UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

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

For the transition period from ______ to ______

Commission file number 0-31981

ENERTECK CORPORATION
(Exact name of Registrant as Specified in its Charter)

Delaware
47-0929885
(State or other jurisdiction
(I.R.S. Employer
of incorporation or
Identification No.)
organization)
 

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

(281) 240-1787
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer 
¨
Accelerated filer 
¨
Non-accelerated filer
¨
Smaller reporting company 
x

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

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: Common, $.001 par value per share; 18,287,693 outstanding as of July 31, 2008.
 

PART I - FINANCIAL INFORMATION

ENERTECK CORPORATION

Index to Financial Information
Period Ended June 30, 2008

Item
 
Page
     
Item 1 –
Consolidated Financial Statements (Unaudited):
   
     
Consolidated Balance Sheets
 
3
     
Consolidated Statements of Operations
 
4
     
Consolidated Statements of Cash Flows
 
5
     
Notes to Consolidated Financial Statements
 
6
     
Item 2 –
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
8
     
Item 3 –
Quantitative and Qualitative Disclosures About Market Risk
 
14
     
Item 4T – 
Controls and Procedures
 
15
 
2

ENERTECK CORPORATION and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
Unaudited
 
Audited
 
   
June 30, 2008
 
Dec. 31, 2007
 
ASSETS
         
           
Current assets
         
Cash
 
$
895,592
 
$
319,126
 
Inventory
   
140,194
   
146,654
 
Receivables – Trade
   
17,602
   
50,920
 
Receivables - Employee
   
0
   
4,482
 
Prepaid Expenses
   
39,952
   
19,639
 
Total current assets
   
1,093,340
   
540,821
 
               
Intellectual Property
   
3,000,000
   
3,000,000
 
               
Property and equipment, net of accumulated depreciation of $221,403 and 202,271, respectively
   
100,762
   
119,894
 
Total assets
 
$
4,194,102
 
$
3,660,715
 
               
LIAB. AND STOCKHOLDERS’ EQUITY (DEFICIT)
             
               
Current liabilities
             
Notes Payable - Current Portion
 
$
500,000
 
$
500,000
 
Accounts payable
   
5,939
   
10,649
 
Accrued liabilities
   
123,506
   
61,666
 
Line of Credit
   
53,662
   
0
 
Stockholder Advances
   
300,000
   
0
 
Total current liabilities
   
983,107
 
$
572,315
 
               
Long Term Liabilities
             
Notes Payable
 
$
1,000,000
 
$
1,000,000
 
Total Long Term Liabilities
 
$
1,000,000
 
$
1,000,000
 
               
Stockholders’ Equity (Deficit)
             
Common stock, $.001 par value, 100,000,000 shares authorized, 18,287,693 and 17,761,359 shares issued and outstanding, respectively
   
18,288
    17,761  
Additional paid-in capital
   
20,327,729
   
19,947,381
 
Accumulated deficit
   
(18,135,022
)
 
(17,876,742
)
Total stockholders’ equity
   
2,210,995
   
2,088,400
 
               
Total liabilities and stockholders’ equity (deficit)
 
$
4,194,102
 
$
3,660,715
 

3

ENERTECK CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2008 and 2007
(Unaudited)

   
Three Months Ended
 
Six Months Ended
 
   
June 30,
 
June 30,
 
   
2008
 
2007
 
2008
 
2007
 
                   
Revenues
 
$
154,653
 
$
18,936
 
$
274,998
 
$
56,116
 
Cost of goods sold
   
25,116
   
6,903
   
41,125
   
18,638
 
Gross profit
 
$
129,537
 
$
12,033
 
$
233,873
 
$
37,478
 
                           
General and Administrative Expenses:
                         
Wages
 
$
105,596
 
$
106,309
 
$
212,248
 
$
213,679
 
Non-cash compensation
   
0
   
0
   
47,074
   
0
 
Depreciation
   
9.566
   
12,139
   
19,132
   
24,076
 
Other Selling, Gen. & Admin. Exp.
   
99,655
   
107,502
   
194,625
   
226,011
 
Total Expenses
 
$
214,817
 
$
225,950
 
$
473,079
 
$
463,766
 
                               
Operating loss
   
($85,280
)
 
($213,950
)
 
($239,206
)
 
($426,288
)
                           
Interest Income
   
4,574
   
5,910
   
8,664
   
13,764
 
Other Income
   
2,765
   
14,335
   
3,388
   
18,628
 
Interest expense
   
(15,896
)
 
(15,361
)
 
(31,126
)
 
(35,361
)
Net Income (loss)
   
($93,837
)
 
($209,033
)
 
(258,280
)
 
($429,257
)
                           
Weighted average shares outstanding:
   
($0.00
)
 
($0.01
)
 
($.01
)
 
($0.03
)
Basic and diluted
   
17,948,356
   
17,431,689
   
17,854,857
   
17,098,376
 

4

ENERTECK CORPORATION and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2008 and 2007
(Unaudited)

   
2008
 
2007
 
Net (loss)
   
($258,280
)
 
($429,257
)
Adjustments to reconcile net loss to cash used in operating activities:
             
Depreciation
   
19,132
   
24,076
 
Common Stock issued for services
   
0
   
0
 
Warrants/Options Expenses
   
47,074
   
0
 
Gain on sale of assets
   
0
   
(964
)
Changes in operating assets and liabilities:
             
Accounts receivable
   
33,318
   
251,839
 
Inventory
   
6,460
   
(20,176
)
Prepaid expenses
   
(20,313
)
 
18,400
 
Accounts payable
   
(4,710
)
 
(64,510
)
Accrued Interest payable
   
31,126
   
(31,605
)
Accrued Other expenses
   
31,057
   
8,439
 
NET CASH USED IN OPERATING ACTIVITIES
   
($115,136
)
 
($243,758
)
               
CASH FLOWS FROM INVESTING ACTIVITIES
   
0
 
$
4,800
 
Proceeds from Sale of Asset
   
0
   
($3,025
)
Repayment of Employee Advances
   
4,484
   
15,814
 
CASH PROVIDED BY INVESTING ACTIVITIES
 
$
4,484
 
$
17,589
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
             
Exercise of warrants
 
$
333,800
 
$
0
 
Sale of Common Stock
   
0
   
750,000
 
Proceeds from advances and note payable
   
353,318
       
Payment on Intellectual Property
   
0
   
(500,000
)
CASH PROVIDED BY FINANCING ACTIVITIES
 
$
687,118
 
$
250,000
 
               
NET INCREASE (DECREASE) IN CASH
 
$
576,466
 
$
23,830
 
Cash, beginning of period
   
319,126
 
$
429,483
 
               
Cash, end of period
 
$
895,592
 
$
453,313
 
               
Cash paid for:
             
Income tax
 
$
-
 
$
-
 
Interest expense
   
-
   
66,966
 
 
5

ENERTECK CORPORATION and SUBSIDIARY,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying Unaudited interim consolidated financial statements of EnerTeck Corporation have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in EnerTeck’s Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2007 as reported in the Form 10-KSB have been omitted.

NOTE 2 - INCOME (LOSS) PER COMMON SHARE

The basic net income (loss) per common share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding.

Diluted net income (loss) per common share is computed by dividing the net income applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For 2008 and 2007, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

NOTE 3 – INTELLECTUAL PROPERTY

In July 2006, EnerTeck acquired the EnerBurn technology. The purchase price for the EnerBurn technology is to be paid as follows: (i) $1.0 million cash paid on July 13, 2006, and (ii) promissory note for $2.0 million bearing interest each month at a rate of 4.0% per annum, compounded monthly, and which shall be paid in four annual payments of $500,000 plus accumulated interest to that date on each anniversary of the closing until the entire purchase price is paid in full. The second installment payment on this note of $500,000 plus compounded interest was made in advance of the due date on July 3, 2008. EnerTeck has determined that the life of the intellectual property is indefinite. Therefore, the asset is not amortized and will be tested for impairment at least annually.

NOTE 4- STOCK-BASED COMPENSATION

Effective January 1, 2006, EnerTeck began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards No. 123R, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, EnerTeck had accounted for stock options according to the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. EnerTeck adopted the modified prospective transition method provided for under SFAS No. 123R, and, consequently, have not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options recognized in the first quarter of fiscal 2006 includes the quarterly amortization related to the remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123.

EnerTeck granted 64,200 non-statutory stock options to company employees during the three months ended March 31, 2008 under the Enerteck Corporation 2003 Stock Option Plan. These options were divided based upon current compensation levels to all current salaried employees. No further stock option compensation is planned at the present time.

During the quarter ended June 30, 2008, the Company entered into a program to provide short-term inducements to current warrant holders to exercise those warrants prior to their stated expiration dates. The inducement provided was a reduction in the exercise price to 60% of the original amount. Under this program 526,334 warrants were exercised resulting in cash proceeds to the Company of $333,800. This program expired June 30, 2008.
 
6

NOTE 5 - LINE OF CREDIT

During March 2008, the Company enterred into a revolving line-of-credit agreement with Merrill Lynch Bank USA. The line of credit provides for short-term borrowings up to $100,000, with interest at LIBOR plus .5%. The line is collateralized by cash and cash equivalents totaling $235,448 at June 30, 2008.

NOTE 6 - PRIVATE OFFERING

During June 2008, the board of directors of the Company authorized a private offering of stock and warrants. Prior to June 30, 2008, an advance payment of $300,000 for this offering was received by the Company. At this time, the terms of the offering have not been finalized.
 
7

Item 2.   Management’s Discussion and Analysis of Plan of Operation

The following should be read in conjunction with the consolidated financial statements of the Company included elsewhere herein.
 
FORWARD-LOOKING STATEMENTS

When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” “plans”, and similar expressions are intended to identify forward-looking statements regarding events, conditions and financial trends which may affect our future plans of operations, business strategy, operating results and financial position. Forward looking statements in this report include without limitation statements relating to trends affecting our financial condition or results of operations, our business and growth strategies and our financing plans.
 
Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Certain of these risks and uncertainties are discussed in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007 under the caption “Uncertainties and Risk Factors” in Part I, Item 1 “Description of Business”.
 
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

EXECUTIVE OVERVIEW

EnerTeck Corporation (the “Company” or “EnerTeck Parent”) was incorporated in the State of Washington on July 30, 1935 under the name of Gold Bond Mining Company for the purpose of acquiring, exploring, and developing and, if warranted, the mining of precious metals. We subsequently changed our name to Gold Bond Resources, Inc. in July 2000. We acquired EnerTeck Chemical Corp. (“EnerTeck Sub”) as a wholly owned subsidiary on January 9, 2003. For a number of years prior to our acquisition of EnerTeck Sub, we were an inactive, public “shell” corporation seeking to merge with or acquire an active, private company. As a result of this acquisition, we are now acting as a holding company, with EnerTeck Sub as our only operating business. Subsequent to this transaction, on November 24, 2003 we changed our domicile from the State of Washington to the State of Delaware, changed our name from Gold Bond Resources, Inc. to EnerTeck Corporation and affected a one for 10 reverse common stock split. Unless the context otherwise requires, the terms “we,” “us” or “our” refer to EnerTeck Corporation and its consolidated subsidiary.

EnerTeck Sub, our wholly owned operating subsidiary, was incorporated in the State of Texas on November 29, 2000. It was formed for the purpose of commercializing a diesel fuel specific combustion catalyst known as EnerBurn®, as well as other combustion enhancement and emission reduction technologies. Nalco/Exxon Energy Chemicals, L.P. (“Nalco/Exxon L.P.”), a joint venture between Nalco Chemical Corporation and Exxon Corporation commercially introduced EnerBurn in 1998. When Nalco/Exxon L.P. went through an ownership change in 2000, our founder, Dwaine Reese, formed EnerTeck Sub. It acquired the EnerBurn trademark and related assets and took over the Nalco/Exxon L.P. relationship with the EnerBurn formulator and blender, and its supplier, Ruby Cat Technology, LLC (“Ruby Cat”).

We utilize a sales process that includes detailed proprietary customer fleet monitoring protocols in on-road applications that quantify data and assists in managing certain internal combustion diesel engine operating results while utilizing EnerBurn. Test data prepared by Southwest Research Institute and actual customer usage has indicated that the use of EnerBurn in diesel engines improves fuel economy, lowers smoke, and decreases engine wear and the dangerous emissions of both Nitrogen Oxide (NOx) and microscopic airborne solid matter (particulates). Our principal target markets presently include the trucking, heavy construction and maritime shipping industries. We also expect that revenues will be derived in the future from the railroad, mining and offshore drilling industries. Each of these industries share certain common financial characteristics, i.e. (i) diesel fuel represents a disproportionate share of operating costs; and (ii) relatively small operating margins are prevalent. Considering these factors, management believes that the use of EnerBurn and the corresponding derived savings in diesel fuel costs can positively affect the operating margins of its customers while contributing to a cleaner environment.

8
 
RESULTS OF OPERATIONS
 
Revenues
 
We recorded sales revenues of $155,000 and $275,000 for the three months and six months ended June 30, 2008, respectively, versus sales revenues of $19,000 and $56,000 in the same periods of 2007. The increase in revenues for the three month and six month periods over that of the prior year can primarily be traced to an expansion of business on the Mississippi River, related to our ongoing relationship with Custom Fuel Services, Inc. (“Custom”). It is anticipated that another large order from Custom will be shipped during the third quarter of 2008 and that this business should increase now that the fueling facility for EnerBurn on the Mississippi River located at Memphis, Tennessee is operational.

On July 28, 2005, EnerTeck Sub had entered into an Exclusive Reseller and Market Development Agreement (the “Custom Agreement”) with Custom, a subsidiary of Ingram Barge. Under the Custom Agreement, EnerTeck Sub has appointed Custom, which provides dockside and midstream fueling from nine service locations in Louisiana, Kentucky, Illinois, West Virginia, Missouri and Iowa, as its exclusive reseller of EnerBurn and the related technology on the Western Rivers of the United States, meaning the Mississippi River, its tributaries, South Pass, and Southwest Pass, excluding the Intra Coastal Waterway. The Agreement has an initial term of three years but can be terminated upon 60 days prior written notice by either party. Custom is not required to purchase a minimum volume of EnerBurn during the term of the Custom Agreement. Subsequent to the signing of the Custom Agreement, Custom obtained the regulatory approvals and installed the blending equipment necessary to facilitate its distribution of EnerBurn. In February 2006, we delivered our first shipment of EnerBurn to Custom by delivering 4,840 gallons. During most of 2006, Custom concentrated on completing the required infrastructural work to allow Custom to begin servicing the Ingram and other fleets. This work was completed late in the second quarter of 2006 and treatment of the Ingram fleet was commenced. Late in the second quarter, Custom placed a second order of 4,840 gallons. However, Custom was unable to take delivery until late in the fourth quarter of 2006. Sales to Custom, currently the Company’s largest customer have been slower than initially anticipated principally due to an equipment malfunction and delay in the completion of a principal Marine fueling facility for EnerBurn on the Mississippi River. Each of these problems has been addressed and is either corrected or close to being corrected. We anticipate sales in this market will increase significantly during the later parts of 2008.

We expect future revenue trends to initially come from the trucking, rail, heavy construction and maritime industries, and subsequently expect revenues to also be derived from the mining and offshore drilling industries. We expect this to occur as sales increase and the sales and marketing strategies are implemented into the targeted markets and we create an understanding and awareness of our technology through proof of performance demonstrations with potential customers.

Our future growth is significantly dependent upon our ability to generate sales from heavy construction companies such as those currently coming on line, trucking companies with fleets of 500 trucks or more, and barge and tugboat companies with large maritime fleets, and railroad, mining and offshore drilling and genset applications. Our main priorities relating to revenue are: (1) increase market awareness of EnerBurn product through its strategic marketing plan, (2) growth in the number of customers and vehicles or vessels per customer, (3) accelerating the current sales cycle, and (4) providing extensive customer service and support.

In early September 2006, we made our initial sale to a member of the heavy construction industry working in the South Central Texas area. After successful testing this initial customer has led to introductions and initial testing with a large concrete company in West Texas, one of the largest highway contracts in the state of Texas and most recently one to largest highway and heavy construction contractor in the United States. We feel as this market matures it can become a major source of business for the Company.

Also, negotiations continue for the demonstration and testing with a major American railroad company. This follows several years of successful usage of EnerBurn, our principal product for several years with a small railroad company, working principally in the Houston area. Successful completion of this test, which is projected to take several months, should lead to the Company’s entry into a significantly larger market.

Gross Profit

Gross profit, defined as revenues less cost of goods sold, was $130,000 or 83.8% of sales and $234,000 or 85.0% of sales for the three months and six month periods ended June 30, 2008, compared to $12,000 or 63.5% of sales and $37,000 or 66.8% for the three and six month periods ended June 30, 2007. In terms of absolute dollars, the increase is a direct reflection of the difference in sales volume for the two periods. In terms of the percentage of sales, the increase is due primarily to the fact that we are now a manufacturer of our core products, instead of a purchaser and relabeler.
 
9

Cost of goods sold was $25,000 and $41,000 for the three and six month periods ended June 30, 2008, which represented 16.2% and 15.0% of revenues respectively, as compared to $7,000 and $19,000 for the three month and six month periods ended June 30, 2007 which represented 36.5% and 33.2% of revenues respectively. This decrease in costs of goods sold as a percentage of revenue primarily reflects the decrease in overall product cost from our initiation of manufacturing of our products as compared to purchasing our products from an outside vendor. Starting in July 2006, we have owned the EnerBurn technology and associated assets. Although our manufacturing is done for us by an unrelated third party, we should continue to realize better gross margins due to our manufacturing our own product lines, compared to those we achieved in the past when we purchased all of our products from an outside vendor.

    Costs and Expenses

Operating expenses were $215,000 for the three months and $473,000 for the six months ended June 30, 2008 as compared to $226,000 for the three months and $464,000 for the six months ended June 30, 2007. The majority of such increase for the six month period of 2008 was due to increases in sales commissions from the increase in sales for the first and second quarters of 2008 compared to the prior year period and year end audit fees paid or payment for the quarterly period. Costs and expenses in all periods primarily consisted of wages, professional fees, rent expense, amortization expense and other selling, general and administrative expenses.

Net Loss

We reported a net loss of $94,000 during the three months and $258,000 during the six months ended June 30, 2008, as compared to net losses of $209,000 for the three months and $429,000 for the six months ended June 30, 2007, respectively. Of these losses in 2008, $66,000 was non cash in nature. This change was primarily due to the increase in sales for the first and second quarters of 2008 compared to the prior year periods with operating costs remaining at a relatively constant level for the first two quarters of 2008 compared to 2007. Net income in the future will be dependent upon our ability to increase revenues faster than we increase our selling, general and administrative expenses, research and development expense and other expenses.

Operations Outlook

Beginning in 2005, management began a period of reassessing the Company’s direction. Due to a lack of working capital, and a nearly complete turnover in upper management and sales staff dating back into 2004, senior management changed its method of marketing the operation during 2005. The majority of the marketing effort for 2005 was directed at targeting and gaining a foothold in one of our major target areas, the inland marine diesel market. Management focused virtually all resources at pinpointing and convincing one major customer within this market, Custom, to go full fleet with our diesel fuel additive product lines. A substantial portion of 2005 was spent testing our primary product, EnerBurn, on one large inland marine vessel belonging to this major potential customer. This resulted in the signing of the Custom Agreement and delivery of the first shipment of EnerBurn to Custom as discussed above. This initial purchase order plus the second order received in the second quarter of 2006, amount in size to more revenue and a higher margin than all the orders combined for 2005, 2004 and 2003. In addition to our efforts in the marine sales, the sales effort resulted in initial sales to customers in the heavy construction industry market beginning in the third quarter of 2006 in which we have used the same strategies that had successfully started with the marine market. To date, we have signed on three new customers with testing to begin with another major heavy equipment contractor in the very near future.

At present, one customer, Custom,   represents a majority of our sale revenues. With Custom’s assistance, however, negotiations are currently underway with several other large customers in the same industry to expand this market. The loss of Custom as a customer would adversely affect our business and we cannot provide any assurances that we could adequately replace the loss of this customer. Sales revenues to Custom and its clients have been less to date than had originally been projected. This has been due primarily to the equipment malfunction and delay in the completion of a principal Marine fueling facility as described above. With our assistance, each of these problems has been addressed and is either corrected or close to being corrected. It is expected that sales should show significant increases in the latter part of 2008. It is also anticipated that other new customers coming on board during 2008 will lessen the impact of a loss of Custom, should that happen. In this regard, in June 2007, we entered into an Exclusive Reseller and Market Development Agreement with Tanner Fuel Services, LLC appointing Tanner the exclusive reseller of EnerBurn on the Inter Coastal Waterway from Houma, Louisiana to the Port of Houston, Texas.  

A major change in the way EnerTeck does business commenced early in the third quarter of 2006, with the completion of the purchase of the EnerBurn technology and the commencement of manufacturing operation. This gives us permanent, exclusive rights to the EnerBurn formulas and protocols and allows for a much better gross margin than in the past. The purchase of the EnerBurn technology and associated assets was completed on July 13, 2006 and both the formulation equipment and raw materials are presently in place to manufacture for both on and off road product lines.
 
10

In this regard, we believe the on road trucking industry is another potentially large market. The purchase of the rights to the EnerBurn technology and the subsequent issuance to Enerteck of its manufacturing permit for “On Road” versions of EnerBurn, allows us to now pursue this market and it is our intention to do that during 2008. We are currently working closely with two engineering firms on the development of a reliable and economically priced truck mounted dosing unit which will better allow for the efficient utilization of EnerBurn for the trucking markets. This appears to be nearing completion and it is anticipated that this market should begin opening up for us later in 2008.

LIQUIDITY AND CAPITAL RESOURCES

On June 30, 2008, we had working capital of $110,000 and stockholders’ equity of $2,210,000 compared to working capital of $147,000 and stockholders equity of $2,289,000 on June 30, 2007.

On June 30, 2008, we had $896,000 in cash, total assets of $4,194,000 and total liabilities of $1,983,000, compared to $453,000 in cash, total assets of $3,806,000 and total liabilities of $1,517,000 on June 30, 2007.

The increase in cash on hand on June 30, 2008, as compared to that of June 30, 2007, was primarily due to higher sales during the first six months of 2008 compared to the first six months of 2007, combined with cash from the exercise of common stock purchase warrants and from a stockholder advance.
 
Cash available increased by $576,000 during the first six months of 2008 to a balance of $896,000 on June 30, 2008 as compared to $319,000 at year end December 31, 2007. Net cash used in operating activities was $115,000 for the six months ended June 30, 2008 compared to net cash used in operating activities of $244,000 for the six months ended June 30, 2007. Such changes from period to period were primarily the result of a net loss of $258,000 for the six months ended June 30, 2008 compared to a net loss of $429,000 for the six months ended June 30, 2007, as well as changes from period to period in accounts receivable, inventory, prepaid expenses, accounts payable, accrued interest payable and accrued other expenses.
 
For the six months ended June 30, 2008, we had investing activities of $4,000 from the repayment of employee debt compared to investing activities of $18,000 for the six months ended June 30, 2007 primarily from the repayment of employee debt of $16,000. Cash provided by financing activities was $687,000 for the six months ended June 30, 2008 primarily from $334,000 received from the exercise of warrants, and $354,000 received from an advance and a note payable, compared to $250,000 from financing activities for the six months ended June 30, 2007 from the sale of a private placement of common stock in the amount of $750,000 offset by $500,000 paid on the intellectual property.

On July 13, 2006, we completed the acquisition of the EnerBurn formulas, technology and associated assets pursuant to an Asset Purchase Agreement executed as of the same date (the “EnerBurn Acquisition Agreement”) between the Company and the owner of Ruby Cat (the “Seller”). Pursuant thereto, the Company acquired from the Seller all of its rights with respect to the liquid diesel motor vehicle fuel additives known as EC5805A and EC5931A products (the “Products”) as well as its rights to certain intellectual property and technology associated with the Products (collectively, the “Purchased Assets”). The purchase price for the Purchased Assets was $3.0 million, payable as follows: (i) $1.0 million paid on July 13, 2006 in cash, and (ii) the remaining $2.0 million evidenced by a promissory note (the “Note”) bearing interest each month at a rate of 4.0% per annum, compounded monthly, and which shall be paid in four annual payments of $500,000 plus accumulated interest to that date on each anniversary of the closing until the entire purchase price is paid in full. In order to secure the debt represented by the Note, the Company executed and delivered to the Seller a Security Agreement in which the Company granted the Seller a first priority lien on the Purchased Assets. The foregoing payments will draw significantly on future cash reserves. This acquisition, however, allows us to manufacture our own on and off road versions of the EnerBurn product line and will allow for significant savings in the cost requirements of product sales from manufacturing. The first payment of $500,000 was made in advance in May 2007. An additional $500,000 due July 13, 2008 was also made in advance of the due date, on July 3, 2008. The remaining payments to complete the purchase are due on July 13, 2009 and 2010, respectively.

In the past, we have been able to finance our operations primarily from capital which has been raised. To date, sales have not been adequate to finance our operations without investment capital. In addition to the exercise of warrants in the second quarter of 2008 and the $750,000 financing affected in 2007, during the quarter ended September 30, 2005, we issued 250,000 shares of our common stock to certain accredited investors for aggregate proceeds of $250,000. In addition, in December 2005, we sold to BATL Bioenergy LLC 2,450,000 shares of the common stock and a warrant to purchase an additional 1,000,000 shares of common stock at an exercise price of $2.00 per share for the aggregate purchase price of $3,000,000. Also, in 2005, we received loans for working capital of an aggregate of $115,000 from various parties. All loans were repaid in December 2005.
 
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On April 29, 2008, our Board of Directors agreed to temporarily reduce the warrant exercise prices of all of the Company’s outstanding warrants by 40.0% effective immediately through and including June 2, 2008, which was extended until June 30, 2008 (the “Warrant Reduction Period”). During the Warrant Reduction Period, a total of 526,334 warrants were exercised for a total of 526,334 shares of common stock at an aggregate exercise price of $333,800. As of July 1, 2008, the warrant exercise prices of the outstanding warrants returned to their original warrant exercise prices.

Since the end of the second quarter, 1,740,316 warrants with a total exercised value of $1,998,146 have expired. There are currently 2,670,000 warrants outstanding with a total exercised value of $4,401,000. Such warrants have exercise prices ranging from $1.00 to $2.00. There can be no assurance that any of the warrants (some of which expire later on in 2008) will be exercised especially in view of the current market price of our common stock which is less than the exercise prices of the warrants.  

Based on currently proposed plans and assumptions relating to our operations, in addition to our current cash and cash equivalents together with projected cash flows from operations and projected revenues we recognize that we may require additional investment to satisfy our contemplated cash requirements for the next 12 months and, in this regard, our Board of Directors recently authorized a private offering of common stock and warrants. Prior to the end of the second quarter, we received an advance payment on this offering in the amount of $300,000.

We believe that the proceeds from such offering (provided a substantial portion is completed) along with expected sales, should provide the working capital required for our cash needs for the next 12 months including our upcoming product performance testing for three potentially major new customers and for the Board approved hiring of additional technical sales personnel and equipment purchases and installation, related to the planned expansion of our manufacturing capabilities. No assurances can be made that the remaining warrants outstanding will be exercised prior to their exercise dates or at all or that we will be able to obtain other investments on terms acceptable to us or at all. Our contemplated cash requirements beyond 2008 will depend primarily upon level of sales of our products, inventory levels, product development, sales and marketing expenditures and capital expenditures.

Other than the remaining $1,000,000 balance of the Note Payable from the $3,000,000 for the purchase of the intellectual property and a small line of credit collateralized with short term interest generating cash investments, we have no material commitments for capital requirements. Our continuation as a going concern is contingent upon our ability to obtain this additional financing and to generate revenues and cash flow to meet our obligations on a timely basis. As mentioned above, management believes that sales revenues for 2007 and the first half of 2008 were considerably less than earlier anticipated, primarily due to circumstances which have been corrected or are in the process of being corrected and therefore should not reoccur in the future. Management anticipates that sales should show significant increases during the later parts of 2008 and during 2009.
 
Inflation has not significantly impacted our operations.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Significant Accounting Policies

Business and Basis of Presentation

EnerTeck Corporation, formerly Gold Bond Resources, Inc. was incorporated under the laws of the State of Washington on July 30, 1935. On January 9, 2003, the Company acquired EnerTeck Chemical Corp. ("EnerTeck Sub") as its wholly owned operating subsidiary. As a result of the acquisition, the Company is now acting as a holding company, with EnerTeck Sub as its only operating business. Subsequent to this transaction, on November 24, 2003, the Company changed its domicile from the State of Washington to the State of Delaware, changed its name from Gold Bond Resources, Inc. to EnerTeck Corporation.

EnerTeck Sub, the Company’s wholly owned operating subsidiary is a Houston-based corporation. It was incorporated in the State of Texas on November 29, 2000 and was formed for the purpose of commercializing a diesel fuel specific combustion catalyst known as EnerBurn (TM), as well as other combustion enhancement and emission reduction technologies for diesel fuel. EnerTeck’s primary product is EnerBurn, and is registered for highway use in all USA diesel applications. The products are used primarily in on-road vehicles, locomotives and diesel marine engines throughout the United States and select foreign markets.
 
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Principles of Consolidation

The consolidated financial statements include the accounts of EnerTeck Corporation and its wholly-owned subsidiary, EnerTeck Chemical Corp. All significant inter-company accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three (3) months or less to be cash and cash equivalents.

Inventory

Inventory consists of market ready EnerBurn plus raw materials required to manufacture the products. Inventory is valued at the lower of cost or market, using the average cost method. Also included in inventory are three large Hammonds EnerBurn doser systems amounting to $57,000, which will be transferred to marine or railroad customers during 2008. The Company’s remaining inventory was split on approximately a 60/40 basis between raw materials and finished goods at December 31, 2007.

Accounts Receivable

Accounts receivable represent uncollateralized obligations due from customers of the Company and are recorded at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and charged to the provision for doubtful accounts. The Company calculates this allowance based on historical write-offs, level of past due accounts and relationships with and economic status of the customers. As of December 31, 2007 and 2006, there were no uncollectible accounts and no allowance has been provided.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided for on the straight-line or accelerated method over the estimated useful lives of the assets. The average lives range from five (5) to ten (10) years. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.

Intangible Assets

Intellectual property and other intangibles are recorded at cost. The Company has determined that its intellectual property has an indefinite life because there is no legal, regulatory, contractual, competitive, economic or other factor to limits its useful life, and therefore will not be amortized. For other intangibles, amortization would be computed on the straight-line method over the identifiable lives of the assets. The Company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, effective for periods beginning January 1, 2002, and thereafter. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets . Specifically, the statement addresses how intangible assets that are acquired should be accounted for in financial statements upon their acquisition, as well as how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The statement requires the Company to evaluate its intellectual property each reporting period to determine whether events and circumstances continue to support an indefinite life. In addition, the Company will test its intellectual property for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The statement requires intangible assets with finite lives to be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable and that a loss shall be recognized if the carrying amount of an intangible exceeds its fair value. The Company tested its intangible assets for impairment as of December 31, 2007. It was determined at that time that no impairment existed based primarily on projected sales and the resulting discounted projected cash flow analyses.
 
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Revenue Recognition

The Company follows the provisions of SEC Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” which was issued in December 2003, and recognizes revenues when evidence of a completed transaction and customer acceptance exists, and when title passes, if applicable. SAB No. 104 codified, revised and rescinded certain sections of Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements”, in order to make this interpretive guidance consistent with current authoritative accounting guidance and SEC rules and regulations.

Revenues from sales are recognized at the point when a customer order has been shipped and invoiced.

Income Taxes

The Company will compute income taxes using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on evidence from prior years, may not be realized over the next calendar year or for some years thereafter.

Income (Loss) Per Common Share

The basic net income (loss) per common share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding.

Diluted net income (loss) per common share is computed by dividing the net income applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For 2007 and 2006, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.

Management Estimates and Assumptions

The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments

The Company’s financial instruments recorded on the balance sheet include cash and cash equivalents, accounts receivable, accounts payable and note payable. The carrying amounts approximate fair value because of the short-term nature of these items.

Stock Options and Warrants

Effective January 1, 2006, the Company began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards No. 123R, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, EnerTeck had accounted for stock options according to the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. The Company adopted the modified prospective transition method provided for under SFAS No. 123R, and, consequently, has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options recognized in the first quarter of fiscal 2006 includes the quarterly amortization related to the remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. There was no unvested portion of stock options or warrants as of January 1, 2006.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk .

Not required.
 
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Item 4T.   Controls and Procedures .

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2008, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject.
 
Item 1A. Risk Factors .

Not required.  
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the second quarter of 2008, the Company issued 526,334 shares of common stock upon the exercise of warrants at an aggregate exercise price of $333,800. The foregoing shares were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security-Holders.

None.

Item 5. Other Information.

None.
 
Item 6.   Exhibits.

31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
32.1
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

     
ENERTECK CORPORATION
     
(Registrant)
       
Dated:
August 12, 2008
By:
/s/ Dwaine Reese
     
Dwaine Reese,
     
Chief Executive Officer
     
(Principal Executive Officer)
       
       
Dated:
August 12, 2008
By:
/s/ Richard B. Dicks
     
Richard B. Dicks,
     
Chief Financial Officer
     
(Principal Financial Officer)
 
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