UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
x
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ANNUAL
REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES ACT OF
1934
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For
the fiscal year ended December 31, 2007
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o
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TRANSITION
REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
File Number 000-30172
Renewal
Fuels, Inc.
(Name
of
small business issuer in its charter)
Delaware
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22-1436279
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(State
or other jurisdiction of incorporation)
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(I.R.S
Employer Identification Number)
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1818
North Farwell Avenue
Milwaukee,
Wisconsin
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53202
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer’s
telephone number
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(414)
283-2625
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Securities
registered under section 12(b) of the Exchange Act:
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Title
of each class
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Name
of each exchange on which registered
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None
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None
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Securities
registered under section 12(g) of the Exchange Act:
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Common
Stock, par value $0.001
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(Title
of class)
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Check
whether the issuer is not required to file reports pursuant to Section
13
or 15(d) of the Exchange Act.
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o
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Check
whether the issuer (1) filed all reports required to be filed by
Section
13 or 15(d)
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Yes
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x
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No
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o
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of
the Exchange Act during the most recent 12 months (or for such shorter
period that the issuer was required to file such reports, and (2)
has been
subject to the filing requirements for the past 90 days.
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Check
if there is no disclosure of delinquent filers in response to Item
405 or
Regulation S-B contained in
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this
form, and no disclosure will be contained, to the best of the issuer’s
knowledge, in definitive proxy or information statements incorporated
by
reference in Part III of this Form 10-KSB or any amendment of this
Form
10-KSB.
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Indicate
by check mark whether the registrant is a shell company (as defined
in
Rule
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Yes
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o
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No
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12(b)-2
of the Exchange Act.
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State
the issuer’s revenue for its most recent fiscal year.
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$
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690,103
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State
the aggregate market value of the voting and non-voting equity held
by
non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common
equity,
as of a specified date within the past 60 days: as of March 31,
2008:
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$
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615,490
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State
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date: as of March 31,
2008:
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30,774,476
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DOCUMENTS
INCORPORATED BY REFERENCE
If
the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which
the
document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and, (3) any prospectus filed pursuant to 424(b)
or (c) under the Securities Act of 1933 (“Securities Act”).
NONE
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking
statements in this Form 10-KSB including, without limitation, statements
relating to our plans, strategies, objectives, expectations, intentions and
adequacy of resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All statements made in this
report, other than statements of historical fact, are forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. The
following factors, among others, could cause actual results to differ materially
from those set forth in the forward-looking statements: our ability to
successfully develop our brands and proprietary products through internal
development, licensing and/or mergers and acquisitions. Additional factors
include, but are not limited to the following: the size and growth of the market
for our products, competition, pricing pressures, market acceptance of our
products, the effect of economic conditions, intellectual property rights,
the
results of financing efforts, risks in product development, the Company’s
ability to raise capital, national and local economic conditions, the lack
of an
established operating history for the Company’s current business activities,
conditions and trends in our industry, changes in interest rates, the impact
of
severe weather on the Company’s operations, the effects of governmental
regulation on the Company and other factors described from time to time in
our
filings with the Securities and Exchange Commission.
TABLE
OF CONTENTS
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Page
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PART
I
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ITEM
1.
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Description
of Business.
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5
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ITEM
1A.
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Current
Business.
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11
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ITEM
1B.
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Risk
Factors.
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16
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ITEM
2.
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Description
of Property.
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22
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ITEM
3.
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Legal
Proceedings.
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23
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ITEM
4.
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Submission
of Matters to a Vote of Security Holders.
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23
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PART
II
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ITEM
5.
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Market
for Common Equity and Related Stockholder Matters.
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24
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ITEM
6.
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Management’s
Discussion and Analysis or Plan of Operation.
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25
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ITEM
7.
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Financial
Statements.
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49
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ITEM
8.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure.
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82
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ITEM
8A.
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Controls
and Procedures.
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83
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ITEM
8B.
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Other
Information.
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84
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PART
III
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ITEM
9.
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Directors
and Executive Officers of the Registrant.
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85
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ITEM
10.
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Executive
Compensation.
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87
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ITEM
11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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88
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ITEM
12.
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Certain
Relationships and Related Transactions.
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89
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ITEM
13.
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Exhibit
Index.
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90
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ITEM
14.
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Principal
Accountant Fees and Services.
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92
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DOCUMENTS
INCORPORATED BY REFERENCE
If
the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which
the
document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and, (3) any prospectus filed pursuant to 424(b)
or (c) under the Securities Act of 1933 (“Securities Act”).
NONE
PART
I
ITEM
1 - DESCRIPTION OF BUSINESS.
Background
Renewal
Fuels Inc. (“Renewal Fuels” or the “Company”, formerly Tech Laboratories, Inc.)
was originally incorporated in New Jersey in 1947. By early 2007, the Company,
then known as Tech Laboratories, Inc., had become a non-operating shell and
was
seeking potential merger partners. During 2007, as a result of the various
events summarized and described below, we completed a series of transactions
that set a new direction for the Company as an operating business.
We
are
now engaged in the business of designing, developing, manufacturing and
marketing biodiesel processing equipment and accessories to convert used and
fresh vegetable oil into clean-burning biodiesel. Our products allow customers
to make biodiesel fuel, which is capable of powering all diesel fuel engines,
at
either personal or commercial production scales. We have developed a network
of
dealers in the United States for sale and distribution of our products. Our
manufacturing facilities are currently located in Sparks, Nevada.
In
September 2007, we purchased two greenhouses in Kansas which were later
transferred to our Renewal Plantations, Inc. subsidiary (“RPI”). RPI is engaged
in the growth of cellulosic feedstock for the biofuels industry. Through a
service agreement with another party, we are establishing nurseries for the
growth of unique high-density, short-rotation trees, which are designed to
provide a very high concentration of biomass per acre. RPI was formed on
February 11, 2008, and is not yet producing revenue from operations. We are
currently completing installation of the nurseries and establishing customers
for the products to be produced by RPI.
A
timeline of the events of 2007, which are more fully described below,
follows.
Date
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Event
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February
22, 2007
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Mr.
David Marks and Mr. John King are appointed as a Director and Chief
Executive Officer, respectively, of the Company.
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March
9, 2007
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Renewal
Fuels (since renamed Renewal Biodiesel) is incorporated by Crivello
Group
LLC. Messrs Marks and King are directors and officers of Renewal
Fuels.
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March
9, 2007
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Renewal
Fuels enters into an Asset Purchase Agreement to acquire the FuelMeister
division of Biodiesel Solutions Inc.
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March
30, 2007
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Renewal
Fuels’ acquisition of the FuelMeister division is completed, based on
funding provided by Crivello Group LLC.
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April
20, 2007
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The
Company (then called Tech Laboratories, Inc.) and Renewal Fuels merge.
The
former shareholders of Renewal Fuels receive 343,610 shares of the
Company’s series A convertible preferred stock.
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April
20, 2007
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New
debt funding is provided to the Company by YA Global Investments
L.P.
(formerly Cornell Capital Partners LLP). The funding provided by
Crivello
to Renewal Fuels for the acquisition of the FuelMeister division
is
repaid.
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June
21, 2007
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The
former shareholders of Renewal Fuels convert their 343,610 shares
of our
Series A preferred stock into 22,907,323 shares of our common
stock.
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July
2, 2007
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We
acquire Biodiesel Solutions Inc., from whom the FuelMeister division
had
been acquired by Renewal Fuels on March 30, 2007.
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July
2, 2007
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YA
Global provides us with additional debt funding.
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July
9, 2007
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The
Company merges with a new entity, Tech Laboratories, Inc., incorporated
in
Delaware, thus moving its domicile from New Jersey to
Delaware.
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August
1, 2007
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The
Company’s name is changed from Tech Laboratories, Inc. to Renewal Fuels
Inc. The name of the existing Renewal Fuels (with whom we merged
on April
20, 2007) is changed to Renewal Biodiesel.
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August
1, 2007
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We
complete a 1-for-15 reverse split of our common stock.
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August
1, 2007
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The
Company’s quotation symbol on the OTC Bulletin Board is changed from TLBT
to RNWF
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December
31, 2007
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YA
Global provides us with additional debt
funding.
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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
newly-formed 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 this Report 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 pre-emptive 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
Prior
to
our reverse merger with Renewal Biodiesel on April 20, 2007, Renewal Biodiesel
had acquired all the tangible and intangible assets of the FuelMeister Business
of Biodiesel Solutions, Inc. (“BSI”), a Nevada corporation, 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 manufacturing facilities are currently located in
Sparks, Nevada.
The
purchase price for the FuelMeister Business, as subsequently adjusted to reflect
the inventory on hand at closing, was $494,426. 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 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 Investments L.P. (“YA Global”) described below. 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 was recorded by us as stock-based transaction
expense.
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,
1,000,000 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 convertible at any time 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
facilitate 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 consolidated financial statements included in this
Report 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 December 31, 2007. The FuelMeister Business acquired
by
Renewal Biodiesel constitutes our Predecessor business. The accompanying
consolidated financial statements, as of December 31, 2007 and for the period
March 9, 2007 (date of inception) through December 31, 2007, are those of the
Successor. The statements of operations for the three months ended March 31,
2007 and for the year ended December 31, 2006, and the statements of cash flows
for the three months ended March 31, 2007 and for the year ended December 31,
2006 are those of our Predecessor, the FuelMeister Business.
Financing
With YA Global Investments, L.P.
On
April
20, 2007, the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement") with YA Global (formerly Cornell Capital Partners LLP)
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. 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
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.
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 April 14, 2008, 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 instalment of $700,000 was to 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. However, on December 31, 2007, subject to certain conditions , YA Global
agreed to advance $300,000 of the second instalment, as described below. 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
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.
On
December 31, 2007, the Company entered into an Amendment Agreement (the
"Amendment Agreement") with YA Global, amending the Additional Purchase
Agreement of July 2, 2007, to provide for the sale by the Company to YA Global
of its secured convertible debentures in the aggregate principal amount of
$300,000 (the "Second Additional Debentures"). As part of the Amendment
Agreement, the Company agreed that it would comply with the requirement to
have
unconditionally booked and received at least a 50% deposit for the sale of
at
least one BiodieselMaster® unit no later than January 31, 2008. The Company also
agreed to have signed a definitive joint venture with Eco Plantations no later
than January 31, 2008. The Company has not complied with these undertakings
and,
accordingly, all its obligations to YA Global are in default. Concurrently
with
the additional funding from YA Global, certain stockholders and management
of
the Company loaned $150,000 to the Company and the Company covenanted to YA
Global that, as long as the debentures issued by the Company to YA Global are
outstanding, that these loans would not be repaid without the express written
consent of YA Global.
As
part
of the Amendment Agreement, the Company also agreed to reduce the exercise
price
of the 1,200,000 warrants issued to YA Global on April 20, 2007 from $0.15
per
share to $0.001 per share and to reduce the exercise price of 1,200,000 of
the
2,250,000 warrants issued to YA Global on July 2, 2007 from $0.90 per share
to
$0.001 per share.
On
March
27, 2008, YA Global completed a cashless exercise of the 1,200,000, warrants
originally issued on April 20, 2007 and was issued 1,186,813 shares of common
stock.
The
interest rate, repayment terms, conversion rights, conversion price,
anti-dilution provisions, redemption provisions, events of default and
registration requirements of the Second Additional Debentures are identical
to
those of the New Debentures described above, except that the fixed element
of
the conversion price is $0.05, not $0.60.
All
of
the above 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 and BSI to YA Global as additional security for the
obligations to YA Global.
Prior
Obligations Due to YA Global and Others
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 6,667 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. 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 and on January
24,
2008, converted a further $72,500 of the Old Debentures into 755,208 shares
of
common stock.
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 dated November 14, 2007
from YA Global waiving, as of that date, all rights to collect any and all
liquidated damages arising from any default under any of the convertible
debenture agreements. Because any common shares obtained by YA Global on
conversion of the Old Debentures may now be freely sold by them under Rule
144(k), without volume restrictions and without registration, the Company does
not believe it will be subject to any penalties after November 14, 2007 for
not
filing the required registration statement.
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
2007, YA Global converted their entire principal amount of $168,000, plus all
accrued interest thereon of $61,000, into 574,807 common shares.
Item
1(a) - Current Business
Business
Strategy and Core Philosophies
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’s
Products
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.
Biodiesel
Industry Overview
Biodiesel
is produced by chemically modifying renewable, biologically based (biomass)
oil
or fats by reacting them with methanol and a catalyst and then
separating/purifying the reaction products. This reaction also produces glycerol
and fatty acids as co-products. Biodiesel can be used to displace
petroleum-based fuel in diesel engines, which account for approximately 22%
of
the fuel consumed in the transportation sector (EIA Annual Energy Outlook 2006
-
available: http://www.doe.eia.gov/aeo2006/). It can be also be used in other
combustion equipment (e.g., boilers and heaters) as a replacement for petroleum
distillate oil fuels. The current conventional feedstock sources for producing
biodiesel are oil crops (e.g., soybean, canola), waste vegetable oils from
restaurants and other food processing plants, or animal fats. Proposed
unconventional (not yet commercially available) feedstock sources include oil
extracted from wastewater sludge, algae, and corn oil from ethanol
processing.
Distribution
Our
primary distribution for our FuelMeister product line is through our national
network of dealers. The dealer network is based on an exclusive (‘sell-only’)
relationship. We also sell directly to customers via our website at
www.fuelmeister.com
.
Our
website offers customers an opportunity to learn about and understand our
products, contact local dealers, and obtain schedules of informative workshops
and seminars being offered by our dealers in connection with our FuelMeister
products.
We
provide regular dealer training and manage the dealer network to provide optimum
geographic coverage. New dealers are required to meet a set of conditions in
order to obtain a standard dealership. Based on demonstrated volume achievement
and leadership of sales workshops, dealers are able to participate in our tiered
reward program, thereby increasing the dealer’s profitability based on volume of
sales.
Our
BiodieselMaster product will be sold via direct sales efforts and 3
rd
party
sales associates. We may also utilize our dealer network for BiodieselMaster
sales referrals.
Competition
Our
FuelMeister product was the first personal biodiesel processor to enter the
market and is a market leader with over 2,500 units sold worldwide. As a market
leader, our pricing tends to drive the market pricing, as demonstrated by
previous promotional discounting activities.
Our
competitors market products which vary from do-it-yourself plans to full turnkey
processors. Many of these products are ‘copycat’ processors which use similar
technology to the first generation FuelMeister processor. These competitors
include, but are not limited to the following companies: Extreme Biodiesel,
EZ
Biodiesel, and Biodiesel Works.
The
FuelMeister II is a second-generation processor, upgraded in 2006. Via this
upgrade, FuelMeister established its competitive advantage via its
patent-pending Direct Catalyst Injection technology, its pure-drain tanks,
and
its quality of construction and materials. We also maintain technical and
product support via online resources and full-time customer service staff.
Additionally, we maintain an exclusive sell-only agreement with the
manufacturers of the FuelMeister tanks to help prevent further copycat
competition.
Our
BiodieselMaster product is designed to be the industry pacesetter for its
production scale, at 350,000 gallons per year. Most systems in this scale
require much more significant labor and operations involvement. The
BiodieselMaster is a continuous production system which is fully automated
and
remotely monitored, significantly decreasing operational costs and user
involvement relative to traditional batch systems. The unit is designed to
produce ASTM-quality biodiesel from virgin vegetable oil and high-quality used
vegetable oil feedstock.
Sources
and Availability of Raw Materials
In
the
United States, biodiesel is made primarily from soybean oil and secondarily
from
a product called yellow grease, which is essentially used restaurant cooking
oil. It can also be made from tallow, a hard fat that comes from cattle or
sheep, which is frequently used to make soap and other products.
In
Europe, where there is a thriving biodiesel industry, the fuel is made from
rapeseed oil, which is produced from a plant that is in the mustard and turnip
families. The European variety of rapeseed is not grown in the United States
due
to the climate it needs to thrive; however the canola variety of this plant
is
grown in some parts of the country.
The
market for diesel/distillate fuels is growing at a rate faster than other fuel
segments (EIA Annual Energy Outlook 2006, referenced above). The impetus to
switch to renewable replacements to meet a portion of this demand is influenced
by many factors such as concerns about U.S. energy security, consumer awareness
of environmental and economic issues, and other regulations/mandates that
promote their use. According to the National Biodiesel Board, production of
biodiesel increased approximately 36 times between 2001 and 2006. Biodiesel
is
increasingly being offered at retail locations, with stations prevalent in
the
Midwest, Northeast, Southwest and Northwest. Some of the biodiesel pumps are
located at conventional gas stations, while others are located at marinas and
at
agricultural locations. The National Renewable Energy Laboratory, the Department
of Energy’s premier laboratory for renewable energy research and development,
estimates that biodiesel could one day replace 10 percent of the petroleum
diesel currently used.
Intellectual
Property
We
are
the owner of the following provisional patent application which has been
submitted in the United States and is to be used in the development of our
biodiesel processor technologies. This application shows inventive steps and
novelty, required for new patents to issue.
Transesterifcation
Catalyst Mixing System; Application No. 60/805,332, filed on June 20,
2006.
Additionally,
we are the owners of the following trademark: “Fuelmeister” U.S. Registration
No. 78/788761. Such trademark is inclusive of Nevada and Washington State
registrations, but exclusive of Green Fuels Ltd. (a company located in the
UK)
which has a prior Manufacturing License from BSI to build FuelMeister (original
version only) as “FuelMeister by Green Fuels Ltd.” and market it in Europe,
Africa, and the Middle East.
Government
Regulation
In
the
US, two significant energy policy measures have shaped renewable fuels’ present
and future status. First, the Energy Policy Act (EPAct) was passed in 1992,
designed to encourage the use of alternative fuels to help reduce US dependence
on imported oil. For fiscal year 1999 and beyond, 75% of a federal fleet’s
vehicle acquisitions must be alternative fuel vehicles. Supplementing this
is
Executive Order 13149 (EO13149), which mandated that any federal agency with
a
fleet of 20 or more vehicles in the US must develop a compliance strategy that
documents how the agency planned to accomplish a required reduction of 20%
in
petroleum consumption by 2005 (vs. 1999 consumption).
In
addition to these mandates, recent changes to tax policy have continued to
build
incentives for alternative fuels. The Volumetric Ethanol Excise Tax Credit
(VEETC) provision contained in the JOBS/FSC/ETI Bill (‘Jumpstart Our Business
Strength’ bill, containing a repeal of the Foreign Sales
Corporation/Extraterritorial Income (FSC/ETI) exclusion) has improved the
distribution and availability of both E85 and Biodiesel fuels. This bill was
signed into law in October 2004.
In
January 2000, the Environmental Protection Agency enacted a set of diesel
emission standards that requires significant reduction in harmful emissions,
especially particulate matter and oxides of Nitrogen. Particulate matter in
diesel emissions is to be reduced by 90% and oxides of Nitrogen are to be
reduced by 95%, beginning in 2004 and to be fully implemented by 2007. In
addition, the Environmental Protection Agency also requires that 97% of the
sulfur currently in diesel fuel be eliminated beginning in 2006.
More
recently (April 2007), the U.S. Environmental Protection Agency established
the
nation’s first comprehensive Renewable Fuel Standard (RFS) program. Authorized
by the Energy Policy Act of 2005, the RFS program requires that the equivalent
of at least 7.5 billion gallons of renewable fuel be blended into motor vehicle
fuel sold in the U.S. by 2012. The program is estimated to cut petroleum use
by
up to 3.9 billion gallons and cut annual greenhouse gas emissions by up to
13.1
million metric tons by 2012; the equivalent of preventing the emissions of
2.3
million cars.
The
RFS
program will promote the use of fuels such as ethanol and biodiesel, which
are
largely produced from American crops. The program will create new markets for
farm products, increase energy security, and promote the development of advanced
technologies that will help make renewable fuel cost-competitive with
conventional gasoline. In particular, the RFS program establishes special
incentives for producing and using fuels produced from cellulosic biomass,
such
as switchgrass and woodchips.
The
RFS
program requires major American refiners, blenders, and importers to use a
minimum volume of renewable fuel each year between 2007 and 2012. The minimum
level or “standard” which is determined as a percentage of the total volume of
fuel a company produces or imports will increase every year. For 2007, 4.02
percent of all the fuel sold or dispensed to U.S. motorists had to come from
renewable sources, roughly 4.7 billion gallons.
The
RFS
program is based on a trading system that provides a flexible means for industry
to comply with the annual standard by allowing renewable fuels to be used where
they are most economical. Various renewable fuels can be used to meet the
requirements of the program. While the RFS program establishes that a minimum
amount of renewable fuel be used in the United States, more fuel can be used
if
producers and blenders choose to do so.
President
Bush signed into law December 19, 2007 the Energy Independence and Security
Act
of 2007, which mandates a 40 percent increase in U.S. fuel economy by 2020
and
will help reduce overall U.S. dependence on oil. Taken together, the act's
measures are expected to save 6 billion metric tons of CO-2 emissions, more
than
the Kyoto Protocol would save.
In
relation to renewable fuels, the law mandates the use of 36 billion gallons
of
renewable fuel (five times the level of current use) in the U.S. vehicle fuel
supply by 2022. At least 60 percent of this must come from "advanced biofuels"
-
defined as fuels that cut greenhouse gas emissions by at least 50 percent.
Such
advanced biofuels could include ethanol derived from cellulosic biomass-such
as
wood waste, grasses, and agricultural wastes-as well as biodiesel and
butanol.
Research
and Development
Research
and development expenses for the period from March 9, 2007 (inception) through
December 31, 2007 were $3,140,000 representing in-process research and
development costs incurred in the acquisition of BSI on July 2,
2007.
Employees
We
currently have 10 full-time employees, including one full-time employee at
Renewal, 3 full-time employees at BSI, and 6 full-time employees at
Renewal
Biodiesel
.
We
believe our employee relations with our current employees are good.
ITEM
1(b) - RISK FACTORS
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Information Regarding Forward Looking Statements.” The risks
and uncertainties described below are not the only ones facing our company.
Additional risks and uncertainties not presently known to our company or that
we
currently believe are immaterial may also impair our business operations. If
any
of the following risks actually occur, our businesses, financial condition
or
results of operations could be materially adversely affected, the value of
our
common stock could decline, and you may lose all or part of your
investment.
Risks
Related To Our Business
We
are a development stage company, have a limited operating history, incurred
significant operating losses and will require additional capital to continue
our
operations
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. 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, which is now in
default. 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. 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.
There
is substantial doubt about our ability to continue as a going
concern.
There
is
substantial doubt about our ability to continue as a going concern given our
recurring net losses, negative cash flows from operations, planned spending
levels and the limited amount of funds on our balance sheet. We have
prepared our financial statements on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities and commitments
in
the normal course of business. The consolidated financial statements do
not include any adjustments that might be necessary should we be unable to
continue in existence.
We
may not be able to manage our growth effectively, which could slow or prevent
our ability to achieve profitability.
The
ability to manage and operate our business as we execute our development and
growth strategy will require effective planning. Significant rapid growth could
strain our internal resources and delay or prevent our efforts to achieve
profitability. We expect that our efforts to grow will place a significant
strain on our personnel, management systems, infrastructure and other resources.
Our ability to manage future growth effectively will also require us to
successfully attract, train, motivate, retain and manage new employees and
continue to update and improve our operational, financial and management
controls and procedures. If we do not manage our growth effectively, slower
growth is likely to occur, thereby slowing or making it improbable that we
will
achieve and sustain profitability and continue our business as a going
concern.
We
may experience potential fluctuations in results of
operations.
Our
future revenues may be affected by a variety of factors, many of which are
outside our control, including (a) the success of our operations; (b) the
ability to develop infrastructure to accommodate growth; (c) the ability to
develop new products; and (d) the amount and timing of operating costs and
capital expenditures relating to establishing our business operations and
infrastructure. As a result of our limited operating history and the emerging
nature of our business plan, it is difficult to forecast revenues or earnings
accurately, which may fluctuate significantly from quarter to
quarter.
Our
commercial success will depend in part on our ability to obtain and maintain
patent protection.
Our
success will depend in part on our ability to obtain and/or maintain and enforce
patent protection for our technologies and to preserve our trade secrets, and
to
operate without infringing upon the proprietary rights of third parties.
Although we hold provisional patent and trademark protection for the FuelMeister
and Direct Catalyst Inject lid, there can be no assurance that patents will
issue from the patent application we filed or that the scope of any claims
granted in any patent will provide us with proprietary protection or a
competitive advantage. There can be no assurance that patents will be valid
or
will afford us with protection against competitors with similar technology.
The failure to obtain and/or maintain patent protection on the technologies
underlying our proposed products may have a material adverse effect on
our competitive position and business prospects.
It
is
also possible that our technologies may infringe on patents or other rights
owned by others. We may have to alter our products or processes, pay
licensing fees, defend an infringement action or challenge the validity of
the
patents in court, or cease activities altogether because of patent rights of
third parties, thereby causing additional unexpected costs and delays to us.
There can be no assurance that a license will be available to us, if at all,
upon terms and conditions acceptable to us or that we will prevail in any patent
litigation. Patent litigation is costly and time consuming, and there can be
no
assurance that we will have sufficient resources to pursue such litigation.
If
we do not obtain a license under such patents, are found liable for infringement
or are not able to have such patents declared invalid, we may be liable for
significant money damages and may encounter significant delays in bringing
products and services to market. There can be no assurance that we have
identified United States and foreign patents that pose a risk of
infringement.
We
may experience difficulties in the Introduction of new products that could
result in us having to incur significant unexpected expenses or delay the launch
of new products.
Our
technologies and products are in various stages of development. These
development stage products may not be completed in time to allow production
or
marketing due to the inherent risks of new product and technology development,
limitations on financing, competition, obsolescence, loss of key personnel
and
other factors. Unanticipated technical obstacles can arise at any time and
result in lengthy and costly delays or in a determination that further
development is not feasible. Therefore, there can be no assurance of timely
completion and introduction of improved products on a cost-effective basis,
or
that such products, if introduced, will achieve market acceptance such that
they
will sustain us to achieve profitable operations.
We
are dependent upon key personnel.
Our
success is heavily dependent on the continued active participation of certain
of
our current executive officers. Loss of the services of one of our officers
could have a material adverse effect upon our business, financial condition
or
results of operations. We do not maintain any key life insurance policies for
any of our executive officers or other personnel. The loss of any of our senior
management could significantly impact our business until adequate replacements
can be identified and put in place.
We
are dependent upon performance of our dealer network.
Our
success is heavily dependent on the continued performance of our existing
dealers, and our ability to maintain and expand the dealer network. Loss of
a
major dealer relationship could have a material adverse effect upon our
business, financial condition or results of operations. We do not have any
guarantees of dealer performance, nor provisions to rectify the loss of a major
dealer. The loss of any of our dealers could significantly impact our business
until adequate replacements can be identified and put in place.
There
is a risk that products developed by competitors will reduce our profits or
force us out of business.
We
may
face competition from companies that are developing products similar to those
we
are developing. The biodiesel fuels industry has spawned a large number of
efforts to create technologies for production of biodiesel fuel. These companies
may have significantly greater marketing, financial and managerial resources
than us. We cannot assure investors that our competitors will not succeed in
developing and distributing products that will render our products obsolete
or
noncompetitive. Generally, such competition could potentially force us out
of
business.
Our
products can only be applied to a limited range of uses with the resulting
concentration possibly limiting our potential growth.
Our
products are being developed with a limited set of functional uses relating
primarily to biodiesel production for internal combustion engines. Significant
efforts by others exist to find alternatives to internal combustion engines.
In
addition, the regulatory environment is becoming increasingly restrictive with
regard to the performance of internal combustion engines and the harmful
emissions they produce. If alternatives to internal combustion engines become
commercially viable, it is possible that the potential market for our products
could be reduced, if not eliminated.
We
create products which may have harmful effects on the environment if not stored
and handled properly prior to use, which could result in significant liability
and compliance expense.
The
production of biodiesel fuel involves the controlled use of materials that
are
hazardous to the environment. We cannot eliminate the risk of accidental
contamination or discharge and any resulting problems that occur. Federal,
state
and local laws and regulations govern the use, manufacture, storage, handling
and disposal of these materials. We may be named a defendant in any suit that
arises from the improper handling, storage or disposal of these products. We
could be subject to civil damages in the event of an improper or unauthorized
release of, or exposure of individuals to, hazardous materials. Claimants may
sue us for injury or contamination that results from use by third parties of
alternative fuel products, and our liability may exceed our total assets.
Compliance with environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research, development and
production efforts.
Production
technology changes could adversely impact our ability to operate at a profit
or
compete in the biodiesel industry.
Advances
and changes in the technology of biodiesel production are expected to occur.
Such advances and changes may make our biodiesel production technology less
desirable or obsolete. Our biodiesel production technologies are single purpose
and have no use other than the production of biodiesel. Obsolescence of our
technologies which are currently utilized to produce biodiesel could adversely
impact our ability to generate revenues and/or operate at a profit.
Risks
Related To Our Industry
Oil
and gas prices are volatile
Our
revenues, cash flow, operating results, financial condition and ability to
borrow funds or obtain additional capital will depend substantially on the
prices that we receive for our biodiesel processing machines. Declines in oil
and gas prices may materially adversely affect our financial condition,
liquidity, ability to obtain financing and operating results as sales of our
products may fall. Depressed prices in the future would have a negative effect
on our future financial results.
Historically,
oil and gas prices and markets have been volatile, with prices fluctuating
widely, and they are likely to continue to be volatile. Prices for oil and
gas
are subject to wide fluctuations in response to relatively minor changes in
supply and demand, market uncertainty and a variety of additional factors that
are beyond our control. These factors include, but are not limited to the
following:
·
the
threat of global terrorism;
|
·
regional
political instability in areas where exploratory oil and gas wells
are
drilled;
|
|
·
the
available supply of oil;
|
|
·
the
level of consumer product demand;
|
|
·
weather
conditions;
|
|
·
political
conditions and policies in the greater oil producing regions, including
the Middle East;
|
|
·
the
ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
|
|
·
the
price of foreign imports;
|
|
·
actions
of governmental authorities;
|
|
·
domestic
and foreign governmental regulations;
|
|
·
the
price, availability and acceptance of alternative fuels; and
|
|
·
overall
economic conditions.
|
These
factors and the volatile nature of the energy markets make it impossible to
predict with any certainty future oil and gas prices. Our inability to respond
appropriately to changes in these factors could negatively affect our
profitability.
Risks
Related to Our Common Stock
We
are a development stage company, have a limited operating history, incurred
significant operating losses and
expect
to report future losses that may cause our stock price to
decline.
For
the
operating period since inception on March 9, 2007 through December 31, 2007,
we
have incurred a net loss of $11,122,325. We expect to continue to incur losses
as we spend additional capital to develop and market our products and establish
our infrastructure and organization to support anticipated operations. We cannot
be certain whether we will ever earn a significant amount of revenues or profit,
or if we do, that we will be able to continue earning such revenues or profit.
This could cause our stock price to decline and result in you losing a portion
or all of your investment.
We
are a development stage company, have a limited operating history, incurred
significant operating losses and will require additional capital to continue
our
operations
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.
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. If we are not successful
in
obtaining additional funding, we may have to curtail or cease our operations
and
will no longer be a going concern. This could cause our stock price to decline
and result in you losing a portion or all of your investment.
Our
issuance of common stock at a price below prevailing trading prices at the
time
of issuance may cause our stock price to decline.
Currently
outstanding options, convertible notes and warrants, as well as other
convertible securities that we may issue in the future, may result in shares
being issued for consideration that is less than the trading price of our common
stock at the time the shares are issued. We may also issue shares in the future
at a discount to the trading price of our common stock. Any such below market
issuances, or the potential for such issuances, could cause our stock price
to
decline.
Shares
of our common stock may be subject to price illiquidity and volatility because
our shares may continue to be thinly traded and may never become eligible for
trading on Nasdaq or a national securities exchange.
Although
a trading market for our common stock exists, the trading volume has not been
significant and an active trading market for our common stock may never develop.
There currently is no analyst coverage of our business. As of March 31, 2008,
30,774,476 common shares were issued and outstanding. Furthermore, the average
three month trading volume for our common shares has been approximately 57,000.
The trading volume of our shares will continue to be limited due to resale
restrictions under applicable securities laws and the fact that approximately
20,180,666 of the 30,774,476 shares outstanding, on approximately 66%, are
held by our officers, directors and principal stockholders ( holders of 5%
or
more). As a result of the limited trading market for our common stock and the
lack of analyst coverage, the market price for our shares may continue to
fluctuate significantly and will likely be more volatile than the stock market
as a whole. There may be a limited demand for shares of our common stock due
to
the reluctance or inability of certain investors to buy stocks quoted for
trading on the OTC Bulletin Board, lack of analyst coverage of our common stock
and limited trading market for our common stock. As a result, even if prices
appear favorable, there may not be sufficient demand to complete a stockholder’s
sell order. Without an active public trading market or broader public ownership,
shares of our common stock are likely to be less liquid than the stock of public
companies with broad public ownership and an active trading market, and any
of
our stockholders who attempt to sell their shares in any significant volumes
may
not be able to do so at all, or without depressing the publicly quoted bid
prices for our shares.
While
we
may, at some point, be able to meet the requirements necessary for our common
stock to be listed on the Nasdaq stock market or on another national securities
exchange, we cannot assure you that we will ever achieve such a listing. Listing
on one of the Nasdaq markets or one of the national securities exchanges is
subject to a variety of requirements, including minimum trading price and
minimum public “float” requirements. There are also continuing eligibility
requirements for companies listed on national securities exchanges. If we are
unable to satisfy the initial or continuing eligibility requirements of any
such
market, then our stock may not be listed or could be delisted. This could result
in a lower trading price for our common stock and may limit your ability to
sell
your shares, which could result in you losing some or all of your
investment.
The
so-called “penny stock rule” makes it cumbersome for brokers and dealers to
trade in our common stock, making the market for our common stock less liquid
which could cause the price of our stock to decline.
Trading
of our common stock on the OTC Bulletin Board is subject to certain
provisions of the Securities Exchange Act of 1934, commonly referred to as
the
“penny stock” rule. A penny stock is generally defined to be any equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. Because our common stock has historically traded below $5.00 per
share, it is deemed to be a penny stock, and consequently trading in our stock
is subject to additional sales practice requirements on
broker-dealers.
These
require a broker-dealer to:
·
|
make
a special suitability determination for purchasers of our
shares;
|
|
|
·
|
receive
the purchaser’s written consent to the transaction prior to the purchase;
and
|
|
|
·
|
deliver
to a prospective purchaser of our stock, prior to the first transaction,
a
risk disclosure document relating to the penny stock
market.
|
Consequently,
the penny stock rules restrict the ability of broker-dealers to trade and/or
maintain a market in our common stock. Also, prospective investors may not
want
to get involved with the additional administrative requirements which may have
a
material adverse effect on the trading of our shares.
We
are a
reporting company under the requirements of the Securities Exchange Act of
1934
and we file quarterly, annual and other reports with the Securities and Exchange
Commission. Our annual reports contain the required audited financial
statements. We are not required to deliver an annual report to security holders
and will not voluntarily deliver a copy of the annual report to the security
holders. The reports and other information filed by us will be available for
inspection and copying at the public reference facilities of the Commission,
100
F Street, N.E., Washington, D.C. 20549.
Copies
of
such material may be obtained by mail from the Public Reference Section of
the
Commission at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. In addition, the Commission maintains a
World
Wide
Website
on the
Internet at
http://www.sec.gov
that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
ITEM
2 - DESCRIPTION OF PROPERTY
Our
corporate offices are located at 1818 North Farwell Avenue, Milwaukee, Wisconsin
53202. We currently lease use of such offices, together with administrative
services, on an at-will basis from a related party at a monthly rent of $500.
Renewal’s
assembly and distribution center is currently located at 1395 Greg Street,
Suite
#102, Sparks, Nevada. We lease approximately 30,000 square feet of space under
an operating lease expiring on October 31, 2008. Our monthly rent is
approximately $11,000, plus a share of operating costs estimated to be $3,000
per month.
ITEM
3 - LEGAL PROCEEDINGS
From
time
to time, Renewal may become involved in various lawsuits and legal proceedings,
which arise in the ordinary course of business. We are currently not aware
of
any such legal proceedings or claims that we believe will have, individually
or
in the aggregate, a material adverse affect on our business, financial condition
or operating results.
ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information:
Our
common stock is traded on the OTC Bulletin Board (“OTCBB”) under the symbol
“RNWF”. 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 OTCBB was
changed from TLBT to RNWF.
The
following table sets forth the high and low bid prices of our Common Stock,
as
reported by the OTCBB for the last two fiscal years. The quotations set forth
below reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
|
|
2007
|
|
Quarterly
period ended:
|
|
|
High
|
|
|
Low
|
|
December
31, 2007
|
|
$
|
0.650
|
|
$
|
0.150
|
|
September
30, 2007
|
|
$
|
0.900
|
|
$
|
0.200
|
|
June
30, 2007
|
|
$
|
1.800
|
|
$
|
0.227
|
|
March
31, 2007
|
|
$
|
0.525
|
|
$
|
0.225
|
|
|
|
2006
|
|
|
|
High
|
|
Low
|
|
December
31, 2006
|
|
$
|
2.025
|
|
$
|
0.225
|
|
September
30, 2006
|
|
$
|
1.080
|
|
$
|
0.450
|
|
June
30, 2006
|
|
$
|
2.970
|
|
$
|
0.675
|
|
March
31, 2006
|
|
$
|
5.850
|
|
$
|
0.405
|
|
Holders
:
As
of
December 31, 2007, there were
128
holders of record of our common stock.
Dividends
:
We
do not
declare or pay any cash dividends on our common stock. We currently intend
to
retain future earnings, if any, to finance the expansion of our business. As
a
result, we do not anticipate paying any cash dividends in the foreseeable
future.
On
August
30, 2007, the Company issued 66,666 shares of its common stock, par value $0.001
per share, to Sichenzia, Ross, Friedman, Ference LLP in consideration for
services provided to the Company. The shares were not registered in
reliance upon Section 4(2) of the Act in that they were not made available
for
sale to the public and are restricted against resale until they are registered
under the Act or sold under an exemption from registration.
PART
II
ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS
Overview
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 Management’s Discussion and Analysis should be read in
conjunction with our consolidated financial statements included in Item 7,
herein.
The
following discussion and other sections of this Form 10-KSB 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.
History
By
early
2007, we had become a non-operating shell and were seeking potential merger
partners. During 2007, as a result of the various events summarized and
described below, we completed a series of transactions that set a new direction
for the Company.
As
of
December 31, 2007, we 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,
which we acquired on July 2, 2007, has developed 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.
In
September 2007, we purchased two greenhouses in Kansas which were later
transferred to our Renewal Plantations, Inc. subsidiary (“RPI”). RPI is engaged
in the growth of cellulosic feedstock for the biofuels industry. Through a
service agreement with another party, we are establishing nurseries for the
growth of unique high-density, short-rotation trees, which are designed to
provide a very high concentration of biomass per acre. RPI was formed on
February 11, 2008, and is not yet producing revenue from operations. We are
currently completing installation of the nurseries and establishing customers
for the products to be produced by RPI.
A
timeline of the events of 2007, which are more fully described below,
follows.
Date
|
|
Event
|
|
|
|
February
22, 2007
|
|
Mr.
David Marks and Mr. John King are appointed as a Director and Chief
Executive Officer, respectively, of the Company.
|
|
|
|
March
9, 2007
|
|
Renewal
Fuels (since renamed Renewal Biodiesel) is incorporated by Crivello
Group
LLC. Messrs Marks and King are directors and officers of Renewal
Fuels.
|
|
|
|
March
9, 2007
|
|
Renewal
Fuels enters into an Asset Purchase Agreement to acquire the FuelMeister
division of Biodiesel Solutions Inc.
|
|
|
|
March
30, 2007
|
|
Renewal
Fuel’s acquisition of the FuelMeister division is completed, based on
funding provided by Crivello Group LLC.
|
|
|
|
April
20, 2007
|
|
The
Company (then called Tech Laboratories, Inc.) and Renewal Fuels merge.
The
former shareholders of Renewal Fuels receive 343,610 shares of the
Company’s series A convertible preferred stock.
|
|
|
|
April
20, 2007
|
|
New
debt funding is provided to the Company by YA Global Investments
L.P.
(formerly Cornell Capital Partners LLP). The funding provided by
Crivello
to Renewal Fuels for the acquisition of the FuelMeister division
is
repaid.
|
|
|
|
June
21, 2007
|
|
The
former shareholders of Renewal Fuels convert their 343,610 shares
of our
Series A preferred stock into 22,907,323 shares of our common
stock.
|
|
|
|
July
2, 2007
|
|
We
acquire Biodiesel Solutions Inc., from whom the FuelMeister division
had
been acquired by Renewal Fuels on March 30,
2007.
|
July
2, 2007
|
|
YA
Global provides us with additional debt funding.
|
|
|
|
July
9, 2007
|
|
The
Company merges with a new entity, Tech Laboratories, Inc., incorporated
in
Delaware, thus moving its domicile from New Jersey to
Delaware.
|
|
|
|
August
1, 2007
|
|
The
Company’s name is changed from Tech Laboratories, Inc. to Renewal Fuels
Inc. The name of the existing Renewal Fuels (with whom we merged
on April
20, 2007) is changed to Renewal Biodiesel.
|
|
|
|
August
1, 2007
|
|
We
complete a 1-for-15 reverse split of our common stock.
|
|
|
|
August
1, 2007
|
|
The
Company’s quotation symbol on the OTC Bulletin Board is changed from TLBT
to RNWF
|
|
|
|
December
31, 2007
|
|
YA
Global provides us with additional debt
funding.
|
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 and were
assumed in connection with the provision of additional long-term debt financing
provided by YA Global (see Note 6 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, our Chief Executive Officer and Mr. David Marks, our Chairman,
were appointed immediately prior to the merger 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 22,907,323 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 as of March 31, 2008 beneficially own in the aggregate
approximately 66% 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
P
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.
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 this Report 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 pre-emptive 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 Investments L.P. (“YA Global”)
discussed below in the section on Liquidity and Capital Resources.
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 below, we acquired BSI on July 2,
2007, which effectively resulted in termination of the agreement.
The
acquisition of the FuelMeister Business by Renewal Biodiesel 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 convertible 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 convertible at anytime at the option of the holders into
our
common stock 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,
we
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.
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 convertible 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 Acquisition:
The
results of operations of the 2007 Acquisitions are included in our results
of
operations beginning after their respective acquisition dates. The following
unaudited pro forma information combines our consolidated results of operations
and the companies that we acquired as if the acquisitions had occurred at the
beginning of fiscal year 2006:
|
|
For
The Twelve Months Ended
December
31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
1,186,466
|
|
$
|
$
1,838,156
|
|
Loss
from Operations
|
|
$
|
(2,323,853
|
)
|
$
|
(8,973,085
|
)
|
Net
Loss
|
|
$
|
(3,981,286
|
)
|
$
|
(11,235,159
|
)
|
Per
Share - basic and fully diluted
|
|
$
|
(0.14
|
)
|
$
|
(0.42
|
)
|
Weighted
average shares outstanding
|
|
|
27,488,705
|
|
|
26,957,566
|
|
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.
Business
strategy, core philosophies, current operations
We
are
dedicated to technologies that enable the production of high quality fuels
from
a variety of non-food feedstock sources and waste sources. We believe that
developed and emerging technologies to produce fuels from waste and from crops
grown on land not used for production of food will provide an important
alternative to feedstock sources which compete with uses for food.
Our
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.
Our
management 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.
We
manufacture and market the FuelMeister® line of personal biodiesel processors
from our 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. 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, will manufacture 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.
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 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 December
31,
2007. The FuelMeister Business acquired by Renewal Biodiesel constitutes our
Predecessor business. The accompanying consolidated financial statements, as
of
December 31, 2007 and for the period March 9, 2007 (date of inception) through
December 31, 2007, are those of the Successor. The statements of operations
and
the statements of cash flows for the three months ended March 31, 2007 and
for
the year ended December 31, 2006 are those of our Predecessor, the FuelMeister
Business.
The
results of operations contained in this section is that of the Sucessor, Renewal
Fuels, Inc., for the period March 9, 2007 (date of inception) through December
31, 2007, and of our Predecessor, FuelMeister, for the three months ended March
31, 2007, and for the twelve months ended December 31, 2006
(unaudited).
The
discussion that follows of Results of Operations is in the following
sections:
·
|
Results
of operations for the period March 9, 2007 (date of inception) through
December 31, 2007 (Successor);
|
·
|
Results
of operations for the three months ended March 31, 2007
(Predecessor);
|
·
|
Results
of operations for the twelve months ended December 31, 2006
(Predecessor);
|
RESULTS
OF OPERATIONS FOR THE PERIOD MARCH 9, 2007 (DATE OF INCEPTION) THROUGH DECEMBER
31, 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 December 31,
2007.
|
|
Successor
Business
|
|
|
|
March
9, 2007
(date
of inception) to
December
31, 2007
|
|
Net
Sales
|
|
$
|
690,103
|
|
|
100
|
%
|
Cost
of Sales
|
|
|
472,786
|
|
|
68
|
%
|
Gross
Profit
|
|
|
217,317
|
|
|
32
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
618,827
|
|
|
90
|
%
|
Stock-based
transaction expense
|
|
|
5,131,231
|
|
|
744
|
%
|
Occupancy
and equipment
|
|
|
132,052
|
|
|
19
|
%
|
Advertising
|
|
|
199,981
|
|
|
29
|
%
|
Research
and development
|
|
|
3,140,000
|
|
|
455
|
%
|
Professional
fees
|
|
|
550,590
|
|
|
80
|
%
|
Other
general and administrative expenses
|
|
|
431,059
|
|
|
62
|
%
|
Amortization
of intangible assets
|
|
|
103,975
|
|
|
15
|
%
|
Total
Operating Expenses
|
|
|
10,307,715
|
|
|
1,494
|
%
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
(10,090,398
|
)
|
|
-1,462
|
%
|
Interest
income
|
|
|
823
|
|
|
0
|
%
|
Interest
expense
|
|
|
(1,011,321
|
)
|
|
-147
|
%
|
Other
expenses
|
|
|
(21,429
|
)
|
|
-3
|
%
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(11,122,325
|
)
|
|
-1,612
|
%
|
Revenues:
For the
period from March 9, 2007 (inception) through December 31, 2007, net sales
were
$690,103.
Our
future revenues may be affected by a variety of factors, many of which are
outside our control, including (a) the success of our operations; (b) the
ability to develop infrastructure to accommodate growth; (c) the ability to
develop new products; (d) the cost of biodiesel feedstocks and the resulting
impacts on our prospective customers’ businesses, (e) the amount and timing of
operating costs and capital expenditures relating to establishing our business
operations and infrastructure, and (f) competition. As a result of our limited
operating history and the emerging nature of our business plan, it is difficult
to forecast revenues or earnings accurately, which may fluctuate significantly
from quarter to quarter.
Cost
of Sales and Gross Profit:
Cost
of
sales for the period from March 9, 2007 (inception) through December 31, 2007
was $472,786 or 68% of revenues. Gross profit margin was $217,317 or 32% for
the
period from March 9, 2007 (inception) through December 31, 2007.
Employee
Compensation and Benefits:
Employee
compensation and benefits were $618,827 or 90% of revenues for the period from
March 9, 2007 (inception) through December 31, 2007.
Stock
Based Transaction Expense:
Stock
based transaction expense related to cheap stock issued in the reverse merger
and recapitalization was $5,131,231 or 744% of revenues for the period from
March 9, 2007 (inception) through December 31, 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.
Occupancy
and Equipment:
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $132,052 or 19% of revenues for the
period from March 9, 2007 (inception) through December 31, 2007
Advertising
Expenses:
Advertising
expenses were $199,981, or 29% of revenues, for the period from March 9, 2007
(inception) through December 31, 2007.
Research
and Development Expenses:
Research
and development expenses for the period from March 9, 2007 (inception) through
December 31, 2007 were $3,140,000 or 455% of revenues representing in-process
research and development costs incurred in the acquisition of BSI on July 2,
2007.
We
continue to focus on research and development activities in connection with
biofuels. We will continue to make investments in biofuel processing techniques,
focusing on how to best apply the latest advancements in the industry into
commercially viable products. Any research and development costs and related
engineering costs related to product development will be expensed as
incurred.
Professional
Fees:
Professional
fees, consisting primarily of accounting, attorney and valuation fees, were
$550,590 or 80% of revenues for the period from March 9, 2007 (inception)
through December 31, 2007.
General
and Administrative Expenses:
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $431,059 or 63% of revenue
for the period from March 9, 2007 (inception) through December 31,
2007.
Amortization
of Intangible Assets Expense:
Amortization
of intangible assets was 103,975 or 15% of revenue for the period from March
9,
2007 (inception) through December 31, 2007, primarily related to the
amortization of assets related to the acquisition of Fuelmeister on April 20,
2007 and BSI on July 2, 2007.
Provision
for Income Taxes:
During
the period from March 9, 2007 (inception) through December 31, 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.
Other
Income (Expense):
Net
other
income (expense), consisting primarily of interest expense of $1,011,321
amounted to a net expense of $1,031,927 or 150% of revenue for the period from
March 9, 2007 (inception) through December 31, 2007.
Net
Income (Loss):
As
a
result of the above, we reported a net loss of $11,122,325 or 1,612% of revenues
for the period from March 9, 2007 (inception) through December 31,
2007.
We
may
incur significant operating expenses and make relatively high capital
expenditures as we develop our business and expand our sales and marketing
capabilities. These operating expenses and capital expenditures initially may
outpace revenues and result in significant losses.
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.
|
|
Predecessor
Business
|
|
|
|
Three
Months Ended
March
31, 2007
|
|
Net
Sales
|
|
$
|
104,360
|
|
|
100
|
%
|
Cost
of Sales
|
|
|
76,802
|
|
|
74
|
%
|
Gross
Profit
|
|
|
27,558
|
|
|
26
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
52,320
|
|
|
50
|
%
|
Occupancy
and equipment
|
|
|
18,666
|
|
|
18
|
%
|
Advertising
|
|
|
8,474
|
|
|
8
|
%
|
Other
general and administrative expenses
|
|
|
27,559
|
|
|
26
|
%
|
Total
Operating Expenses
|
|
|
107,019
|
|
|
103
|
%
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
(79,461
|
)
|
|
(76
|
%)
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(79,461
|
)
|
|
(76
|
%)
|
Revenues:
For the
period for the three months ended March 31, 2007, was $104,360.
Cost
of Sales and Gross Profit:
Cost
of
sales for the period three months ended March 31, 2007 was $76,802, or 74%
of
revenues, resulting in a gross profit margin of $27,558 or 26%.
Employee
Compensation and Benefits:
Employee
compensation and benefits were $52,320 or 50% of revenue for the three months
ended March 31, 2007.
Occupancy
and Equipment:
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $18,666 or 18% of revenues for the
three months ended March 31, 2007.
Advertising
Expenses:
Advertising
expenses were $8,474, or 8% of revenues, for the three months ended March 31,
2007.
General
and Administrative Expenses:
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $27,559 or 26% of revenues
for the three months ended March 31, 2007.
Net
Income (Loss):
As
a
result of the above, we reported a net loss of $79,461 for the three months
ended March 31, 2007.
RESULTS
OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006
(PREDECESSOR)
The
information contained in this section is that of our Predecessor, FuelMeister,
for the twelve months ended December 31, 2006.
|
|
Predecessor
Business
|
|
|
|
Twelve
Months Ended
December
31, 2006
|
|
Net
Sales
|
|
$
|
1,838,156
|
|
|
100
|
%
|
Cost
of Sales
|
|
|
1,182,643
|
|
|
64
|
%
|
Gross
Profit
|
|
|
655,513
|
|
|
36
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Employee
compensation and benefits
|
|
|
209,951
|
|
|
11
|
%
|
Occupancy
and equipment
|
|
|
190,512
|
|
|
10
|
%
|
Advertising
|
|
|
90,100
|
|
|
5
|
%
|
Professional
fees
|
|
|
18,617
|
|
|
1
|
%
|
Other
general and administrative expenses
|
|
|
123,192
|
|
|
7
|
%
|
Total
Operating Expenses
|
|
|
632,372
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
23,141
|
|
|
1
|
%
|
Provision
for income taxes
|
|
|
3,471
|
|
|
0
|
%
|
Net
Income
|
|
$
|
19,670
|
|
|
1
|
%
|
Revenues:
For the
twelve months ended December 31, 2006, FuelMeister’s revenue was $1,838,156.
Cost
of Sales and Gross Profit:
Cost
of
sales for the twelve months ended December 31, 2006 was $1,182,643 or 64% of
revenues for the quarter. As a result, gross profit margin was $655,513 or
36%.
Employee
Compensation and Benefits:
Employee
compensation and benefits were $209,951 or 11% of revenues for the twelve months
ended December 31, 2006.
Occupancy
and Equipment:
Occupancy
and equipment expenses, consisting of rent, depreciation, amortization, and
other miscellaneous expenses, amounted to $190,512 or 10% of revenues for the
twelve months ended December 31, 2006.
Advertising
Expenses:
Advertising
expenses were $90,100 or 5% of revenues for the twelve months ended December
31,
2006.
Professional
Fees:
Professional
fees, consisting primarily of accounting, attorney and valuation fees, were
$18,617 were 1% of revenues for the twelve months ended December 31,
2006.
General
and Administrative Expenses:
General
and administrative expenses, consisting of administrative expenses, insurance
and other non-manufacturing related expenses, were $123,192 or 7% of revenue
for
the twelve months ended December 31, 2006.
Net
Income (Loss):
As
a
result of the above, we reported net income of $19,670 for the twelve months
ended December 31, 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:
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.
Stock-Based
Compensation
We
follow
the guidance of SFAS 123(R), which requires the measurement at fair value and
recognition of compensation expense for all stock-based payment awards. The
determination of fair value requires the estimation of subjective variables
on
the date of grant including expected volatility, expected life of the award,
expected dividend rate and the expected risk-free rate of return. The
assumptions for expected volatility and expected life are the two assumptions
that significantly affect the grant date fair value. At issuance, we will
re-assess the assumptions used to compute the fair value of any stock options
we
issue and we will revise our assumptions as appropriate.
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
|
|
|
|
June
2006
|
|
FAS
Interpretation 48 - "Accounting for Uncertainty in Income
Taxes"
|
|
|
|
September
2006
|
|
FAS
157 - “Fair Value Measurements”
|
|
|
|
February
2007
|
|
FAS
159 - “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No.
115”
|
|
|
|
December
2007
|
|
FAS
160 - “Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51”
|
|
|
|
December
2007
|
|
FAS
141 - “Business Combinations (revised 2007)”
|
|
|
|
March
2008
|
|
FAS
161 - “Disclosures about Derivative Instruments and Hedging
Activities”
|
Liquidity
and Capital Resources
|
|
Successor
Business
|
|
|
|
December
31, 2007
|
|
Current
Assets
|
|
$
|
545,413
|
|
Current
Liabilities
|
|
|
(3,388,677
|
)
|
Working
Capital (Deficit)
|
|
|
(2,843,264
|
)
|
Cash
Flows Summary:
|
|
|
|
|
|
Year
Ended
|
|
|
|
December
31, 2007
|
|
Cash
Flows (used in) Operating Activities
|
|
$
|
(2,188,095
|
)
|
Cash
Flows (used in) Investing Activities
|
|
|
(1,083,733
|
)
|
Cash
Flows provided by Financing Activities
|
|
|
3,370,040
|
|
Net
Increase in Cash During Period
|
|
$
|
98,212
|
|
Prior
to
the acquisition of BSI on July 2, 2007, we leased operating space and other
services from BSI and, subsequent to the acquisition, we have 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.
Cash
and Cash Flows From Operations:
The
accompanying consolidated financial statements have been prepared assuming
we
will continue as a going concern a
lthough
we do not have the cash necessary to operate for the next twelve months
.
During the period from inception on March 9, 2007 through December 31, 2007,
we
had a net loss of $11,122,325 which included non-cash items totaling $8,550,000,
consisting primarily of stock-based transaction expense, acquired in process
R&D, and amortization of financing fees and intangible assets. Our existence
is dependent on management’s ability to develop profitable operations, raise
significant capital and successful integration of our acquired
businesses.
Net
cash
used in investing activities was $1,083,733 of which $494,426 was used in the
acquisition of the assets of the FuelMeister Business, our Predecessor, $167,293
was used for fixed asset acquisitions, and $422,014 was used in the acquisition
of BSI.
Net
cash
provided by financing activities was $3,370,040 consisting primarily of proceeds
from the sale of convertible debt, and warrants to YA Global, less $480,000
of fees incurred, proceeds from notes payable of $150,000 and $57,279 in
proceeds from the sale of our common stock to our founders. At December 31,
2007, our primary debt has terms ranging from 16 to 24 months with interest
rates ranging from 10% 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
From 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 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.
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.
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 was to 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.
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.
On
December 31, 2007, we entered into an Amendment Agreement (the “Amendment
Agreement”) with YA Global, amending the Additional Purchase Agreement of July2,
2007, to provide for the sale by us to YA Global of secured convertible
debentures in the aggregate principle amount of $300,000 (the “Second Additional
Debentures”). As part of the Amendment Agreement, the Company agreed
that it would comply with the requirement to have unconditionally booked and
received at least a 50% deposit for the sale of at least one Biodiesel Master®
unit no later than January 31, 2008. We also agreed to have signed a definitive
joint venture with Eco Plantations no later than January 31, 2008. We have
not
complied with these undertakings and, accordingly, all our obligations to
YA Global are in default. Concurrently with the additional funding from YA
Global, certain stockholders and management loaned $150,000 to us and we
covenanted to YA Global that, as long as the debentures issued by us to YA
Global are outstanding, that these loans loan would not be repaid without the
express written consent of YA Global.
As
part
of the Amendment Agreement, we also agreed to reduce the exercise price of
the
1,200,000 warrants issued to YA Global on April 20, 2007 from $0.15 per share
to
$0.001 per share and to reduce the exercise price of 1,200,000 of the 2,250,000
warrants issued to YA Global on July 2, 2007 from $0.90 per share to $0.001
per
share.
On
March
27, 2008, YA Global completed a cashless exercise of 1,200,000 warrants
originally issued on April 20, 2007 and were issued 1,186,813 shares of common
stock.
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 $0.05, not $0.60.
The
obligations to YA Global, together with prior obligations to YA Global (see
below), are secured by a security interest in the Company’s assets and the
assets of its subsidiaries, including their intellectual property. In addition,
we pledged our shares of Renewal Biodiesel and BSI to YA Global as additional
security for the obligations to YA Global.
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 6,667 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. 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 and on January
24,
2008, converted a further $72,500 of the Old Debentures into 755,208 shares
of
common stock.
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 dated November 14, 2007
from YA Global waiving, as of that date, all rights to collect any and all
liquidated damages arising from any default under any of the Old Debenture
agreements. Because any common shares obtained by YA Global on conversion
of the Old Debentures may now be freely sold by them under Rule 144(k), without
volume restrictions and without registration, the Company does not believe
it
will be subject to any penalties after November 14, 2007 for not filing the
required registration statement.
We
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
2007, YA Global converted their entire principal amount of $168,000, plus all
accrued interest thereon of $61,000, into 574,807 common shares.
Derivative
Instrument Liabilities and Beneficial Conversion Features:
In
accounting for the Convertible Debentures and the associated Warrants, we have
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 our 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 us to have
approximately 280 million common shares authorized. We are authorized to
issue 3 billion common shares. As a result, our management believes it will
have
sufficient authorized shares available to physically settle all contracts that
currently require delivery of common shares. Furthermore, our management,
together with investors associated with management, control a majority of our
outstanding common shares. Accordingly, our management 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.
We
have
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 our 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 us 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), we recognize 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 December 31, 2007, we recorded beneficial conversion features
aggregating $1,493,791.
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 $1,493,791 recorded during the period ended
December 31, 2007 was $333,574 related to the prior obligations assumed by
us 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, we estimate 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 3.45% 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.
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 December 31, 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 December 31, 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 these activities and have
demonstrated the viability of the BiodieselMaster per its intended design.
While
we are ready to enter the market with BiodieselMaster®, the current state of the
biodiesel industry has created new challenges. Virgin oil prices have more
than
doubled in the past year, creating difficult economics for this business model.
As a result, we are now focusing on vertically integrated models (from growth
of
virgin oil feedstock through biodiesel production) as well as low-cost feedstock
opportunities in US and international markets. While we believe that the current
situation with regard to virgin vegetable oil pricing will revert to more
historical levels, we are also developing new business models to utilize our
highly competitive BiodieselMaster product.
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.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
50
|
|
|
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
|
|
51
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the period March 9, 2007 (date of
inception)
to
December
31, 2007, and Carve-Out Statements for the three months ended
March 31,
2007
|
|
|
|
|
and
for the year ended December 31, 2006
(Predecessor Business)
|
|
|
52
|
|
|
|
|
|
|
Consolidated
Statement of Stockholders’ Equity / (Deficit) for the period March 9, 2007
(date of inception) to December 31, 2007
|
|
|
53
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the period March 9, 2007 (date of
inception)
to
December
31, 2007, and Carve-Out Statements for the three months ended
March 31, 2007
|
|
|
|
|
and
for the year ended December 31, 2006
(Predecessor Business)
|
|
|
55
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
57
|
|
[Letterhead
of Kingery & Crouse, P.A.]
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Renewal Fuels, Inc. and
Subsidiaries:
We
have audited the accompanying consolidated balance sheet of Renewal Fuels,
Inc.
and subsidiaries (the “Company” and “Successor”), as of December 31, 2007, and
the related consolidated statements of operations, stockholders’ equity
(deficit) and cash flows for the period March 9, 2007 (date of inception) to
December 31, 2007. We have also audited the statements of operations and cash
flows of the FuelMeister business (the “FuelMeister Business" and the
"Predecessor Business"), a carve-out business of Biodiesel Solutions, Inc.
and a
predecessor business of Renewal Fuels, Inc., for the three months ended March
31, 2007 and for the year ended December 31, 2006. These consolidated financial
statements and the Predecessor Business financial statements are the
responsibility of the Company’s management and management of
the
FuelMeister Business
.
Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is
not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
The
accompanying Predecessor Business financial statements were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and on the basis described in Note 1. Accordingly, they
do
not necessarily represent what the results of operations and cash flows of
the
Predecessor Business actually would have been if it had been a separate entity
for the periods presented.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as
of
December 31, 2007, and the results of its operations and cash flows for the
period March 9, 2007 (date of inception) to December 31, 2007 in conformity
with
accounting principles generally accepted in the United States of America.,
and
the results of operations and cash flows of the Predecessor Business for the
three months ended March 31, 2007 and for the year ended December 31, 2006,
on
the basis described in Note 1 and in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to such
consolidated financial statements, the Company has suffered recurring losses
from operations and has ongoing requirements for additional capital investment.
These factors raise substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
s/s
Kingery & Crouse, P.A.
April
14, 2008
Tampa,
Florida
CONSOLIDATED
BALANCE SHEET
ASSETS
|
|
Current
assets:
|
|
|
|
|
Cash
|
|
$
|
98,212
|
|
Funds
received January 2, 2008 from debt financing
|
|
|
270,000
|
|
Inventories
|
|
|
96,883
|
|
Prepaid
expenses and other current assets
|
|
|
80,318
|
|
Total
current assets
|
|
|
545,413
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
349,305
|
|
Finance
fees, net of accumulated amortization of $130,007
|
|
|
349,993
|
|
Intangibles,
net of accumulated amortization of $103,975
|
|
|
417,025
|
|
Goodwill
|
|
|
323,684
|
|
Total
assets
|
|
$
|
1,985,420
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY / (DEFICIT)
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
265,691
|
|
Accounts
payable - related party
|
|
|
48,000
|
|
Other
payables
|
|
|
232,223
|
|
Convertible
debt, in default
|
|
|
2,691,875
|
|
Notes
payable - related parties
|
|
|
150,888
|
|
Total
current liabilities
|
|
|
3,388,677
|
|
|
|
|
|
|
Convertible
preferred stock of subsidiary (preference in liquidation -
$1,000,000)
|
|
|
800,000
|
|
|
|
|
|
|
Total
liabilities
|
|
|
4,188,677
|
|
|
|
|
|
|
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;
|
|
|
|
|
28,832,455
shares issued and outstanding
|
|
|
28,832
|
|
Additional
paid-in capital
|
|
|
8,890,236
|
|
Accumulated
deficit
|
|
|
(11,122,325
|
)
|
Total
stockholders’ equity / (deficit)
|
|
|
(2,203,257
|
)
|
|
|
|
|
|
Total
liabilities and stockholders’
equity
/ (deficit)
|
|
$
|
1,985,420
|
|
See
accompanying notes to consolidated financial
statements.
|
RENEWAL
FUELS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Company
|
|
|
|
Predecessor
Business
|
|
|
|
Period
from
March
9,
2007
(date
of inception)
to
December
31, 2007
|
|
|
|
Three
Months
Ended
March
31, 2007
|
|
Twelve
Months
Ended
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
690,103
|
|
|
|
$
|
104,360
|
|
$
|
1,838,156
|
|
Cost
of sales
|
|
|
472,786
|
|
|
|
|
76,802
|
|
|
1,182,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
217,317
|
|
|
|
|
27,558
|
|
|
655,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based transaction expense
|
|
|
5,131,231
|
|
|
|
|
-
|
|
|
-
|
|
Research
and development
|
|
|
3,140,000
|
|
|
|
|
-
|
|
|
-
|
|
Employee
compensation and benefits
|
|
|
618,827
|
|
|
|
|
52,320
|
|
|
209,951
|
|
Professional
fees
|
|
|
550,590
|
|
|
|
|
8,474
|
|
|
18,617
|
|
Other
general and administrative
|
|
|
431,059
|
|
|
|
|
19,085
|
|
|
123,192
|
|
Advertising
|
|
|
199,981
|
|
|
|
|
8,474
|
|
|
90,100
|
|
Amortization
of intangible assets
|
|
|
103,975
|
|
|
|
|
-
|
|
|
-
|
|
Occupancy
and equipment
|
|
|
132,052
|
|
|
|
|
18,666
|
|
|
190,512
|
|
Income
(loss) from operations
|
|
|
(10,090,398
|
)
|
|
|
|
(79,461
|
)
|
|
23,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
823
|
|
|
|
|
-
|
|
|
-
|
|
Interest
expense
|
|
|
(1,011,321
|
)
|
|
|
|
-
|
|
|
-
|
|
Other
expenses
|
|
|
(21,429
|
)
|
|
|
|
-
|
|
|
-
|
|
Net
income (loss) before income taxes
|
|
|
(11,122,325
|
)
|
|
|
|
(79,461
|
)
|
|
23,141
|
|
Income
taxes
|
|
|
-
|
|
|
|
|
-
|
|
|
3,471
|
|
Net
income (loss)
|
|
$
|
(11,122,325
|
)
|
|
|
$
|
(79,461
|
)
|
$
|
19,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.45
|
)
|
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
Diluted
|
|
$
|
(0.45
|
)
|
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,086,926
|
|
|
|
|
7,000,000
|
|
|
7,000,000
|
|
Diluted
|
|
|
26,086,926
|
|
|
|
|
7,000,000
|
|
|
7,000,000
|
|
RENEWAL
FUELS, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIT)
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balances,
March 9, 2007 (inception)
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold to founders for cash
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
57,279
|
|
|
-
|
|
|
57,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
transaction expense related to common stock sold to
founders
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
5,131,231
|
|
|
-
|
|
|
5,131,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
liabilities assumed in the recapitalization on April 20,
2007
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(1,677,020
|
)
|
|
-
|
|
|
(1,677,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in exchange for net liabilities in the 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 in connection with issuance of convertible
debentures on April 20, 2007
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
238,932
|
|
|
-
|
|
|
238,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible debt instruments issued or assumed
on
April 20, 2007
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
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 by YA
Global
|
|
|
-
|
|
|
-
|
|
|
574,807
|
|
|
575
|
|
|
228,425
|
|
|
-
|
|
|
229,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for purchase of BSI on July 2, 2007
|
|
|
-
|
|
|
-
|
|
|
3,333,333
|
|
|
3,333
|
|
|
1,996,667
|
|
|
-
|
|
|
2,000,000
|
|
RENEWAL
FUELS, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIT) (continued)
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Fair
value of options granted in conjunction with the purchase of BSI
on July
2, 2007
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
48,181
|
|
$
|
-
|
|
$
|
48,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrants issued in connection with the issuance of convertible
debentures on July 2, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,104,405
|
|
|
-
|
|
|
1,104,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible debentures issued on July 2,
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
348,287
|
|
|
-
|
|
|
348,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid in lieu of fractional shares from reverse stock split on August
1,
2007
|
|
|
-
|
|
|
-
|
|
|
(114
|
)
|
|
-
|
|
|
(68
|
)
|
|
-
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued on October 5, 2007 for conversion of convertible debentures
by YA Global
|
|
|
-
|
|
|
-
|
|
|
1,343,750
|
|
|
1,344
|
|
|
213,656
|
|
|
-
|
|
|
215,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible debentures issued on December 31,
2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
221,663
|
|
|
-
|
|
|
221,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
in exercise price of existing common stock warrants in connection
with the
December 31, 2007 debentures
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
78,337
|
|
|
-
|
|
|
78,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,122,325
|
)
|
|
(11,122,325
|
)
|
Balances,
December 31, 2007
|
|
|
-
|
|
$
|
-
|
|
|
28,832,455
|
|
$
|
28,832
|
|
$
|
8,890,236
|
|
$
|
(11,122,325
|
)
|
$
|
(2,203,257
|
)
|
See
accompanying notes to consolidated financial statements.
RENEWAL
FUELS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Company
|
|
|
|
Predecessor
Business
|
|
Cash
flows provided by (used in) operating
activities:
|
|
March
9, 2007
(date
of inception) to
December
31,
2007
|
|
|
|
Three
Months
Ended
March
31, 2007
|
|
Twelve
Months
Ended
December
31, 2006
|
|
Net
income (loss)
|
|
$
|
(11,122,325
|
)
|
|
|
$
|
(79,461
|
)
|
$
|
19,671
|
|
Adjustments
to reconcile net income (loss) to net cash
flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
256,767
|
|
|
|
|
471
|
|
|
11,723
|
|
Accrued
interest and amortization of debt discounts
|
|
|
936,372
|
|
|
|
|
-
|
|
|
-
|
|
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
|
|
|
(63,990
|
)
|
|
|
|
26,151
|
|
|
109,470
|
|
Other
current assets
|
|
|
(349,877
|
)
|
|
|
|
11,915
|
|
|
(15,802
|
)
|
Accounts
payable and accrued expenses
|
|
|
(154,770
|
)
|
|
|
|
(5,857
|
)
|
|
29,835
|
|
Other
payables
|
|
|
15,566
|
|
|
|
|
-
|
|
|
-
|
|
Customer
deposits
|
|
|
-
|
|
|
|
|
(12,224
|
)
|
|
(19,425
|
)
|
Net
cash flows (used in) provided by operating activities
|
|
|
(2,188,095
|
)
|
|
|
|
(59,005
|
)
|
|
146,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in) investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of FuelMeister assets
|
|
|
(494,426
|
)
|
|
|
|
-
|
|
|
-
|
|
Acquisition
of Biodiesel Solutions
|
|
|
(422,014
|
)
|
|
|
|
-
|
|
|
-
|
|
Refund
of Deposit
|
|
|
-
|
|
|
|
|
-
|
|
|
5,376
|
|
Purchases
of property and equipment
|
|
|
(167,293
|
)
|
|
|
|
-
|
|
|
(2,267
|
)
|
Net
cash flows (used in) provided by investing activities
|
|
|
(1,083,733
|
)
|
|
|
|
-
|
|
|
3,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows (used in) provided by financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
57,279
|
|
|
|
|
-
|
|
|
-
|
|
Proceeds
from issuance of warrants
|
|
|
1,421,674
|
|
|
|
|
-
|
|
|
-
|
|
Proceeds
from beneficial conversion features
|
|
|
798,360
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
1,422,795
|
|
|
|
|
-
|
|
|
-
|
|
Payment
of debt issuance costs
|
|
|
(480,000
|
)
|
|
|
|
-
|
|
|
-
|
|
Proceeds
from notes payable
|
|
|
150,000
|
|
|
|
|
-
|
|
|
-
|
|
Payment
for fractional shares
|
|
|
(68
|
)
|
|
|
|
-
|
|
|
-
|
|
Net
contributions (distributions) from (to) owner
|
|
|
-
|
|
|
|
|
31,953
|
|
|
(374,003
|
)
|
Net
cash flows provided by (used in) financing
activities
|
|
|
3,370,040
|
|
|
|
|
31,953
|
|
|
(374,003
|
)
|
Net
change in cash
|
|
|
98,212
|
|
|
|
|
(27,052
|
)
|
|
(224,224
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
-
|
|
|
|
|
52,626
|
|
|
276,850
|
|
Cash
and cash equivalents - end of period
|
|
$
|
98,212
|
|
|
|
$
|
25,574
|
|
$
|
52,626
|
|
RENEWAL
FUELS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
|
|
Company
|
|
|
|
Predecessor
Business
|
|
Cash
flows from (used by) operating activities:
|
|
March
9, 2007
(date
of inception) to
December
31, 2007
|
|
|
|
Three
Months
Ended
March
31, 2007
|
|
Twelve
Months
Ended
December
31, 2006
|
|
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 FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting
policies
|
Nature
of Business:
Renewal
Fuels, Inc. (the “Company, we or our”), formerly known as Tech Laboratories,
Inc. (“Tech Labs”), was incorporated in the State of New Jersey in 1947. Our
Company is engaged in the business of
designing,
developing, manufacturing and marketing biodiesel processing equipment and
accessories to convert used and fresh vegetable oil into clean-burning
biodiesel. Our products allow customers to make biodiesel fuel, which is capable
of powering all diesel fuel engines, at either personal or commercial production
scales. We have developed a network of dealers in the United States for sale
and
distribution of our products. Our manufacturing facilities are currently located
in Sparks, Nevada.
Basis
of presentation:
The
preparation of financial statements in accordance with Accounting Principles
Generally Accepted in the United States of America contemplates that the Company
will continue as a going concern, for a reasonable period. As reflected in
our
consolidated financial statements, we have incurred a loss of $11,122,325 during
the period from March 9, 2007 (date of inception) through December 31, 2007
and
have an accumulated deficit of $11,122,325 as of December 31, 2007. In addition,
our current working capital deficiency of $1,281,620 is insufficient in our
view
to sustain our current levels of operations for a reasonable period without
substantial cost curtailment and additional financing. These trends and
conditions raise substantial doubt surrounding our ability to continue as a
going concern for a reasonable period.
In
response to these conditions 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.
Ultimately,
our ability to continue for a reasonable period is dependent upon management’s
continued successful curtailment of costs and expenses to a level that our
current operations can support and obtaining additional financing to augment
our
working capital requirements. There can be no assurance that management will
be
successful in achieving sufficient cost reductions or obtain financing under
terms and conditions that are suitable. The accompanying financial statements
do
not include any adjustments associated with these uncertainties.
Merger
and Recapitalization:
As
more
fully described in Note 2, on April 20, we merged with Renewal Biodiesel, Inc.
(“Renewal Biodiesel”), a Delaware Corporation pursuant to a Share Exchange
Agreement (the “Exchange Agreement”). The Exchange Agreement provided for, among
other things, the exchange of 100% of Renewal Biodiesel’s outstanding common
shares for 343,610 shares of our Series of convertible preferred stock, which
were subsequently converted into 22,907,323 (or 83%) of our common shares.
Because Renewal Biodiesel shareholders now control the majority of the Company’s
outstanding voting common
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
stock,
Renewal Biodiesel is considered the accounting acquirer in this reverse-merger
transaction. A reverse-merger transaction is considered, and accounted for
as, a
capital transaction in substance; it is
equivalent
to the issuance of Renewal Biodiesel’s common stock for the net monetary assets
of Tech Labs, accompanied by a recapitalization. On the date of the merger,
Tech
Labs net liabilities were $1,677,020.
Basis
of presentation (Predecessor):
The
accompanying comparative financial statements are the accounts of the
FuelMeister business (the “FuelMeister Business” or the “predecessor”, a
carve-out business of BSI and a predecessor business of Renewal Fuels, which
carve-out business was acquired by Renewal Biodiesel on March 30, 2007), on
a
carved-out basis as if it had been an independent reporting entity for the
periods presented.
The
statements of operations and cash flows for the three months ended March 31,
2007 and for the year ended December 31, 2006 reflect carved-out
presentations of the acquired operations from the financial statements of BSI,
presented on a stand-alone basis. The presentation of the carved-out FuelMeister
Business financial statements requires certain assumptions in order to reflect
the business as a stand-alone entity, which assumptions management believes
are
reasonable. The FuelMeister Business did not have a formal financing agreement
with the parent entity (BSI). Accordingly, advances and other transactions
between BSI and the FuelMeister Business are reflected as owner’s investment in
the accompanying financial statements.
Carve
out assumptions and allocations (Predecessor)
The
revenue and expenses of Biodiesel for the three months ended March 31, 2007
and
the year ended December 31, 2006 have been allocated by Renewal management
between the FuelMeister Business and the operations that were originally
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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
The
following revenues and expenses included in the accounting records of BSI were
attributed by management to the operations originally retained by BSI and
accordingly were excluded from the results of operations of the FuelMeister
Business:
|
|
Three
Months
Ended
March
31,
2007
|
|
Year
Ended
December
31,
2006
|
|
Revenue
|
|
|
-
|
|
|
-
|
|
Cost
of goods sold
|
|
|
-
|
|
|
-
|
|
Gross
profit
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Rent
and utilities
|
|
$
|
33,196
|
|
$
|
131,002
|
|
Employee
costs
|
|
|
43,071
|
|
|
163,776
|
|
Employee
bonuses
|
|
|
-
|
|
|
32,003
|
|
Engineering
materials
|
|
|
23,753
|
|
|
206,684
|
|
Depreciation
|
|
|
-
|
|
|
10,946
|
|
Other
costs
|
|
|
18,393
|
|
|
48,564
|
|
|
|
|
118,413
|
|
|
592,975
|
|
|
|
|
|
|
|
|
|
Loss
from operations excluded
|
|
$
|
(118,413
|
)
|
$
|
(592,975
|
)
|
Earnings
Per Share
(Predecessor)
Because
the FuelMeister Business did not have a share-based capital structure, earnings
per share information is presented using that of BSI.
Income
Taxes
(Predecessor)
The
FuelMeister Business was included with BSI in filing Federal and state income
tax returns. Prior to January 1, 2007, BSI was a Sub-Chapter S corporation
for
Federal income tax purposes. For the purposes of the stand-alone presentation
of
the FuelMeister Business as our Predecessor, the provision for income taxes
has
been computed as if the FuelMeister Business were to file a separate income
tax
return for the carved-out operation, with the provision for income taxes based
on the statutory U.S. Federal income tax rates and without regard for any state
income taxes. The resulting tax liability, together with any deferred tax assets
or liabilities, were assumed by BSI.
Consolidation:
Our
consolidated financial statements include the accounts of the Company and our
wholly-owned subsidiaries,
Renewal
Biodiesel, Inc. and Biodiesel Solutions, Inc (“BSI”)
.
All
significant inter-company balances and transactions have been eliminated in
our
consolidated financial statements.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
Revenue
Recognition:
We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred or services have been rendered, our price is fixed or otherwise
determinable and collectibility is probable.
Product
Warranties:
At
the
time a sale is recognized, we record 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.
Cash
and Cash Equivalents:
For
purposes of our statements of cash flows, we consider all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. We maintain all of our cash in deposit accounts with one financial
institution, which deposit accounts at times may exceed federally insured
limits. We minimize the risks associated with such concentrations by
periodically considering the reported standing of the financial
institution.
Financial
Instruments and Concentrations of Credit Risk:
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 December 31,
2007, we did not have any accounts receivable. Our ability to collect
receivables arising in the future may be affected by economic
fluctuations.
The
fair
values of our cash and cash equivalents, accounts payable and accrued and other
liabilities approximate their carrying amounts due to their short-term
nature.
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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
Inventories:
Inventories
consist of raw materials, work in process and finished goods. Raw materials
are
stated at the lower of cost or market with cost determined using a first-in,
first-out basis. Work-in-process and finished goods inventory is recorded at
actual cost of material, labor and overhead.
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, work in process 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.
There were no inventory reserves or write-offs for the periods from March 9,
2007 (inception) through December 31, 2007, the three months ended March 31,
2007 or the twelve months ended December 31, 2006.
Property
and Equipment:
Property
and equipment are stated at cost. Computer equipment, vehicles, office and
shop
equipment, furniture & fixtures, green houses and websites are depreciated
using the straight-line method over the estimated useful lives of the related
assets. Maintenance and routine repairs are charged to expense as incurred.
Significant renewals and betterments are capitalized. At the time of retirement
or other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in the statement of operations.
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.
Intangible
Assets:
Our
intangible assets arose from the purchase of businesses (see Note 2). Intangible
assets are recorded at cost and are amortized over their estimated useful lives,
ranging from 1 to 15 years.
Impairment
of long-lived assets:
We
assess
the recoverability of our long-lived assets (property and equipment and
identifiable intangible assets) , when events of circumstances lead us to
believe that the carrying value of an asset may not be recoverable, by
determining whether undiscounted cash flows of long-lived assets over their
remaining lives are sufficient to recover the respective carrying values. The
amount of long-lived asset impairment,
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
if
any,
is measured based on fair values of our assets and is charged to operations
in
the period in which long-lived asset impairment is determined by management.
There was no impairment of long lived assets during the period from March 9,
2007 through December 31, 2007, the three months ended March 31, 2007 or the
twelve months ended December 31, 2006.
Stock
Options:
As
discussed in Note 10, on July 10, 2007, the majority stockholders approved
the
2007 Stock Incentive Stock Plan (the "2007 Incentive Plan"). As of March 31,
2008, no stock awards or stock options had been issued under the 2007 Incentive
Plan. When awards or options are issued under the 2007 Incentive Plan, we will
account for them in accordance with FAS No. 123(R), “Share-Based Payment”.
Derivative
Instruments and Beneficial Conversion Features:
We
do not
use derivative instruments to hedge exposures to cash flow, market, or foreign
currency risks.
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 our control,
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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
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.
Research
and Development Costs:
Research
and development costs are expensed as incurred. The only such costs incurred
during the period covered by these financial statements arose due to the
acquisition of BSI (see Note 2).
Advertising
Costs:
Advertising
costs are expensed as incurred.
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 (which consisted of approximately 250
million shares underlying convertible debt, convertible preferred
stock, and warrants outstanding at December 31, 2007). 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:
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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
1.
|
Business,
basis of presentation and significant accounting policies
(continued):
|
Use
of Estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires us to make estimates
and assumptions. These estimates and assumptions affect the reported amounts
in
the consolidated balance sheets and statements of earnings, as well as the
disclosure of contingent liabilities. Estimates that are critical to the
accompanying consolidated financial statements arise from our belief that we
will generate adequate cash to continue as a going concern and that all
long-lived assets are recoverable. The markets for our products are
characterized by intense price competition, rapid technological development,
evolving standards and regulations 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.
Future results could be materially affected if actual results differ from these
estimates and assumptions.
Recently
issued accounting pronouncements:
In
September 2006, the Financial Accounting Standards Board (FASB) issued FAS
No.
157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value,
establishes a framework for measuring fair value under accounting principles
generally accepted in the United States (GAAP) and expands disclosures about
fair value measurements. Fair value is defined under FAS 157 as the exchange
price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the
measurement date. FAS 157 also establishes a fair value hierarchy which requires
the Company to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The Company does not expect
the
adoption of FAS 157 to have a material impact on the Company’s financial
position or results of operations.
In
December 2007, the FASB issued FAS No. 141(R), “Business Combinations”, a
revision of the existing FAS No. 141. FAS 141R retains the fundamental
requirements in FAS 141 that the acquisition method of accounting (which FAS
141
called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. FAS 141R requires
an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition date, measured
at
their fair values as of that date, with limited exceptions. This replaces FAS
141’s cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. FAS 141R also requires the acquirer in a business
combination achieved in stages (sometimes referred to as a step acquisition)
to
recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with FAS 141R). FAS 141R
applies prospectively to business combinations for which the acquisition date
is
on or after the beginning of the first annual reporting period beginning on
or
after December 15, 2008. An entity may not apply it before that date.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
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 6), which additional funding was
provided simultaneously with the reverse merger and recapitalization. The net
liabilities assumed have been recorded as a decrease to equity in connection
with the reverse merger and recapitalization. In addition, we 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 6). 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
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
2.
|
Acquisitions
(continued):
|
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. 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 our 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 convertible preferred shares of BSI,
options to purchase 94,600 shares of our common stock and $500,000 in cash.
The
cash portion of the consideration was funded from the proceeds of loans from
YA
Global (see Note 6). The BSI Preferred Stock is immediately convertible at
the
option of the holders into our common stock 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, we 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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
2.
|
Acquisitions
(continued):
|
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
|
|
|
|
|
Goodwill
Related To Acquisitions:
Goodwill
arising on the acquisitions of FuelMeister and BSI is expected to be amortized
for tax purposes as follows:
Goodwill
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Purposes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
Thereafter
|
|
FuelMeister
|
|
|
4/20/2007
|
|
$
|
93,705
|
|
$
|
14,056
|
|
$
|
18,741
|
|
$
|
18,741
|
|
$
|
18,741
|
|
$
|
23,426
|
|
BSI
|
|
|
7/2/2007
|
|
|
229,979
|
|
|
22,998
|
|
|
45,996
|
|
|
45,996
|
|
|
45,996
|
|
|
68,993
|
|
Total
|
|
|
|
|
$
|
323,684
|
|
$
|
37,054
|
|
$
|
64,737
|
|
$
|
64,737
|
|
$
|
64,737
|
|
$
|
92,419
|
|
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
2.
|
Acquisitions
(continued):
|
Purchase
Accounting For Acquisitions:
The
results of operations of the 2007 Acquisitions are included in our 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:
|
|
For
The Twelve Months Ended
December
31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
1,186,466
|
|
$
|
1,838,156
|
|
Loss
from Operations
|
|
$
|
(2,323,853
|
)
|
$
|
(8,973,085
|
)
|
Net
Loss
|
|
$
|
(3,981,286
|
)
|
$
|
(11,235,159
|
)
|
Per
Share - basic and fully diluted
|
|
$
|
(0.14
|
)
|
$
|
(0.42
|
)
|
Weighted
average shares outstanding
|
|
|
27,488,705
|
|
|
26,957,566
|
|
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.
At
December 31, 2007, property and equipment consists of the
following:
Computer
equipment and software
|
|
$
|
44,538
|
|
Production
and shop equipment
|
|
|
64,614
|
|
Vehicles
|
|
|
3,303
|
|
Tenant
improvements
|
|
|
102,501
|
|
Greenhouses
and improvements
|
|
|
89,247
|
|
Office
furniture and equipment
|
|
|
17,737
|
|
Website
domain
|
|
|
50,150
|
|
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
372,090
|
|
Property
and equipment - net
|
|
|
22,785
|
|
|
|
$
|
349,305
|
|
Depreciation
expense, which is included in other general and administrative costs, was
$22,785 for the period March 9, 2007 through December 31, 2007. For the twelve
months ended December 31, 2006, depreciation expense was
$32,687.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
Inventories
consisted of the following at December 31, 2007:
Raw
materials
|
|
$
|
95,342
|
|
Work-in-process
|
|
|
1,541
|
|
|
|
$
|
96,883
|
|
The
following table summarizes amortized and unamortized intangible
assets:
|
|
As
of December 31, 2007
|
|
|
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Useful
lives
(Years)
|
|
Amortized
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
Customer
lists
|
|
$
|
70,000
|
|
$
|
3,500
|
|
$
|
66,500
|
|
|
15
|
|
Engineering
drawings
|
|
|
70,000
|
|
|
10,500
|
|
|
59,500
|
|
|
5
|
|
Non-compete
agreement
|
|
|
146,000
|
|
|
50,492
|
|
|
95,508
|
|
|
1.5
- 2
|
|
Tradename
|
|
|
118,000
|
|
|
8,850
|
|
|
109,150
|
|
|
10
|
|
Patent
application
|
|
|
3,000
|
|
|
2,250
|
|
|
750
|
|
|
1
|
|
Employment
agreements
|
|
|
114,000
|
|
|
28,383
|
|
|
85,617
|
|
|
2
|
|
|
|
$
|
521,000
|
|
$
|
103,975
|
|
$
|
417,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Fees
|
|
$
|
480,000
|
|
$
|
130,007
|
|
$
|
349,993
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
323,684
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Amortization Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
ended December 31, 2007
|
|
|
|
|
$
|
233,982
|
|
|
|
|
|
|
|
Amortization
expense for the next five years related to these intangible assets is expected
to be
as
follows:
Intangibles
|
|
|
|
|
December
31, 2008
|
|
$
|
177,975
|
|
December
31, 2009
|
|
|
64,834
|
|
December
31, 2010
|
|
|
30,467
|
|
December
31, 2011
|
|
|
30,467
|
|
December
31, 2012
|
|
|
19,967
|
|
Thereafter
|
|
|
93,315
|
|
|
|
$
|
417,025
|
|
Financing
Fees
|
|
|
|
|
December
31, 2008
|
|
$
|
240,000
|
|
December
31, 2009
|
|
|
109,993
|
|
|
|
$
|
349,993
|
|
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
5.
|
Intangible
assets (continued):
|
Amortized
intangible assets acquired during the period ended December 31, 2007 have a
weighted-average amortization period of 4.21 years.
As
described in Note 2, goodwill arose from the acquisitions of FuelMeister and
BSI
as follows:
FuelMeister
|
|
$
|
93,705
|
|
BSI
|
|
|
229,979
|
|
|
|
$
|
323,684
|
|
At December
31,
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% (10% at December 31,
2007)
|
|
$
|
1,075,128
|
|
Less
unamortized discount from warrants and beneficial conversion feature
(a)
|
|
|
(332,134
|
)
|
|
|
|
742,994
|
|
YA
Global Investments, L.P., $400,000 convertible debenture, due May
31,
2009, including interest at prime + 2.75% (10% at December 31,
2007)
|
|
|
424,991
|
|
Less
unamortized discount from beneficial conversion feature
(a)
|
|
|
(399,317
|
)
|
|
|
|
25,674
|
|
|
|
|
|
|
YA
Global Investments, L.P, $2,000,000 convertible debenture, due
July 2,
2009, including interest at prime + 2.75% (10% at December 31,
2007)
|
|
|
2,106,247
|
|
Less
unamortized discount from warrants and beneficial conversion feature
(b)
|
|
|
(1,313,272
|
)
|
|
|
|
792,975
|
|
YA
Global Investments, L.P., $300,000 convertible debenture, due December
31,
2009, including interest at prime + 2.75% (10% at December 31,
2007)
|
|
|
300,000
|
|
Less
unamortized discount from warrants and beneficial conversion feature
(b)
|
|
|
(300,000
|
)
|
|
|
|
-
|
|
|
|
|
|
|
Total
new obligations
|
|
$
|
1,561,643
|
|
|
|
|
|
|
Prior
obligations:
|
|
|
|
|
Montgomery
Equity Partners, Ltd., $322,220 15% convertible debenture, due
on demand,
including accrued interest of $152,904 (c)
|
|
$
|
475,124
|
|
|
|
|
|
|
Montgomery
Equity Partners, Ltd., $300,000 15% convertible debenture, due
on demand,
including accrued interest of $90,370 (c)
|
|
|
390,370
|
|
LH
Financial, $156,080 18% convertible promissory note, due on demand,
including accrued interest of $108,658 (c)
|
|
|
264,738
|
|
Total
prior obligations
|
|
|
1,130,232
|
|
|
|
|
|
|
Total
convertible debt obligations
|
|
|
2,691,875
|
|
|
|
|
|
|
Less:
obligations in default classified as current (c)
|
|
|
2,691,875
|
|
|
|
$
|
-
|
|
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
6.
|
Convertible
debt (continued):
|
(a)
$1,400,000
Convertible Debentures
On
April
20, 2007, we entered into a Securities Purchase Agreement (the "Purchase
Agreement") with YA Global Investments, L.P. (“YA Global”) providing for the
sale to YA Global of our 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.
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"). We 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 our common
stock 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. We have 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 we sell or otherwise issue 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 our Control, the our 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 our common stock on a recognized exchange.
Under
the
Purchase Agreement, we 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, we 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,
we
are 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. We are 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, we are 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 April 14, 2008,
no
demand for registration has been received by us.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
6.
|
Convertible
debt (continued):
|
$2,700,000
Convertible Note Financing
On
July
2, 2007, we entered into an additional Securities Purchase Agreement (the
"Additional Purchase Agreement") with YA Global providing for the sale to YA
Global of our 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 was
to
be funded within two business days after we have 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.
Under
the
Additional Purchase Agreement, we 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.
On
December 31, 2007, the Company entered into an Amendment Agreement (the
"Amendment Agreement") with YA Global, amending the Additional Purchase
Agreement of July 2, 2007, to provide for the sale by the Company to YA Global
of its secured convertible debentures in the aggregate principal amount of
$300,000 (the "Second Additional Debentures"). As part of the Amendment
Agreement, the Company agreed that it would comply with the requirement to
have
unconditionally booked and received at least a 50% deposit for the sale of
at
least one BiodieselMaster® unit no later than January 31, 2008. The Company also
agreed to have signed a definitive joint venture with Eco Plantations no later
than January 31, 2008. The Company has not complied with these undertakings
and,
accordingly, all its obligations to YA Global are in default. Concurrently
with
the additional funding from YA Global, certain stockholders and management
of
the Company loaned $150,000 to the Company (see Note 8) and the Company
covenanted to YA Global that, as long as the debentures issued by the Company
to
YA Global are outstanding, that these loans would not be repaid without the
express written consent of YA Global.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
6.
|
Convertible
debt (continued):
|
As
part
of the Amendment Agreement, the Company also agreed to reduce the exercise
price
of the 1,200,000 warrants issued to YA Global on April 20, 2007 from $0.15
per
share to $0.001 per share and to reduce the exercise price of 1,200,000 of
the
2,250,000 warrants issued to YA Global on July 2, 2007 from $0.90 per share
to
$0.001 per share.
The
cost
of these reductions in the exercise price was estimated at $78,337, based on
the
value of the warrants immediately before and after the change in the exercise
prices, using the Cox-Ross-Rubenstein binomial model, based on the market price
of $0.23, estimated volatility of 123%, a risk free rate of 3.45% and the
remaining life of the warrants.
On
March
27, 2008, YA Global completed a cashless exercise of the 1,200,00 warrants
originally issued on April 20, 2007 and were issued 1,186,813 shares of common
stock.
The
interest rate, repayment terms, conversion rights, conversion price,
anti-dilution provisions, redemption provisions, events of default and
registration requirements of the second Additional Debentures are identical
to
those of the New Debentures described above, except that the fixed element
of
the conversion price is $0.05, not $0.60.
All
of
the above obligations to YA Global, together with prior obligations to YA Global
described below, are secured by a security interest in our assets and the assets
of our subsidiaries, including their intellectual property. In addition, we
pledged the shares of Renewal Biodiesel and BSI to YA Global as additional
security for the obligations to YA Global.
(b)
Prior
obligations assumed in reverse merger
On
April
20, 2007, as part of the net liabilities assumed on the reverse merger, we
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, we 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. 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) and on January 24, 2008 converted a further $72,500 of the Old Debentures
into 755,208 shares of common stock.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
6.
|
Convertible
debt (continued):
|
In
connection with these Old Debentures, we are obligated to file a Registration
Statement with the SEC, registering the shares issuable on conversion of the
Old
Debentures and the Old Warrants. We have 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, we are 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. We have received a letter dated November
14, 2007 from YA Global waiving, as of that date, all rights to collect any
and
all liquidated damages arising from any default under any of the convertible
debenture agreements. Because any common shares obtained by YA Global on
conversion of the Old Debentures may now be freely sold by them under rule
144(k), without volume restrictions and without registration, we do not believe
it will be subject to any penalties after November 14, 2007 for not filing
the
required registration statement.
We
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 from April 21, 2007 to December 31, 2007, YA Global converted their
entire principal amount of $168,000 plus all accrued interest thereon of $61,000
into 574,807 common shares.
Default
The
prior
obligations assumed in the reverse merger are past due and are therefore in
default. As noted above, as part of the December 31, 2007 Amendment Agreement,
the Company agreed that it would comply with the requirement to have
unconditionally booked and received at least a 50% deposit for the sale of
at
least one BiodieselMaster® unit no later than January 31, 2008. The Company also
agreed to have signed a definitive joint venture with Eco Plantations no later
than January 31, 2008. The Company has not complied with these undertakings
and,
accordingly, all its obligations to YA Global are in default. As a result,
all
of the Company’s convertible debt obligations are in default, permitting the
holders to demand immediate payment, and have therefore been classified as
current at December 31, 2007.
Derivative
Instrument Liabilities and Beneficial Conversion Feature:
In
accounting for the Convertible Debentures and the associated Warrants, we have
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 our 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 us to have approximately 280 million common
shares authorized. We are authorized to issue 3 billion common shares. As a
result, management believes it will have sufficient authorized shares available
to
physically
settle all contracts that currently require delivery of common shares.
Furthermore, our management, together with investors associated with management,
control a majority of our outstanding common shares. Accordingly, our management
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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
6.
|
Convertible
debt (continued):
|
We
have
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 our 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 us 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), we recognize a
beneficial conversion feature inaccordance 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 December 31, 2007, we recorded beneficial conversion features
aggregating $1,493,791.
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 $1,493,791 recorded during the period ended
December 31, 2007 was $333,574 related to debentures assumed by us 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 FINANCIAL STATEMENTS
6.
|
Convertible
debt (continued):
|
For
warrants and option-based derivative instruments, we estimate 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 3.45% 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.
Prior
to
the acquisition of BSI on July 2, 2007, we leased operating space and other
services from BSI and, subsequent to the acquisition, have 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.
On
October 10, 2007, we entered into a lease agreement to rent a portion of a
building and yard space. Our lease is accounted for as an operating lease,
expires on May 31, 2008, and requires lease payments of $2,000 per
month.
8.
|
Related
parties - accounts and notes
payable
|
On
December 13, 2007, we issued three notes, each with a principal amount of
$50,000 (an aggregate of $150,000) to three stockholders, one of whom is also
our Chief Executive Officer and Chief Financial Officer. The Notes have a
maturity date of February 11, 2008 and bear interest of 12% per annum. We are
precluded from repaying the Notes without the express written consent of YA
Global. As of December 31, 2007 and March 31, 2008, we had not made any payments
on the notes.
We
utilize space and employees in Milwaukee, Wisconsin of an entity controlled
by
the Chairman of the Board of Directors. The fair value of the space and work
done by the employees is $6,000 per month. As of December 31, 2007, $48,000
is
outstanding.
Our
authorized capital stock 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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
9.
|
Stockholders’
equity (continued):
|
Common
Stock:
Holders
of our 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 our common stock representing a majority of the voting power of our 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 our outstanding shares are required to
effectuate certain fundamental corporate changes such as liquidation, merger
or
an amendment to our articles of incorporation. Additionally, holders of our
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. Our common stock has no pre-emptive rights,
no
conversion rights and there are no redemption provisions applicable to our
common stock.
On
March
9, 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 issued to YA Global, as discussed
in
Note 6. 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, June and July, 2007, YA Global converted $229,000 (including accrued
interest of $61,000) of our prior convertible debentures into 574,807 common
shares at a per share price ranging between $0.192 and $0.501, calculated as
the
average five lowest bid prices in the twenty two days preceding the notice
of
conversion.
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 our common stock.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
9.
|
Stockholders’
equity (continued):
|
On
July
2, 2007, in conjunction with the acquisition of BSI, 3,333,333 shares of our
common stock, with a fair value of $0.60 per share, were issued as discussed
in
Note 2. Additionally, 96,400 Common Stock options, not part of our employee
stock option plan, were granted to BSI employees in connection with the
acquisition. These options have a strike price of $0.75, and expire in five
years. These options were valued at $48,181, based on the Cox-Ross-Rubinstein
binomial model, and the following assumptions: an expected term of 3 years,
an
estimated volatility of 123%, a risk-free rate of 4.90% and a share price of
$0.60.
On
July
2, 2007, freestanding warrants, with a fair value of $1,104,405 were issued
in
conjunction with a convertible debenture issued to YA Global, as discussed
in
Note 6. Additionally, the beneficial conversion feature for this convertible
debenture in the amount of $348,287 was recorded.
On
September 21, 2007, $215,000 of our convertible debentures were converted by
YA
Global 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).
On
December 31, 2007, as discussed in Note 6, we reduced the exercise price of
certain outstanding warrants held by YA Global, in connection with the sale
to
them of a $300,000 convertible debenture. The change in the fair value of the
warrants as a result of the reduction in the exercise price was estimated at
$78,337. Additionally, the beneficial conversion feature for this convertible
debenture in the amount of $221,663 was recorded.
Preferred
Stock:
Holders
of our 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 our Preferred Stock representing a majority of the
voting power of our 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 our 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 our 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 our common stock
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.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
10.
|
Employee
stock option plan
|
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 March 31, 2008,
no
stock awards or stock options had been issued under the 2007 Incentive
Plan.
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 there under. The primary purpose of the 2007 Incentive
Plan is for us to attract and retain the best available personnel by granting
stock awards and stock options in order to promote the success of our business
and to facilitate the ownership of our stock by employees. The 2007 Incentive
Plan will be administered by our Board of Directors.
Under
the
2007 Incentive Plan, stock awards and options may be granted to our key
employees, officers, directors or consultants. 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 will 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.
11.
|
Common
stock warrants
|
As
described in Note 6, certain warrants were issued to YA Global in connection
with the sale to them of convertible debentures. At December 31, 2007, the
following warrants, all of which are exercisable, were outstanding.
Exercise
Price
|
|
Expiration
Date
|
|
Number
of
Warrants
|
|
$0.015
|
|
|
April
22, 2010
|
|
|
6,667
|
|
$0.001
|
|
|
April
20, 2012
|
|
|
1,200,000
|
|
$0.900
|
|
|
July
2, 2012
|
|
|
1,050,000
|
|
$0.001
|
|
|
July
2, 2012
|
|
|
1,200,000
|
|
|
|
|
|
|
|
3,456,667
|
|
On
March
27, 2008, YA Global completed a cashless exercise of the 1,200,00 warrants
expiring on April 20, 2007 and was issued 1,186,813 shares of common
stock.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
12.
|
Income
taxes
(continued):
|
|
|
2007
|
|
Current:
|
|
|
|
|
Federal
|
|
$
|
-
|
|
State
|
|
|
-
|
|
Deferred
income taxes
|
|
|
-
|
|
|
|
$
|
-
|
|
Due
to
our net operating loss during fiscal year ending December 31, 2007, we did
not
have a provision (benefit) for income taxes at December 31, 2007. We did not
have a deferred tax provision (benefit) due to our 100% valuation allowance
applied to net deferred tax assets.
Deferred
tax assets and (liabilities) reflect the net tax effect of temporary differences
between the carrying amount of asset and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
our
deferred tax assets are as follows as of December 31, 2007:
|
|
2007
|
|
Share
based payments
|
|
|
16,382
|
|
Amortization
of goodwill
|
|
|
(4,199
|
)
|
Net
operating loss carry forwards
|
|
|
3,761,599
|
|
Net
deferred tax assets (liabilities)
|
|
|
3,773,782
|
|
Valuation
allowances
|
|
|
(3,773,782
|
)
|
Net
deferred taxes, after valuation allowances
|
|
$
|
-
|
|
Valuation
allowances are required in the absence of reasonable assurance of future income
sources. Our valuation allowance increased $3,773,782 during the period ended
December 31, 2007.
As
of
December 31, 2007, we had Federal net operating loss carry-forwards of
approximately $10,099,098. Net operating loss carry-forwards expire in 2027.
The
ultimate availability of these losses to offset future taxable income may be
subject to limitations under Internal Revenue Code Section 382.
Due
to
the ownership change in April 2007 and prior years, the pre-change net operating
loss carryforwards are limited by IRC Section 382 in their annual utilization.
If the corporation fails to meet certain business continuity requirements,
the
carryforwards may be eliminated entirely. As of December 31, 2006, the remaining
1999 pre-change federal net operating loss carryforwards of approximately
$8,400,000 are subject to the Sec 382 limitation. We have not included these
carryforwards in our deferred tax calculation due to the uncertainty related
to
our IRC Section 382 study analysis for the tax year ended December 31, 2006.
RENEWAL
FUELS, INC.
NOTES
TO FINANCIAL STATEMENTS
12.
|
Income
taxes (continued):
|
The
reconciliation of the effective income tax rate to the Federal statutory rate
is
as follows for the periods below:
|
|
2007
|
|
Federal
income at the statutory rate
|
|
|
(34.00
|
%)
|
Composite
state rate, net of Federal benefit
|
|
|
0
|
%
|
Non-taxable
income items
|
|
|
-
|
|
Change
in the valuation allowance
|
|
|
34.00
|
%
|
Effective
income tax rate
|
|
|
-
|
|
We
operate in one jurisdiction (the State of Nevada) that does not have a corporate
income tax. The composite state tax rate gives effect to this
jurisdiction.
13.
|
Other
commitments and
contingencies
|
As
described in Note 6, we 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,
we are obligated to file a Registration Statement within 45 days and to use
our
best efforts to cause the Registration Statement to be declared effective no
later than 150 days following receipt of such demand. We are 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 our obligations under the Registration
Rights Agreement, we are 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 March 31, 2008, no demand for registration has been received by
us.
On
July
10, 2007 we 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 we have no plans
to
pursue this acquisition.
In
September 2007, we purchased two greenhouses which were later transferred to
our
Renewal Plantations, Inc. subsidiary (“RPI”). RPI is engaged in the growth of
cellulosic feedstock for the biofuels industry. Through a service agreement
with
another party, we are establishing nurseries for the growth of unique
high-density, short-rotation trees, which are designed to provide a very high
concentration of biomass per acre. RPI was formed on February 11, 2008, and
is
not yet producing revenue from operations. We are currently completing
installation of the nurseries and establishing customers for the products to
be
produced by RPI. A Management Service Agreement between us and Emerald Energy,
LLC was consummated on February 11, 2008, providing for the completion of the
greenhouse installation and operation of the facility. On April 4, 2008, one
of
the greenhouses was placed into service.
ITEM
8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
June
13, 2007, we dismissed Demetrius & Company, L.L.C. as our independent
registered public accounting firm. Effective June 13, 2007, we engaged Kingery
& Crouse PA as our independent registered public accounting firm. Our Board
of Directors approved the dismissal of Demetrius & Company, L.L.C and the
appointment of Kingery & Crouse PA.
From
the
date of Demetrius & Company, L.L.C.'s appointment through the date of their
dismissal on June 13, 2007, there were no disagreements between our company
and
Demetrius & Company, L.L.C. on any matter listed under Item 304 Section
(a)(1)(iv) A to E of Regulation S-B, including accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of Demetrius & Company, L.L.C. would
have caused Demetrius & Company, L.L.C. to make reference to the matter in
its reports on our financial statements. The reports prepared by Demetrius
&
Company, L.L.C. on the company’s financial statements for the years ended
December 31, 2006 and 2005, contained neither an adverse opinion nor a
disclaimer of opinion; however, such reports contained a qualifying paragraph
setting forth that there was substantial doubt as to our ability to continue
as
a going concern.
Prior
to
engaging Kingery & Crouse PA, we did not consult Kingery & Crouse PA
regarding either:
1.
|
the
application of accounting principles to any specified transaction,
either
completed or proposed, or the type of audit opinion that might be
rendered
on our financial statements, and neither a written report was provided
to
our company nor oral advice was provided by Kingery & Crouse PA that
was an important factor considered by our company in reaching a decision
as to the accounting, auditing or financial reporting issue;
or
|
2.
|
any
matter that was either the subject of disagreement or event, as defined
in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
to
Item 304 of Regulation S-B, or a reportable event, as that term is
explained in Item 304(a)(1)(iv)(A) of Regulation
S-B.
|
Prior
to
engaging Kingery & Crouse PA, Kingery & Crouse PA did not provided the
Company with either written or oral advice that was an important factor
considered by our Company in reaching a decision to change our independent
registered public accounting firm from Demetrius & Company, L.L.C. to
Kingery & Crouse PA.
On
June
19, 2007, we filed a Current Report on Form 8-K, reporting the change in our
independent registered public accounting firm. We provided Demetrius &
Company, L.L.C. with a copy of the Report on Form 8-K prior to its filing with
the SEC, and requested that they furnish us with a letter addressed to the
SEC
stating whether they agree with the statements made in the Report on Form 8-K,
and if not, stating the aspects with which they do not agree. A copy of the
letter provided by Demetrius & Company, L.L.C., dated June 18, 2007, is
attached to the Form 8-K filing as an exhibit.
PART
II
ITEM
8A - CONTROLS AND PROCEDURES
Under
the
supervision and with the participation of our management, including our CEO
and
CFO, we conducted an evaluation of the effectiveness of our disclosure controls
and procedures, as such terms are defined in Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of December 31, 2007, the end of the period covered by this Annual
Report on Form 10-K. Disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported on a
timely basis and that such information is accumulated and communicated to
management, including our CEO and CFO. To the extent that components of our
internal control over financial reporting are included within our disclosure
controls and procedures, they are included in the scope of management’s annual
assessment of our internal control over financial reporting. Based on this
evaluation, our management, including our CEO and CFO, has concluded that our
disclosure controls and procedures were not effective as of December 31, 2007
because of the material weakness in our internal control over financial
reporting discussed below. Notwithstanding the material weakness described
below, our management engaged outside accounting personnel, performed additional
analyses, reconciliations and other post-closing procedures and has concluded
that the Company’s consolidated financial statements for the periods covered by
and included in this Annual Report on Form 10-K are fairly stated in all
material respects in accordance with generally accepted accounting principles
in
the U.S. for each of the periods presented herein.
Management’s
Report of Internal Control over Financial Reporting.
We
are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our Chief Executive Officer and Chief Financial Officer, our
management will conduct an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control-Integrated Framework issued by the Committee
of
Sponsoring Organizations of the Treadway Commission. However, by reason of
the
merger transaction involving the Company, on April 20, 2007, originally reported
on Form 8-K filed with the Securities and Exchange Commission on April 26,
2007,
the Company was unable to design, implement, test and evaluate internal controls
over financial reporting as of December 31, 2007, based on those criteria.
A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected.
We
are
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 ended 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. By reason of the merger transaction involving the Company,
on
April 20, 2007, originally reported on Form 8-K filed with the Securities and
Exchange Commission on April 26, 2007, management was unable to provide a
complete assessment of the effectiveness of the Company’s internal controls over
financial reporting as of December 31, 2007. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis. Management has determined that we
have
at least the following material weakness in our internal control over financial
reporting as of December 31, 2007.
Insufficient
personnel with appropriate accounting knowledge and
training.
We
did
not maintain a sufficient complement of personnel with an appropriate level
of
accounting knowledge, experience and training in the application of generally
accepted accounting principles commensurate with our financial reporting
requirements. This deficiency could result in misstatements of the
aforementioned accounts and disclosures that would result in a material
misstatement to the annual or interim consolidated financial statements that
would not be prevented or detected. Accordingly, management has determined
this
control deficiency constitutes a material weakness. Based on the above described
material weakness, our management, including our CEO and CFO have concluded
that
we did not maintain effective internal control over financial reporting as
of
December 31, 2007, based on the criteria in
Internal
Control-Integrated Framework
issued
by
the COSO.
Implemented
or Planned Remedial Actions related to the Material
Weakness
Management
has engaged an outside accounting firm to assist with the preparation of
financial statements and this annual report.
The
design and implementation of controls will occur as sufficient resources become
available and will be tested and evaluated accordingly.
This
annual report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial reporting.
Changes
in Internal Control Over Financial Reporting
There
have been
no
changes
in our internal control
s
over
financial reporting during the most recently completed fiscal quarter that
have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting,
a
s
described above in the section, “Implemented or Planned Remedial Actions of the
Material Weakness.”
ITEM
8B - OTHER INFORMATION
Not
Applicable.
PART
III
ITEM
9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Directors
and Officers
Name
|
|
Age
|
|
Position
|
John
King
|
|
41
|
|
Chief
Executive Officer and Chief Financial Officer
|
David
Marks
|
|
39
|
|
Director
|
On
February 22, 2007, the Board of Directors accepted the resignations of Peter
Nasca and Craig Press as members of the Board of Directors of the Company and
the resignation of Donna Silverman as President, Chief Executive Office and
Chief Financial Officer. On May 18, 2007, the Board of Directors accepted the
resignation of Donna Silverman as a member of the Board of Directors. Neither
Mr. Nasca, Mr. Press nor Ms. Silverman served on any committees of the Board
of
Directors.
Subsequently,
on February 22, 2007, the Board of Directors of the Company appointed David
Marks as a member of the Board of Directors and appointed John King as Chief
Executive Officer and Chief Financial Officer of the Company.
Background
of Executive Officers and Directors
John
King:
Mr. King
was appointed as our Chief Executive Officer and Chief Financial Officer in
February 2007. Mr. King was the Chief Executive Officer and a Director of NewGen
Technologies, Inc., an alternative fuel developer, from June 2005 until
September 2005 and was Chief Executive Officer of International Operations
from
September 2005 until January 2006. Mr. King then continued his work in
alternative fuels with Genesis Global Fuels, Ltd., a UK company. Prior to his
work with NewGen Technologies, Inc., Mr. King was involved with operations,
engineering, marketing, and sales management over a 17-year career with the
Procter & Gamble Company (“P&G”) from 1987 to 2004. Most recently, from
2002 to 2004, Mr. King led the Client Services and Business Development
functions in a non-traditional marketing services company within P&G. Prior
to this, from 1998 to 2002, Mr. King was instrumental in the leadership of
business expansion efforts for P&G's paper business in Europe. Mr. King
earned a Bachelor of Science with Great Distinction in Chemical Engineering
at
Clarkson University.
David
Marks:
Mr.
Marks was appointed as a member of our Board of Directors in February 2007.
Mr.
Marks has been the Chairman of Titan Global Holdings, Inc. (“Titan”), a
diversified holding company, since May 2005 and previously served as the
Chairman from September 2002 until May 2003. From May 2003 until May 2005,
Mr.
Marks served as one of the Directors of Titan. In addition, from November 2004
until November 2006, Mr. Marks served as the Chairman of the Board of Directors
of Thomas Equipment, Inc., a manufacturer and distributor of skid steer loaders
and pneumatic and hydraulic components and systems. Mr. Marks has served as
Trustee of Irrevocable Children's Trust and Irrevocable Children's Trust No.
2
since 1994. Irrevocable Children's Trust and Irrevocable Children's Trust No.
2
currently have an ownership or investment interest in commercial properties,
private residences, natural resources, telecommunications, and technology
companies, and other business and investment ventures. Mr. Marks has
responsibility for overseeing all investments by Irrevocable Children's Trust
and Irrevocable Children's Trust No. 2 with responsibilities beginning at
acquisition and continuing through ownership. Mr. Marks generally acts in the
capacity of officer or director for all of the operating companies that are
vehicles for investments by the Trusts and is involved in strategic planning,
and major decision-making. Mr. Marks is also a managing member of Farwell Equity
Partners. Mr. Marks holds a BS in Economics from the University of
Wisconsin.
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16
of the Securities Exchange Act of 1934, as amended, requires our directors
and
officers, and persons who own more than 10% of our common stock to file initial
reports of ownership and reports of changes in ownership with the Securities
and
Exchange Commission. Such persons are required by Securities and Exchange
Commission regulations to furnish us with copies of all Section 16(a) forms
that they file.
Based
solely on our review of the copies of such forms furnished to us and written
representations from our executive officers and directors, there have not been
any late filings in during this reporting period.
CODE
OF ETHICS
We
have
adopted a Code of Ethics and Business Conduct that applies to our directors
and
employees (including our chief executive officer and chief financial officer). A
written copy of the Code will be provided upon request at no charge by writing
to our Chief Executive Officer, c/o Renewal Fuels, Inc., 1818 North Farwell
Avenue, Milwaukee, Wisconsin 53202. In addition, we intend to promptly disclose
(i) the nature of any amendment to the policy that applies to our Chief
Executive Officer and Chief Financial Officer or persons performing similar
functions and (ii) the nature of any waiver, including an implicit waiver,
from a provision of the policy that is granted to one of these specified
individuals, the name of such person who is granted the waiver and the date
of
the waiver on our website in the future.
Audit
Committee
Our
Board
of Directors is acting in the capacity of our audit committee.
Our
Board
of Directors has determined that it does not have a member of the audit
committee that qualifies as an “audit committee financial expert” as defined in
Item 401(e) of Regulation S-B.
We
believe that our Board of Directors is capable of analyzing and evaluating
financial statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and complexity
of
the issues reasonably expected to be raised by our company. In addition, we
believe that retaining an independent director who would qualify as an “audit
committee financial expert” would be overly costly and burdensome and is not
warranted under our circumstances.
ITEM
10 - EXECUTIVE COMPENSATION
Executive
compensation
The
following table sets forth the cash compensation (including cash bonuses) paid
or accrued and equity awards granted by us for the years ended 2007 and 2006
to
our Chief Executive Officer. We did not have any other officers.
SUMMARY
COMPENSATION TABLE
Name
& Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards($)
|
|
Option
Awards ($)
|
|
All
Other Compensation (1) ($)
|
|
Total
($)
|
|
John
King, CEO & CFO
|
|
|
2007
|
|
|
83,923
|
*
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
83,923
|
|
|
|
|
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Donna
Silverman,
Former
President, CEO &
|
|
|
2007
|
|
|
|
|
|
-
|
|
|
-
|
*
|
|
-
|
|
|
-
|
|
|
|
|
CFO
|
|
|
2006
|
|
|
51,195
|
**
|
|
-
|
|
|
-
|
*
|
|
-
|
|
|
-
|
|
|
51,195
|
|
(1)
The
aggregate amount of perquisites and other personal benefits paid to the Named
Executive Officers does not exceed the greater of $25,000 or 10% of all items
included in the Summary Compensation Table.
*
Includes $20,000 of consulting fees paid prior to employment by the
Company.
**
Compensation amounts for 2006 were
paid
through the issuance of 87,513 shares of common stock.
Stock
options
We
did
not have any options issued or exercised during the fiscal year.
Other
compensation
We
do not
have a long-term incentive plan, defined benefit, pension plan, profit sharing
or other retirement plan.
Compensation
of Directors
The
Board
of Directors was not compensated for services during 2007 and 2006.
Employment
agreements
We
do not
have any employment agreement with any of our executive officers or
directors.
Certain
relationships and related transactions
Our
management is involved in other business activities and may, in the future
become involved in additional business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. We have not and do
not
intend in the future to formulate a policy for the resolution of such
conflicts.
Crivello
Group, LLC advanced $262,000 to Renewal Biodiesel prior to its merger with
the
Company. Such funds were repaid with interest from the debt financing provided
to us by YA Global. Frank Crivello, the managing member of Crivello Group,
LLC
is a principal stockholder of the Company.
ITEM
11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The
following table sets forth certain information with respect to the beneficial
ownership of our common stock by:
(i)
|
each
person known to beneficially own more than five percent of our common
stock;
|
(ii)
|
each
of our officers, directors and nominees for election as director;
and
|
(iii)
|
all
of our directors and executive officers as a
group.
|
The
number of shares beneficially owned by each director or executive officer is
determined under rules of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under the SEC rules,
beneficial ownership includes any shares as to which the individual has the
sole
or shared voting power or investment power. In addition, beneficial ownership
includes any shares that the individual has the right to acquire within 60
days.
Unless otherwise indicated, each person listed below has sole investment and
voting power (or shares such powers with his or her spouse). In certain
instances, the number of shares listed includes (in addition to shares owned
directly), shares held by the spouse or children of the person, or by a trust
or
estate of which the person is a trustee or an executor or in which the person
may have a beneficial interest.
Name
of Beneficial Owner (1)
|
|
Common
Stock
Beneficially
Owned
|
|
Percentage
of
Common
Stock (2)
|
|
John
King
|
|
|
2,300,000
|
|
|
7.48
|
%
|
David
Marks SEP IRA(3)
|
|
|
2,700,000
|
|
|
8.77
|
%
|
Frank
Crivello SEP IRA (4)
|
|
|
13,333,333
|
|
|
43.33
|
%
|
Senegis
LLC (5)
|
|
|
1,847,333
|
|
|
6.00
|
%
|
All
officers and directors as a group (2 persons)
|
|
|
5,000,000
|
|
|
16.25
|
%
|
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is c/o
Renewal Fuels, Inc., 1818 North Farwell Avenue, Milwaukee, Wisconsin
53202.
|
(2)
|
Applicable
percentage ownership is based on an assumption of 30,774,476 shares
of
common stock outstanding as of March 31, 2008 together with other
securities exercisable or convertible into shares of common stock
within
60 days of such date by each stockholder.
|
(3)
|
Of
the shares attributed to Mr. Marks, 200,000 shares are registered
in the
name of the Irrevocable Children’s Trust (“ICT”) and 200,000 are
registered in the name of Phoenix Investors, LLC (“Phoenix). Phoenix is
controlled by ICT and Mr. Marks is a trustee of
ICT.
|
(4)
|
Mr.
Crivello is also the managing member of Crivello Group, LLC which
owns
666,666 shares of common stock.
|
|
|
(5)
|
Lyanne
Greystoke has voting power with respect to the shares owned by Senegis
LLC
|
Securities
authorized for issuance under equity compensation plans
As
of
December 31, 2007, we have 1,000,000 shares of common stock
authorized
for issuance under equity compensation plans. As of March 31, 2008, no common
stock have been issued.
ITEM
12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Related
party notes payable
On
December 13, 2007, we issued three notes, each with a principal amount of
$50,000 (an aggregate of $150,000) to three stockholders, one of whom is also
our Chief Executive Officer and Chief Financial Officer. The Notes have a
maturity date of February 11, 2008 and bear interest of 12% per annum. We are
precluded from repaying the Notes without the express written consent of YA
Global. As of December 31, 2007, we had not made any payments on the
notes.
Director
Independence
The
Board
of Directors has analyzed the independence of each director and has determined
that the following directors are independent as defined under the National
Association of Securities Dealers Automated Quotation system (“Nasdaq”) rules
and have no direct or indirect material relationships with the Company:
David
Marks
In
particular, the Board of Directors has determined that each of the above-listed
directors has no relationships that would cause him not to be independent under
the criteria of Nasdaq rules on corporate governance.
Part
III
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 Biodiesel Solutions,
Inc.,
Renewal Fuels, Inc. and Cornell Capital Partners L.P.
(3)
|
|
|
|
|
10.25
|
|
|
Promissory
Note issued to Phoenix Investors, LLC by Renewal Fuels, Inc., dated
December 13, 2007. (4)
|
|
|
|
|
10.26
|
|
|
Promissory
Note issued to John King by Renewal Fuels, Inc., dated December 13,
2007.
(4)
|
|
|
|
|
10.27
|
|
|
Promissory
Note issued to Rudolph A. Wiedemann by Renewal Fuels, Inc., dated
December
13, 2007. (4)
|
|
|
|
|
10.28
|
|
|
Amendment
to Securities Purchase Agreement, December 31, 2007, by and between
Renewal Fuels, Inc. and YA Global Investments, L.P. (4)
|
|
|
|
|
10.29
|
|
|
$300,000
principal amount Secured Convertible Debenture, dated December 31,
2007,
by and between Renewal Fuels, Inc. and YA Global Investments, L.P.
(4)
|
|
|
|
|
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
(4)
Incorporated by reference to Form 8-K filed on January 17,
2008
|
ITEM
14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit
Fees
The
aggregate fees billed by Kingery & Crouse
and
Demetrius
& Company L.L.C
.
for
the
audit of our annual consolidated financial statements for the year ended
December 31, 2007 and 2006 amounted to $72,529
and
$53,308, respectively. The aggregate fees billed by Kingery & Crouse
for the review of our quarterly filings in 2007 amounted to $
46,410.
The
aggregate fees billed by Kingery & Crouse for audit-related services of our
acquired companies during the year ended December 31, 2007 and up to March
31,
2008 was approximately $60,000.
Tax
Fees
We
did
not incur any tax fees for the periods ended December 31, 2007 or
December 31, 2006.
All
Other Fees
We
did
not have any other fees for the last two years for products and services
provided by the principal accountant.
Audit
Committee Pre-approval
The
Board
of Directors acts in the capacity of the audit committee and approves any
non-audit services provided by the Company’s principal
accountants.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RENEWAL
FUELS, INC.
|
|
|
|
|
|
|
Dated: April
15, 2008
|
By:
|
/s/
John
King
John
King,
|
|
|
Chief Executive
Officer
and Chief
|
|
|
Financial
Officer
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
Dated: April
15, 2008
|
By:
|
/s/
David
Marks
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
Dated: April
15, 2008
|
By:
|
/s/
John
King
|
|
|
Chief
Executive Officer and Chief
Financial
Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
Dated: April
15, 2008
|
By:
|
/s/
David
Marks
|
Exhibit
31.1
SECTION
302 CERTIFICATION
I,
John
King , certify that:
1.
|
I
have reviewed this annual report on Form 10-KSB of Renewal Fuels,
Inc..for
the fiscal year ended December 31,
2007;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
small
business issuer as of, and for, the periods presented in this
report;
|
4.
|
I
am responsible for establishing and maintaining disclosure controls
and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for
the small business issuer and have:
|
|
a.
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under my supervision, to ensure
that material information relating to the small business issuer,
including
its consolidated subsidiaries, is made known to me by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
|
b.
|
Paragraph
omitted in accordance with SEC transition instructions contained
in SEC
Release No. 33-8238;
|
|
c.
|
Evaluated
the effectiveness of the small business issuer's disclosure controls
and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of
the period covered by this report based on such evaluation;
and
|
|
d.
|
Disclosed
in this report any change in the small business issuer's internal
control
over financial reporting that occurred during the registrant's fourth
fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, the small business issuer's internal control over
financial reporting; and
|
5.
|
I
have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the small business issuer's auditors
and the
audit committee of the registrant's board of directors (or persons
performing the equivalent
functions):
|
|
a.
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability
to record, process, summarize and report financial information;
and
|
|
b.
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial
reporting.
|
|
|
|
|
|
|
By:
|
/s/
John
King
John King
Chief Executive Officer and
Chief
Financial Officer (Principal
|
|
|
|
|
Exhibit
32.1
CERTIFICATION
PURSUANT
TO 18 U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Renewal Fuels, Inc. (the “Company”) on Form
10-KSB for the period ended December 31, 2007, as filed with the Securities
and
Exchange Commission on the date hereof (the “report”), the undersigned
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Action of 2002, that to the best of his
knowledge:
|
(1)
|
The
report fully complies with the requirements of section 13(a) or 15(d)
of
the Securities Exchange Act of 1934;
and
|
|
(2)
|
The
information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
|
|
Dated:
April 15, 2008
|
By:
|
/s/
John
King
|
|
John
King
|
|
Chief
Executive Officer and
Chief
Financial Officer (Principal
Financial
and Accounting Officer)
|
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