed with Angstore on June 29, 2007. With
the
completion of the Radel and Angstore transactions discussed above, we have
acquired all of the outstanding common stock of Angstore. Accordingly, Angstore
has become a wholly owned subsidiary of the Company.
On
September 26, 2007, Ukcyl Ltd., a wholly-owned subsidiary of Energtek Inc.,
(“Ukcyl”) entered into an agreement with Dynatech Furnaces (Bombay) Pvt. Ltd.
(“Dynatech”) to purchase a high pressure steel seamless Cylinder Heat Treatment
Furnace Line (the “Agreement”). Ukcyl is to pay a total purchase price of
$190,000, which will be paid in three installments at specified intervals.
The
first installment, in the amount of $85,000, shall be paid to Dynatech within
10
weeks following execution of the Agreement. Upon payment of this first
installment, the two directors of Dynatech will execute a personal guarantee,
guaranteeing the performance of Dynatech pursuant to the Agreement. This
guarantee shall be in the amount of $85,000 and will be expire upon the
inspection by Ukcyl of the equipment at Dynatech’s facility in India.
Pursuant
to the terms and provisions of the Agreement, on or before January 31, 2008,
Dynatech is to prepare the equipment for inspection and testing by Ukcyl at
Dynatech’s facility in India. Upon inspection and approval of the equipment,
Dynatech shall dismantle the equipment and prepare it for shipment to Ukcyl’s
facility in the Ukraine. Upon completion of the inspection in India, Dynatech
shall receive a second installment of the purchase price in the amount of
$75,000.
Upon
arrival of the equipment in the Ukraine, Dynatech shall assist in the
installation and testing of the equipment at Ukcyl’s facility. Following
installation and the initial operation of the equipment in Ukcyl’s Ukrainian
facility, Dynatech shall be paid $30,000 representing the balance of the
purchase price. In the event the equipment does not conform to the
specifications required pursuant to the Agreement, Dynatech shall pay damages
in
the amount of $160,000. The payment of such damage amount does not limit any
other legal rights and remedies available to Ukcyl.
The
equipment purchased is subject to a one year warranty as of the date of
installation and commencement of operation in Ukcyl’s facility. In addition, for
a period of three years following installation, Dynatech shall provide technical
support with respect to the operation of the equipment.
We
currently have five wholly owned subsidiaries,
Moregastech
LLC
,
a
Nevada limited liability company; Primecyl LLC, a Nevada limited liability
company; Energtek Products Ltd., an Israeli company; Angstore Technologies
Ltd.,
an Israeli company, and
GATAL
(Natural Gas for Israel) Ltd., an Israeli company. In addition we have one
almost fully owned (99.5%) subsidiary, Ukcyl Ltd. ("Ukcyl"), a Ukrainian
company.
We
have
signed an agreement for a participation of 50% in Moregastech India Private
Limited, a company registered in India.
Plan
of Operation
Over
the
next twelve months, we intend to continue engaging in the field of clean energy
technologies, with special focus on developing and building our activities
in
the natural gas field, and more specifically in the Natural Gas Vehicles field.
We also intend to continue analyzing a number of issues, markets, projects
and
investments proposed to us in areas related to clean energy technologies. In
order to evaluate these opportunities, we anticipate entering into agreements
with experts and consultants in the relevant areas. Such evaluation process
may
include in some cases the performance of scientific experiments, which may
require entering into subcontracting agreements with laboratories and companies
capable of performing the same. We expect that once a proposal or project is
identified as being of interest to us, we will enter into development activities
and/or will purchase a stake or invest in such activities.
In
the
natural gas field, we intend to continue our construction activities and
purchase the requisite materials in order to complete the cylinder production
facility being prepared by Ukcyl. Additionally, we intend to become involved
in
the production of kits for adsorbed natural gas (“ANG”) systems. We anticipate
the start of sales of ANG systems during the third quarter of 2008. In order
to
do so, we plan to increase our activities in the Asian markets. We plan to
continue our involvement towards the provision of natural gas to industrial
customers in Israel (not expected to start before 2009). We also intend to
continue our R&D efforts in the ANG area and in the area of gas bulk
transportation systems.
We
currently have 22 employees and several persons employed on an hourly basis.
We
expect to hire additional employees, as needed, in order to execute our business
plans.
In
an
effort to improve the relations with our investors, we are redesigning the
Company’s web-site in order to make it clearer, more informative and user
friendly. In addition, on October 1, 2007, we entered into a one year agreement
with American Capital Ventures Inc. ("ACV"), to provide the Company with
investor relations consulting services. In consideration therefore, the Company
agreed to issue up to an aggregate of 150,000 shares of its common stock and
warrants entitling ACV to purchase up to an aggregate of 100,000 restricted
shares of our common stock at an exercise price of $1.05 per share. The exercise
period of each warrant shall be for five years from the date of the agreement.
The Company further agreed to use its best efforts to register the common stock
and the common stock underlying the warrants in its next registration statement
we file with the Securities and Exchange Commission. The agreement may be
terminated by either party after 180 days.
Results
of Operations for the Three Months Ended September 30, 2007
The
consolidated financial statements include the accounts of Energtek, Inc. and
all
of its wholly owned and majority-owned subsidiaries. The analysis below does
not
relate to comparative figures of 2006. During the period of January - May 2006,
the Company had practically no activities. During the period of June - September
2006, the Company engaged in capital-raising, and undertook its first steps
into
the field of clean energy technologies. As a result, the figures for the 2006
period lack materiality for comparing them with the present activities of the
Company.
Revenue.
The
Company has never generated any revenues.
Consulting
Expenses.
During
the quarter ended September 30, 2007, we incurred $111,218 in consulting
expenses. For the nine months ended September 30, 2007, the Company incurred
consulting expenses of $421,615. These expenses consist primarily of expenses
incurred for the analyses of clean energy technologies, processes and business
opportunities, as well as in depth analyses of natural gas storage systems
and
production processes for such systems.
Research
and Development expenses.
During
the quarter ended September 30, 2007, we incurred $385,289 in research and
development expenses out of which $275,000 are for the exceeding portion of
purchase premium which was created as a result of the investment in Angstore
Technologies Ltd. For the nine months ended September 30, 2007, the Company
recorded research and development expenses of $1,185,442 out of which $1,074,417
are in process research and development which was created as a result of the
investment in Angstore Technologies Ltd.
General
and Administrative Expenses.
General
and administrative expenses consist of management compensation, rent,
professional fees, telephone, travel and other general corporate expenses.
General and administrative expenses were $444,229 and $1,140,285 for the three
and nine month periods ended September 30, 2007, respectively.
Interest
Income, net.
The
Company recorded net interest income of $7,451 during the quarter ended
September 30, 2007. For the nine months ended September 30, 2007, the Company
recorded net interest income losses of $9,159.
Liquidity
and Capital Resources
During
the three and nine month periods ending September 30, 2007, the Company raised
an aggregate of $1,240,500 and $4,143,262, respectively, from the sales of
its
securities through private placements held under Regulation S promulgated under
the Securities Act of 1933, as amended. In addition, on August 22, 2007, we
received an aggregate of $1,295,000 from several warrantholders as a result
of
the exercise of a total of 3,716,666 warrants. The warrantholders exercised
2,516,666 Class A warrants exercisable at $0.10 per share for 7,549,998 common
shares, and 1,200,000 Class B warrants exercisable at $0.15 per share for
3,600,000 common shares, for an aggregate of 11,149,998 shares. The foregoing
numbers reflect the 1 for 3 forward stock split effectuated by the Company
on
October 30, 2006.
We
have
never generated any revenues. Our cash balance at September 30, 2007 was
$3,546,459. With these cash resources, and at the present level of activities,
we believe that the Company can sustain itself over the next twelve months.
Notwithstanding,
in the event our activities proceed more rapidly than expected, or our expenses
deviate substantially from our projections, we may need to raise additional
funds over the next twelve months. We have no specific plans, understandings
or
agreements with respect to the raising of such funds, and we may seek to raise
the required capital by the issuance of equity or debt securities or by other
means. Since we have no such arrangements or plans currently in effect, our
inability to raise funds may have a severe negative impact on our ability to
implement our plans, and thereafter to remain a viable Company.
Going
Concern Consideration
The
financial statements contained herein for the period ending September 30,
2007,
have been prepared on a “going concern” basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. For the reasons discussed herein and in the footnotes to our
financial statements included herein, there is a significant risk that we
will
be unable to continue as a going concern. Our audited financial statements
included in our Annual Report on Form 10-KSB for the period ending December
31,
2006, contain additional note disclosures describing the circumstances that
lead
to this disclosure by our independent auditors.
Off
Balance Sheet Arrangements
We
do not
have any off balance sheet arrangements.