The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Issuer as of June 30, 2008, based upon the average bid and asked price as of such date on the OTC Bulletin Board, was $10,712,797
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Issuer’s revenues for the fiscal year ended December 31, 2007, were $0.00
The Registrant’s common stock outstanding as of June 30, 2008, 803,443,460 was shares.
Documents Incorporated by Reference: None.
FUELNATION, INC.
[A DEVELOPMENT STAGE COMPANY]
CONTENTS
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CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our audited Financial Statements and notes thereto included herein. Certain statements in this Registration Statement on Form 10 (“Registration Statement”), other than purely historical information, include estimates, projections, statements relating to the FuelNation’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements.
FuelNation, Inc. is referred to herein as “we”, “our” or “us”.
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ITEM 1.
DESCRIPTION OF BUSINESS.
Organizational History
We were incorporated in the State of Florida on July 6, 1993 under the name International Pizza Corporation. We changed our name on: (a) October 30, 1995 to QPQ Corporation; (b) November 4, 1997 to Regenesis Holdings, Inc.; and (c) October 17, 2000 to FuelNation, Inc.
On January 27, 2003, we affected a 150:1 reverse split of our common stock and decreased our authorized shares from 350,000,000 shares of common stock to 100,000,000 shares and from 20,000,000 preferred shares to 5,000,000 shares, both of which were issuable in one or more series. On June 15, 2005, we affected a stock dividend, wherein each of our shareholders of record at June 3, 2005 received 10 shares for every share each shareholder owned, such dividend was payable on June 17, 2007. We paid this dividend by affecting a 10-for-1 forward split of our common stock to holders of record June 3, 2005, with the dividend payable on June 17, 2005. On August 15, 2007, we increased our authorized shares of common stock from 100,000,000 shares to 500,000,000 shares of capital stock; on March 20, 2008, we increased our authorized shares of common stock from 500,000,000 to 1,500,000,000. On April 30, 2008, in accordance with our March 21, 2008 amended and restated Articles of Incorporation, we conducted a mandatory conversion of our Series A preferred shares whereby each such preferred share was converted into 16,552 shares of our common stock.
During the past three years we have not undergone any material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business. Additionally, during the past three years we have not undergone any bankruptcy, or similar proceeding.
Business of Issuer
Overview
We have been a development stage company since October 2000. From October 2000 to May 2005, we attempted to build travel centers in the state of Florida by securing, architectural and engineering drawings, zoning approval, permits, and the investor for the real estate purchase. We also engaged in the development of providing real-time e-commerce communications in the petroleum marketing and energy services industry in six different states and three countries; however, in May 2005, we abandoned this segment of our business plan. Our business focus is now the purchase, transportation, storage and resale of petroleum products and crude oil. In this regard, we are using our contacts in the middle east for transportation of petroleum products from Iraq to other countries located in the Arabian Gulf and negotiating agreements for purchase, transportation, storage and resale of petroleum products and crude oil. Further, we have tapped our core competencies from partners and management and will partner with the construction and management of “Green Energy” in waste to energy business. Additionally, we have plans to have a minority ownership interest in a oil terminal in Latvia, if we are successful in completing an agreement to do so. We seek to generate income from the resale of petroleum products and crude oil, acquire storage facilities and transportation infrastructure.
We conduct our operations through the following operating subsidiaries, which are referred to herein as the "Operating Subsidiaries":
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Leman Energy Trading, Inc. (“Leman Energy”) a Panamanian company incorporated on August 31, 2004. We own 100% of Leman Energy, which was established for resale and transportation of petroleum products and crude oil, principally in Iraq, Russia and the former CIS and Baltic States.
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FuelNation Government Services LLC (“FuelNation Government”), a Florida limited liability company, incorporated as a limited liability company on March, 22, 2006. We own 100% of FuelNation Government, which establishes joint ventures with governments for purchase, transportation, storage and resale of petroleum products and crude oil. These joint venture arrangements will allow us to cooperate with the local government and share profits and opportunities in their regions. To date, FuelNation Government arranged for a joint venture between the FuelNation Antigua and Barbuda, Ltd. and the governments of Antique and Barbuda.
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FN Capital Services LLC (“FN Capital”), a Florida limited liability company incorporated as a limited liability company on March 29, 2006. We own 100% of FN Capital, which was established to secure financing and support for our subsidiaries. To date, FN Capital has raised a limited amount of equity and debt financing for us.
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FuelNation Antigua & Barbuda Ltd. (“FuelNation Antigua”), an Antigua & Barbuda company, incorporated on September 4, 2006 owned 50% by FuelNation and 50% by the Antigua & Barbuda Government. FuelNation Antigua was established for the purchase, transportation, storage and resale of petroleum products and crude oil. To date FuelNation Antigua & Barbuda Ltd. presently has no operations or operating assets other than a liability of $50,000.00 USD owed to the Antigua & Barbuda Government resulting from our ship charterer’s wrongful termination of our chartered vessel, which is being arbitrated with the ship owners.;
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VNT Fuel Energy Cyprus Trading Limited (“VNT”), a Cyprus corporation, incorporated on April 20, 2006. We own 100% of VNT, which was formed to hold Nika Oil Limited’s shares of common stock, provide a local domiciled company centralized to operations and seek additional acquisition opportunities in Russia and the former CIS and Baltic States. To date, VNT has not conducted any business other than funding the procurement process of Nika Oil Ltd. in Russia;
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Nika Oil Limited (“Nika Oil”), a Russian limited Liability Company, incorporated on March 8, 2007. Nika Oil is owned 30% by VNT and 70% by Russian Nationals, Grigory Pavlov, Sergey Levanchuk and Alexander Olevanov. Nika Oil was established for the resale of petroleum products and crude oil and acquisition of storage facilities and transportation infrastructure, principally in Russia and the former CIS and Baltic States. On October 17, 2007 Nika Oil entered into a nonbinding memorandum of understanding with JSC Ventspils Nafta to purchase 100% of the shares of Ventspils Nafta Terminals, a wholly owned subsidiary of publicly traded JSC Ventspils Nafta.
Business Activities
The following discussion describes the business activities of our operating segments. Detailed information regarding revenues, operating income and total assets of each segment can be found in our consolidated financial statements.
Petroleum Products Marketing and Transportation Operations
Leman Energy
Leman Energy conducts our petroleum products marketing and transportation operations. Leman Energy was established for resale, and transportation of petroleum products and crude oil principally in Iraq, Russia and the former CIS and Baltic States. (hereinafter referred to as the “Trading Subsidiaries”). The following is a description of these operations.
Through the Trading Subsidiaries, our operations primarily will involve the international wholesale distribution of petroleum products and crude oil. We intend to use the facilities of our Trading Subsidiaries to expand our purchase, transportation, storage and resale of petroleum products and crude oil activities.
Leman Energy entered into primary contracts with State Oil Marketing Company (SOMO) in January 2006 and secondary assignments of contracts with power of attorney to purchase Fuel-Oil in August 2004 through 2006 from the Government oil monopoly, State Oil Marketing Organization (SOMO), in the country of Iraq. These Fuel-Oil contracts were in amounts of 65,000 to 650,000 barrels (10,000 to 100,000 MT) each contract with automatic rollover’s upon completion of our purchase obligations under the contract. In addition, we held contracts in January 2006 to supply the Government of Iraq, State Oil Marketing Company (SOMO), gasoline in the amount of 950,000 barrels per month on a revolving basis as a secondary contract. The issuance of the letters of credit to pay for the Fuel-Oil was financed by our affiliates. None of the contracts were renewed or fulfilled resulting from our ship charterer’s wrongful early termination of our chartered vessel, which is being arbitrated with the ship owners. We are currently in discussion with SOMO to enter into new fuel oil contracts and have a new company charter a vessel to us for transportation of the new contracts.
Leman Energy Trading, Inc. was obligated under these contracts to purchase Fuel-Oil from the State Oil Marketing Organization (SOMO) in the country of Iraq or forfeit the cash performance bonds. During the contract period, the country of Iraq was still being occupied by the United States military and the country was considered a war zone. Fuel-oil shipments were to be purchased and loaded in the Arabian Gulf at the southern port of Khor Al-Zubair in Iraq. The loading berths for docking were in large disrepair and the depths of the waterways were constantly changing. The pipe loading at the docks were usually under repair and the Government resorted to loading the ships at the port by fuel trucks with gravity feed or modified pump stations, which required a substantial amount of time to load, typically 5 to 10 times longer than normal pipeline operations.
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Leman Energy Trading, Inc., chartered a ship the 28th of October 2006, for a period of six months with a six month renewal at our option, to purchase and transport fuel-oil from Iraq to other countries in the Arabian Gulf. Upon arrival of the chartered ship to the southern port of Khor Al-Zubair in Iraq, the pipeline supplying the ships at the southern port of Khor Al-Zubair was disrupted during the cold weather for a period of approximately 30 to 45 days and the ship crew needed to return to Fujairah, UAE for supplies and refueling. Upon return to Iraq, we had missed a window to pick up fuel-oil and we waited behind other ships for the pipeline to reopen. Time had lapsed and Leman Energy Trading, Inc. was forced to sublet the ships on short term charters to competitors at a substantial loss transporting fuel-oil from Iraq to Fujairah, UAE. In March 2006 the ship owner wrongfully terminated the charter before expiration and we are currently litigating our losses in the London Arbitration courts. The arbitration is: W-O Marine Pte. Ltd v. FuelNation Inc.
Since March 2006, Leman Energy has halted all fuel-oil trading activities in Iraq, and intends to purchase fuel-oil from Iraq upon completion of our wrongful termination arbitration in London. In addition, Leman Energy plans to lease fuel-oil storage space in the Arabian Gulf to assist in the operation of its business of resale and transportation of petroleum products and crude oil. Leman Energy plans to lease storage facilities in the Arabian Gulf that will allow it to receive and to load ships of diverse capacities. We will be able to utilize the facility to gather and store smaller shipments of petroleum products and to aggregate those shipments into larger, more economically viable batches for wholesale shipments; by doing so, we are attempting to take advantage of economies of scale and reduce the per barrel transportation costs for our products. These purchases will be funded by investors and affiliates until such time permanent financing can be arranged. Leman negotiates a percentage of the profits with the investor to have the investor use their credit facilities at the bank to issue a letter of credit or cash for payment.
Product Offerings
FuelNation Antigua and Barbuda Ltd. During 2006 FuelNation Government Services LLC established a joint venture for FuelNation Inc. with the Antigua & Barbuda Government. The entity established is FuelNation Antigua & Barbuda Ltd., an Antigua & Barbuda company, incorporated on September 4, 2006 owned 50% by us and 50% by the Antigua & Barbuda Government. This company is established for purchase, transportation, storage and resale of petroleum products and crude oil. This agreement with the government provides no liability or obligation for Antigua & Barbuda to advance any funding or guarantees. During 2007, Leman Energy entered into a contract to purchase fuel-oil from Iraq, and contracted to resale the fuel-oil to local buyers in the Arabian gulf and share the profits on an equal basis with the Antigua & Barbuda Government. This contract for purchase was signed with Iraq, the letter of credit for payment was issued for the purchase of the fuel-oil and the buyer gave us a contract to resale the fuel-oil for a profit. This trade was unable to be completed due to the wrongful termination of the chartered ship in Iraq, which the case, W-O Marine Pte. Ltd v. FuelNation Inc., was ruled upon by the Arbitration in London and awarded to FuelNation that the Termination of the vessel was wrongful. Leman Energy Trading, Inc. was unable to receive their cargo or payment and therefore no funds were available to be paid to the Antigua Government for their portion of the trade. FuelNation has committed to pay the Antigua & Barbuda Government an amount of $50,000.00 USD from the fuel-oil resale upon the final ruling or settlement over the costs and damages resulting from the wrongful termination. We are negotiating with this supplier to re-establish the supply of fuel-oil that make up our resale operations. We cannot be certain that this supply of products will be available to us in the future. In such event, we shall seek to replace our prior suppliers with an alternative source of product.
The recent price increase in oil prices will not affect our business model because we are subject to the supply and demand of the market and currently do not explore for oil.
VNT/Nika Oil Ltd.
VNT, holds the shares of Nika Oil Limited and on October 17, 2007, Nika Oil Ltd. entered into a Memorandum of Understanding with Ventspils NAFTA for the purchase of the Ventspils Nafta Terminal in Ventspils, Latvia. Ventspils Nafta Terminal LTD. is the largest Baltic Sea Region oil and petroleum product transshipment terminal operating in Ventspils port liquid cargo area. This Memorandum of Understanding is non-binding and only reflects the intention of the parties and is subject to a an executed agreement. Crude oil and petroleum products are received by pipeline and railways. The tank farm of the enterprise exceeds 1 million cubic meters.
Nika Oil , plans to attempt to have the Russian government approve the re-opening of the crude oil pipeline that supplies Ventspils Nafta Terminal from Russia to Latvia. This pipeline was shut down in a dispute between Russia and Latvia in January 2003. It is management’s understanding the agreement to re-open the pipeline is obtainable, but we cannot give any assurance that it will occur.
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Growth Strategy
Through the Trading Subsidiaries, we will attempt to establish petroleum products and crude oil purchase and sales operations, enter into new distribution relationships and enter into the fuel blending and wholesale distribution markets. We also will attempt to acquire storage and transportation facilities through our subsidiary, Nika Oil Ltd.
Governmental Regulations
Regulation of Storage and Transportation of Oil
Sales of crude oil and other petroleum products are not currently regulated, are made at negotiated prices, and are affected by the availability, terms and cost of transportation. Interstate and intrastate rates are equally applicable to all comparable shippers.
Environmental Regulations
Although we have not yet conducted any operations in the US, we anticipate that we will do so at sometime in the future, at which point our operations will become subject to various US federal, state and local governmental regulations The handling, storage, transportation and disposal of oil, by-products thereof, and other substances and materials produced or used in connection with oil operations are subject to regulation under federal, state and local laws and regulations relating primarily to the protection of human health and the environment. To date, we have not incurred any extraordinary costs related to complying with these laws, for remediation of existing environmental contamination and for other related matters. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.
Significant federal laws and regulations that may affect our business and the oil industry are: The Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as “CERCLA” or Superfund; the Oil Pollution Act of 1990; the Resource Conservation and Recovery Act, also known as “RCRA”; the Clean Air Act; Federal Water Pollution Control Act of 1972, or the Clean Water Act; and the Safe Drinking Water Act of 1974.
Compliance with these regulations may constitute a significant cost. No specific accounting for environmental compliance has been maintained or projected by us at this time. We are not presently aware of any environmental demands, claims, or adverse actions, litigation or administrative proceedings in which either us or our acquired properties are involved or subject to, or arising out of any predecessor operations.
In the event of a breach of environmental regulations, these environmental regulatory agencies have a broad range of alternative or cumulative remedies which include: ordering a clean-up of any spills and restoration of the soil or water to conditions existing prior to the environmental violation, or fines. In certain egregious situations the agencies may also pursue criminal remedies against environmental violators.
We may become subject to environmental laws in the countries we conduct business; i.e. Russia, Iraq, etc. To date we have not incurred any extraordinary costs related to complying with these international laws, for remediation of existing environmental contamination and for other related matters. The requirements imposed by such international laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.
Competition
We operate in a highly competitive environment. Our competitors possess and employ financial, technical and personnel resources substantially greater than ours, which can be particularly important in the areas in which we operate. Additionally, our competition has more opportunities for capital available for investment in the oil and natural gas industry.
Current competitive factors in the domestic oil and gas industry are unique. The actual price range of crude oil is largely established by major international producers. Pricing for natural gas is more regional. Because the current domestic demand for oil and gas exceeds supply, we believe there is little risk that all current production will not be sold at relatively fixed prices. The risk of domestic overproduction at current prices is not deemed significant. However, more favorable prices can usually be negotiated for larger quantities of oil and/or gas product.
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Major Customers
For the fiscal year 2007, two purchasers were responsible for sub chartering a vessel we chartered in the Arabian Gulf comprising for 100% of our petroleum transportation purchasers. We believe that the loss of either of these purchasers would not materially impact our business, because other purchasers are available generally for our products. Nonetheless, should we develop only a few customers that represent out entire business, the loss of any such customers may have a material impact on our operations and financial condition.
Reports to security holders
We are a Florida corporation with our principal executive offices located at 999 Stinson Way, Suite 201, West Palm Beach, Florida 33411. Our telephone number is 561 383-8212. Our fax number is: 561-383-8213. Our website address is www.fuelnation.com. We will file our annual, quarterly, and current reports with the Securities and Exchange Commission (SEC) beginning within 60 days after this Form 10 filing, copies of which will be available on our website or from the SEC free of charge at www.sec.gov. The public may also read and copy any materials, which we have filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. Information on the Public Reference Room may be obtained by calling: 1-800-SEC-0330.
Risk Factors
Our business, operations and financial condition are subject to various risks. You should consider carefully the following risk factors, in addition to the other information set forth in this report. The factors set forth below, however, are generally applicable to our operations and securities.
We Have a Limited Operating History.
Although our business plan was adopted in October 2000 and modified in May 2005, our operations have been sporadic. Our limited operating history and lack of consistent operations makes it difficult to predict whether or not we will be successful in the future. Our future financial and operational success is subject to the risks, uncertainties, expenses, delays and difficulties associated with managing a new business, many of which may be beyond our control. In addition, we compete in a volatile and highly price sensitive industry and we may face many uncertainties.
We Have a History of Losses and Will Need Additional Financing.
We have experienced operating losses, as well as net losses, for each of the years during which we have operated. We anticipate future losses and negative cash flow to continue for the foreseeable future. We need to raise either debt or equity capital to commence operations. We have no commitments for any such financing, and there are no assurances we ever will be successful in securing this financing.
To date, we have received no significant revenues from our operations. We have incurred significant costs in connection with the development of our business and there is no assurance that we will achieve sufficient revenues to offset anticipated operating costs. Although we plan to derive revenues from transportation and terminal related operations, no assurance can be given that these businesses will operate on a net profit basis. We anticipate that our losses will continue until we are able to generate sufficient revenues to support our operations. If we achieve profitability, we cannot give any assurance that we would be able to sustain or increase profitability on a quarterly or annual basis in the future.
Our operations are dependent upon the availability petroleum product suppliers; material decreases in supplies may adversely affect our sales and results of operations.
The availability of supplies of various petroleum products is essential to our operations. A material decline in such petroleum product supplies could adversely affect our revenues from bulk, contract and rack product sales. Such a material decline in product supplies may be caused by natural disasters, adverse weather conditions, terrorist attacks and other events beyond our control. Furthermore, we do not have long-term supply contracts with refiners and our suppliers could cease selling product to us, including because there is a lack of crude oil supplies, price or volume competition and external economic or political events. Such a shortage could have a material adverse effect on our product supplies and negatively affect our ability to earn throughput fees or sales revenues.
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A Substantial Or Extended Decline In Oil Prices May Adversely Affect Our Business, Financial Condition Or Results Of Operations And Our Ability To Meet Our Financial Commitments.
The price we receive for our petroleum products influences our potential revenues, our access to capital and ability to grow our business. . Oil, as a commodity, is subject to wide price fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil have been volatile and s will likely continue to be so in the future. The prices we receive for our products, and the levels of demand for our products, depend on numerous factors beyond our control, including but not limited to:
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changes in global supply and demand for oil;
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the actions of the Organization of Petroleum Exporting Countries, or OPEC;
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the price and quantity of imports of foreign oil;
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political conditions, including embargoes, in or affecting other oil-producing activity;
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the level of global oil exploration and production activity;
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the level of global oil inventories;
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weather conditions;
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technological advances affecting energy consumption; and
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the price and availability of alternative fuels.
Lower oil prices may not only decrease the demand for our products but also may reduce the available supply of petroleum product, our primary product. A substantial or extended decline in oil prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.
We may be dependent upon a relatively small number of customers for our revenues; should we lose any such customers, our revenues will be negatively impacted
We expect to derive our revenues, if any, from a small number of significant customers for the foreseeable future. Events that adversely affect the business operations of any one or more of significant customers may adversely affect our financial condition or results of operations. Therefore, we are indirectly subject to the business risks of significant customers, such as a material decline in refined petroleum product supplies available to our customers, or a significant decrease in our customers’ ability to negotiate marketing contracts on favorable terms, which could result in a material decline in the use of our tank capacity or throughput of product at our terminal facilities, and cause our revenues and results of operations to decline.
The market price of our stock may be affected by the issuance of additional shares of our common stock, including those issued upon the conversion of shares of our preferred stock.
Our common stock will be diluted as a result of our issuing shares to our officers, consultants, and others, as well as the result of our Board of Directors Mandatory Conversion Event of our Series A Preferred Stock (“Preferred Stock”) being converted automatically into shares of the Common Stock at the applicable Conversion Rate. The conversion rate for each share of our 25,563 preferred shares is 16,552 shares of our common stock for each such Preferred Stock, permitting the conversion into a total of 423,118,776 of our common shares. The issuances of these common shares will have dilutive effect upon the value of our common stock.
On April 30, 2008, with the consent of the majority shareholders and the board of directors, the company issued a mandatory conversion of its preferred shares. The conversion was mandatory and all preferred shares will be converted in to common stock of the company shares. Affiliates make up the majority of the ownership of these preferred shares and there has been no change of ownership with the conversion.
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We will be subject to foreign regulations
We will be subject to environmental, tax, business, and other regulations of Iraq, Russia, Latvia, and other countries we may conduct business. Although the environmental and other regulations have been limited to date, these countries may introduce new regulations, which subject us to additional costs and regulatory burdens, including that we would become subject to fines or other penalties for failure to comply with these regulations, any one or a combination of which would materially affect our results of operations.
We have failed to develop consistent operations to date; if this trend continues, we will fail to meet our operational goals.
To date, our operations have been sporadic, with significant develop time and expense in our operations from October 2000 to present. If this trend continues and we fail to develop consistent operations, our revenues and results of operations will be negatively affected.
We have never participated in the operations of an oil terminal in Ventspils or elsewhere
We may never be successful in operating an oil terminal in Ventspils or otherwise engage in sustained profitable oil trading due to the following factors:
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We may never obtain sufficient financing to acquire the minority interest in the oil terminal or have sufficient financial resources to engage in oil trading;
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Our competitors, who have greater financial assets than we do, may purchase the minority interest in the terminal prior to us;
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We may not complete a final agreement to purchase our minority interest in the oil terminal on contractual terms acceptable to us or the owner of the terminal.
If we fail to purchase oil terminal or obtain adequate financing to conduct our business, your investment in our common stock will be negatively affected.
Our Operations Are Subject To Governmental Laws And Regulations Relating To The Protection Of The Environment That May Expose Us To Significant Costs And Liabilities.
The risk of substantial environmental costs and liabilities is inherent in terminal ownership and operations and we may incur substantial environmental costs and liabilities. Our operations and activities are subject to significant federal, state and local laws and regulations relating to the protection of the environment. These include, the Federal Clean Air Act, which impose obligations related to air emissions and the Federal Water Pollution Control Act, commonly referred to as the Clean Water Act, which regulates discharge of wastewaters from our facilities to state and federal waters. Additionally, similar such state laws impose regulatory mandates upon our operations. Our operations are also subject to the federal Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA or the Superfund law, the Resource Conservation and Recovery Act, also known as RCRA, in connection with the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or locations to which we have sent wastes for disposal. Various governmental authorities, including the U.S. Environmental Protection Agency, enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. Liability may be incurred without regard to fault under CERCLA, RCRA, and similar state laws for the remediation of contaminated areas. Additionally, private parties, including the owners of properties located near our prospective terminal facilities or through which our prospective pipeline systems pass, also may have the right to pursue legal actions to enforce compliance, as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage.
In addition, stricter laws, regulations or enforcement policies could significantly increase our compliance costs and the cost of any remediation that may become necessary, some of which may be material. Our insurance may not cover all environmental risks and costs or may not provide sufficient coverage in the event an environmental claim is made against us. Our business may be adversely affected by increased costs because of stricter pollution control requirements or liabilities resulting from non-compliance with required operating or other regulatory permits. New environmental regulations might adversely affect our products and activities, including processing, storage and shipping, as well as waste management and air emissions. Federal and state agencies also could impose additional safety requirements, any of which could affect our profitability.
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We currently own or lease, and have owned or leased, many properties that have been used for many years to terminal or store refined petroleum products or other chemicals. Owners, tenants or users of these properties have disposed of or released hydrocarbons or solid wastes on or under them. Additionally, some sites we operate are located near current or former refining and terminal operations. There is a risk that contamination has migrated from those sites to ours. Increasingly strict environmental laws, regulations and enforcement policies and claims for damages and other similar developments could result in substantial costs and liabilities.
Federal energy regulatory commission and department of transportation regulations may change important aspects of our industry and could reduce our ability to compete and impose significant costs on us or affect our ability to ship product in the quantities we need, which could adversely affect our revenues.
The Federal Energy Regulatory Commission, or FERC, regulates the tariff rates for interstate common carrier operations. Tariff rates are subject to periodic changes and the FERC may approve higher tariff rates for transportation of product on the principal pipelines we utilize. The FERC also may change the manner in which tariffs apply, such as changing from tariffs based on shipping history to tariffs based on competitive bidding or some other methodology. Substantial increases or changes in the tariff rates on the principal pipelines we utilize could adversely affect our ability to ship the quantities of product we need or to ship product at economical rates. As a result, we could lose sales or suffer higher transportation expenses, which could adversely affect our results of operations.
In addition, refined petroleum product pipeline operations are subject to regulation by the Department of Transportation. These regulations require, among other things, that pipeline operators engage in a regular program of pipeline integrity testing to assess, evaluate, repair and validate the integrity of their pipelines, which could result in service interruptions or significant and unexpected expenditures either with respect to pipelines we may own or on pipelines owned by others that we may use. We may have to bear those interruptions and expenses through the prices we pay to transport product, and the prices we charge when selling product that we purchase and market. The resulting price increases might not be entirely recoverable from our customers or could lower demand for product. We intend to transport a large amount of product on common carrier pipelines that we do not own, and spurs of those pipelines supply our terminals. If the Department of Transportation determines that a spur of a common carrier pipeline that supplies our terminals requires repair to maintain its integrity, the owner of the pipeline may decide to abandon the spur to our terminal instead of completing the repair work, or could require us to pay for the repair work, either of which would adversely affect our operations at that terminal or force us to close the terminal.
We are subject to strict regulations at many of our facilities regarding employee safety, and failure to comply with these regulations could adversely affect us.
The workplaces associated with the processing and storage facilities and the pipelines we use are subject to the requirements of the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that we maintain information about hazardous materials used or produced in our operations and that we provide this information to our employees, state and local government authorities, and local residents. Failure to comply with OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to regulated substances, could adversely affect our results of operations if we are subjected to fines or significant additional compliance costs.
A significant decrease in demand for products in the areas served by our planned terminal and trading operations would adversely affect our financial condition and results of operations.
A sustained decrease in demand for products in the areas served by any terminal and pipeline that we might own or operate could significantly reduce our revenue, including the following factors that could lead to decreased market demand:
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a recession or other adverse economic condition that results in lower spending by consumers on gasoline, distillates, and travel;
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an increase in the market price of crude oil that leads to higher refined product prices;
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higher fuel taxes or other governmental or regulatory actions that directly or indirectly increase the cost of gasoline or other refined products; and
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a shift by consumers, manufacturers, or by legislation to more fuel-efficient or alternative fuel vehicles or an increase in fuel economy.
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Because of our lack of asset diversification, adverse developments in our planned terminal that we may own or operate or other trading operations could adversely affect our revenue and cash flows.
We will rely exclusively on revenue generated from the terminal that we may own or operate and other trading operations. Because of our lack of asset diversification, an adverse development in these revenue segments may negatively impact our financial condition and results of operations than if we maintained more diverse assets.
Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.
Our level of debt borrowed from our affiliates and investors could:
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impair our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes;
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require us to dedicate a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations and future business opportunities;
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make us more vulnerable to competitive pressures, changes in interest rates or a downturn in our business or the economy generally;
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impair our ability to make distributions to our shareholders; and
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limit our flexibility in responding to changing business and economic conditions.
If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. We may not be able to affect any of these actions on satisfactory terms, or at all.
Our affiliates and investors that have lent substantial funds to the company could also insist on covenants limiting our ability to make distributions to shareholders in certain circumstances. In addition, our lenders could also insist on various covenants that limit, among other things, our ability to incur indebtedness, grant liens or enter into a merger, consolidation or sale of assets. Furthermore, our lenders could also insist on covenants requiring us to maintain certain financial ratios and tests. Any future breach of any of these covenants or our failure to meet any of these ratios or conditions could result in a default under the terms of our lenders, which could result in acceleration of our debt and other financial obligations. If we were unable to repay those amounts, the lenders could initiate a bankruptcy proceeding or liquidation proceeding or proceed against the collateral.
We face intense competition in our supply, distribution and marketing activities, as well as in possible future terminal and trading activities; our results of operations may be negatively impacted if we are unable to compete effectively.
We compete with other petroleum companies, national, regional and local pipeline and terminal companies, the major integrated oil companies, their marketing affiliates, and independent brokers and marketers of widely varying sizes, financial resources and experience. In particular, our ability to compete may be negatively impacted by factors beyond our control, including:
·
price competition from major oil companies or other independent refined product companies, most of which are substantially larger than we are, have greater financial resources and control substantially greater supplies of petroleum products than we do;
·
abundance of supply of petroleum products keeping petroleum prices low or unchanging;
·
the perception that another company can provide better service; and
·
the availability of alternative supply points, or supply points located closer to our customers’ operations.
If we are unable to compete with services offered by other petroleum enterprises, our results of operations may be adversely affected.
9
Our operations and sales volumes are dependent upon demand for petroleum products by distributors, marketers, wholesalers and commercial end users; any decrease in this demand could adversely affect our business.
Our business depends in large part on the demand for refined petroleum products in the markets served by our planned transportation and storage facilities. Our earnings and cash flow are dependent on high sales volumes and sales volumes can be adversely affected by the prices of refined products, which are subject to significant fluctuation depending upon numerous factors beyond our control, including the supply of and demand for gasoline and other refined products. The supply of and demand for refined products can be affected by, among other things, changes in domestic and foreign economies, political affairs, terrorism and the threat of terrorism, production levels, industry-wide inventory levels, the availability of imports, the marketing of gasoline and other refined products by competitors, the marketing of competitive fuels, the impact of energy conservation efforts and government regulation.
Sales volumes also are affected by regional factors, such as local market conditions, the availability of transportation systems with adequate capacity, transportation costs, fluctuating and seasonal demands for products, changes in transportation and travel patterns, variations in weather patterns from year to year and the operations of companies providing competing services.
We may not be successful in growing our business through acquisitions or in effectively integrating any businesses/ operations that we may acquire.
Our business strategy includes acquiring terminal and storage facilities to establish our distribution capabilities. We may be unable to identify appropriate opportunities for acquisition, which will satisfy our target rates of return, obtain financing on acceptable terms, or negotiate satisfactory terms of such acquisitions. Additionally, acquisitions may require substantial capital that we presently do not have and may be unable to obtain or if obtained will result in our incurring substantial indebtedness. As a result, our capitalization and results of operations may be materially impacted as a result of future acquisitions. Any additional debt financing could significantly increase our interest expense and involve restrictive covenants.
Unexpected costs or challenges may arise whenever businesses with different operations and management are combined. Inefficiencies and difficulties may arise because of unfamiliarity with new assets and new geographic areas of any acquired businesses. We believe that successful business combinations will require our management and other personnel to devote significant amounts of time to integrating the acquired businesses with our existing operations. These efforts may temporarily distract their attention from day-to-day business and other business opportunities. In addition, the management of the acquired business may not join our management team. Any change in management may make it more difficult to integrate an acquired business with our existing operations. Following an acquisition, we may discover previously unknown liabilities associated with the acquired business for which we may have no recourse under applicable indemnification provisions.
Any acquisitions we make are subject to substantial risks, which could adversely affect our financial condition and results of operations.
Any acquisition involves potential risks, including risks that we may:
·
fail to realize anticipated benefits, such as cost-savings or cash flow enhancements;
·
decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;
·
significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
·
encounter difficulties operating in new geographic areas or new lines of business;
·
incur or assume unanticipated liabilities, losses or costs associated with the business or assets acquired for which we are not indemnified or for which the indemnity is inadequate;
·
be unable to hire, train or retain qualified personnel to manage and operate our growing business and assets;
·
less effectively manage our historical assets, because of the diversion of management’s attention; or
10
·
incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.
If any acquisitions we ultimately consummate result in one or more of these outcomes, our financial condition and results of operations may be adversely affected.
Our business involves many hazards and operational risks, including adverse weather conditions, which could cause us to incur substantial liabilities and increased operating costs.
Our operations are subject to the many hazards inherent in the storage and transportation of products, including:
·
leaks or accidental releases of products or other materials into the environment, whether as a result of human error or otherwise;
·
explosions, fires, accidents, mechanical malfunctions, faulty measurement and other operating errors; and
·
acts of terrorism or vandalism.
If any of these events were to occur, we could suffer substantial losses because of personal injury or loss of life, severe damage to and destruction of storage tanks, pipelines and related property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our related operations and potentially substantial unanticipated costs for the repair or replacement of property and environmental cleanup. In addition, if we suffer accidental releases or spills of products at our terminals or pipelines, we could be faced with material third-party costs and liabilities, including those relating to claims for damages to property and persons.
The loss of any of our key executive officers could harm our business.
Our future success depends largely on the efforts of our executive management team. We do not carry key-man insurance on the life of any of our executive officers. The loss of any members of our executive management team could have a material adverse effect on our business. If we experience vacancies in any of these key roles, it could have a material adverse impact on our ability to properly conduct our business operations and pursue our growth initiatives and, as a result, could have a material adverse impact on our overall business, financial condition and results of operations.
Risks Relating to Our Common Stock
The market price of our stock may be affected by the issuance of additional shares of our common stock upon the conversion of shares of our preferred stock.
As of June 30, 2008 we had an aggregate of 681,471,772 common shares outstanding, which includes the conversion of 18,194 of the 25,563 preferred shares issued and outstanding. As of June 30, 2008 there is 7,369 preferred shares outstanding that have not been redeemed for common shares and will convert into 121,971,688 shares of our common stock. The fully diluted issued and outstanding common shares upon the total conversion of our Preferred shares will be 803,443,460.
On April 30, 2008, with the consent of the majority shareholders and the board of directors, the company issued a mandatory conversion of its preferred shares. The conversion was mandatory and all preferred shares will be converted in to common stock of the company shares. Substantial sales of our common stock, in the public market, or the perception that these sales could occur, may have a depressive effect on the market price of our common stock and impair our ability to raise capital or make acquisitions. Additionally, there will be substantial dilution to your common shares.
We have no plans to pay dividends on our common stock. you may not receive funds without selling your stock.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements and investment opportunities.
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Our common stock is subject to "penny stock" restrictions under federal securities laws, which could reduce the liquidity of our common stock
The Securities and Exchange Commission has adopted regulations, which generally define penny stocks to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is designated a "Penny Stock." As a penny stock, our common stock may become subject to Rule 15g-9 under the Exchange Act or the Penny Stock Rules. These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities Exchange Act of 1934, as amended. These rules impose additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and "accredited investors" (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
The rules may further affect the ability of owners of our shares to sell their securities in any market that may develop for them. There may be a limited market for penny stocks, due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
The penny stock restrictions will no longer apply to our common stock if we become listed on a national exchange. In any event, even if our common stock were exempt from the penny stock restrictions, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Securities and Exchange Commission the authority to restrict any person from participating in a distribution of penny stock, if the Securities and Exchange Commission finds that such a restriction would be in the public interest.
The ownership of our voting capital stock is closely held by our President/Chief Executive Officer/Chairman of the Board, Chris R. Salmonson, who exercises voting control over our common stock.
As of (June 2008), our President, Chief Executive Officer/Chairman, Chris R. Salmonson and his family members, own (50)% of our outstanding voting stock. As a result, our Chief Executive Officer, controls our business decisions, including the election of the members of our Board of Directors, and our minority stockholders have little or no participation in such management decisions. .
ITEM 2.
DESCRIPTION OF PROPERTY.
From August 2006 to present, our principal place of business has been located at 999 Stinson Way, Suite 301, West Palm Beach, Florida 33411, consisting of approximately 1000 square feet of office space and approximately 2400 square feet of warehouse and storage space. We do not have a written lease agreement; we occupy this space rent free from AlKhalifa Petroleum Corporation, a Florida corporation that is owned by our Director, Shaikh Isa Mohammed Isa AlKhalifa. We believe that our space is sufficient for our use.
We lease a data center at 250 Main Street, Lexington, Kentucky, from Echosat which contains servers, modem banks, network circuits and other physical equipment necessary to connect users to the Internet. The data center has multiple levels of redundant connectivity to the Internet, back-up power, fire suppression, seismic reinforcement and security surveillance 24 hours a day, 7 days a week. Our monthly rent is $2,000. We rent on a month to month basis. Our lease may be terminated at will by Echosat. In the event of termination we would be required to relocate our file server at a secure service provider. There are many national providers to choose from and we are very pleased with our current provider and have no reason to change.
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ITEM 3.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings other than an arbitration for wrongful termination of a ship charter, which is currently in arbitration in London. The arbitration is: W-O Marine Pte. Ltd v. FuelNation Inc. Leman Energy Trading, Inc., chartered a ship the 28th of October 2006, for a period of six months with a six month renewal at our option, to purchase and transport fuel-oil from Iraq to other countries in the Arabian Gulf. Upon arrival of the chartered ship to the southern port of Khor Al-Zubair in Iraq, the pipeline supplying the ships at the southern port of Khor Al-Zubair was disrupted during the cold weather for a period of approximately 30 to 45 days. and the ship’s crew needed to return to Fujairah, UAE, for supplies and refueling. Upon return to Iraq, we had missed a window to pick up fuel-oil and we waited behind other ships for the pipeline to reopen. Time had lapsed and Leman Energy Trading, Inc. was forced to sublet the ships on short term charters to competitors at a substantial loss transporting fuel-oil from Iraq to Fujairah, UAE. In March 2006, the ship owner wrongfully terminated the charter before expiration and we are currently litigating our losses in the London Arbitration courts. The Arbitrator ruled in favor of FuelNation for the wrongful termination. We are currently arbitrating our claims for losses, and Management believes we should be successful in this arbitration. If successful, we will be entitled to receive approximately $500,000 from W-O Marine.
On November 8, 2006, the SEC instituted an administrative proceeding against us alleging that we had a class of equity securities registered with the SEC, but that we were delinquent in our periodic filings since we last filed our quarterly report for the period ended March 31, 2004. On June 5, 2007, the Securities and Exchange Commission issued an “Order Dismissing Proceeding Based on Lack of Registration” regarding us. The SEC Order dismissing the proceeding against us was based on a motion by the SEC’s Division of Enforcement, which stated that we no longer had any class of securities registered in accordance with Securities and Exchange Act Section 12 and that such proceeding was moot and should be dismissed.
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Our operations are subject to federal, state and local laws and regulations. Currently, we are not involved, or the subject of, any pending or existing litigation. (See additional information under the heading “Subsequent events”.)
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 2007 the following were approved by a majority of our shareholders by written consent:
1.
On August 15, 2007 the Company amended its certificate of incorporation authorizing it to issue 505,000,000 shares of capital stock, of which 5,000,000 shares are classified as preferred stock, par value of $.01 per share, issuable in one or more series and 500,000,000 shares are classified as common stock, par value $.01. (In addition, On March 20, 2008 the Company’s Articles of Incorporation were amended. See Subsequent events below)
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ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Common stock. FuelNation Inc’s common stock is currently traded on the Pink Sheets under the symbol "FLNA." As of April 23, 2008 FuelNation Inc.’s common stock was held by 300 stockholders of record and an estimated 2600 additional stockholders whose shares were held for them in street name or nominee accounts. Set forth below are the high and low closing sale prices per share of our common stock for each quarter of 2007 and 2006, as report by NASDAQ.
These quotations reflect prices between dealers, do not include retail mark-ups, markdowns, commissions and may not necessarily represent actual transactions.
Sales Price per share
Quarter Ended |
| High |
| Low |
|
|
|
|
|
First Quarter ended 3/31/08 |
| .17 |
| .03 |
|
|
|
|
|
First Quarter ended 3/31/07 |
| .10 |
| .03 |
Second Quarter ended 6/30/07 |
| .06 |
| .03 |
Third Quarter ended 9/30/07 |
| .10 |
| .02 |
Fourth Quarter ended 12/31/07 |
| .35 |
| .09 |
|
|
|
|
|
First Quarter ended 3/31/06 |
| .69 |
| .26 |
Second Quarter ended 6/30/06 |
| .38 |
| .17 |
Third Quarter ended 9/30/06 |
| .21 |
| .12 |
Fourth Quarter ended 12/31/06 |
| .20 |
| .06 |
The transfer agent for our common stock is Continental Stock Transfer and Trust Company, 17 Battery Place, 8th Floor, New York, New York 10004, telephone (212) 509-4000.
We have never paid cash dividends on our common stock.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. We currently intend to retain our future earnings to finance the improvement and expansion of our business. Future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that our board of directors may deem relevant.
Recent Sales Of Unregistered Securities
On February 25, 2005, we issued 180 of our preferred shares to Peter Knight in exchange for energy related acquisition consulting services rendered to us by Peter Knight. Each preferred share was valued at $1,000 or an aggregate of $180,000.
On March 9, 2005, we sold 19 of our preferred shares to Kent Hagood for $1,000 per share or an aggregate of $19,000.
On March 22, 2005, we issued 6 of our preferred shares to Harrison Brownstein in exchange for Joel Brownstein’s energy related acquisition consulting services rendered to us by Joel Brownstein, who is Harrison Brownstein’s father. Each preferred share was valued at $1,000 or an aggregate of $6,000.
On April 11, 2005, we issued 50 or our preferred shares to Michael Flax in exchange for energy related acquisition consulting services rendered to us by Michael Flax. Each preferred share was valued at $1,000 or an aggregate of $50,000.
On May 26, 2005, we issued 80 of our preferred shares to Michael Flax in exchange for energy related acquisition consulting services rendered to us by Michael Flax. Each preferred share was valued at $1,000 per preferred or an aggregate of $80,000.
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On September 9, 2005, we sold 11 preferred shares to Harold Gelb for $1,000 a share or an aggregate of $11,000.
On September 9, 2005, we issued 300 preferred shares to Michael Flax in exchange for release of a note payable to Michael Flax by us. Each preferred share was valued at $1,000 or an aggregate of $130,000.
On September 13, 2005, we issued 251 preferred shares held by Judith Yusem in exchange for 84,518 shares of our common stock held by Judith Yusem. Each preferred share was valued at our par value of $0.01or an aggregate of $2.51.
On September 13, 2005, we issued 10 preferred shares to Nancy Senich in exchange for 3,367 shares of our common stock held by Nancy Senich. Each preferred share was valued at our par value of $0.01 or an aggregate of $0.10.
On September 13, 2005, we issued 10 preferred shares to Ellen Stewart in exchange for 3,367 shares of our common stock held by Ellen Steward. Each preferred share was valued at our par value of $0.01 or an aggregate of $0.10.
On September 21, 2005, we sold 25 preferred shares to Michael Flax for $1,000 per share or an aggregate of $25,000.
On December 5, 2005, we sold 11 preferred shares to David Adam for $1,000 per share or an aggregate of $11,000.
On December 8, 2005, we sold 4 preferred shares to David Adam for $1,000 per share or an aggregate of $4,000.
On January 18, 2006, we issued 3 preferred shares to Jay Zelesnick for $1,000 per share or an aggregate of $3,000.
On February 2, 2006, Peter Knight converted 89 of our preferred shares into 273,280 shares of our common stock at the calculated conversion rate.
On February 2, 2006, William Woodward converted 25 of our preferred shares into 75,150 shares of our common stock at the calculated conversion rate.
On February 2, 2006, Emilio Zabaleta converted 334 of our preferred shares into 1,017,364 shares of our common stock at the calculated conversion rate.
On February 2, 2006, David Bernstein converted 91 of our preferred shares into 275,000 shares of our common stock at the calculated conversion rate.
On February 2, 2006, Joe Cole converted 50 of our preferred shares into 152,300 shares of our common stock at the calculated conversion rate.
On February 2, 2006, Jose Marsicobetre converted 210 of our preferred shares into 639,660 shares of our common stock at the calculated conversion rate.
On February 2, 2006, Michael Flax converted 165 of our preferred shares into 502,590 shares of our common stock at the calculated conversion rate.
On February 2, 2006, Dennis Someck converted 23 of our preferred shares into 70,000 shares of our common stock at the calculated conversion rate.
On May 10, 2006, Kent Hagood converted 5 of our preferred shares into 15,230 shares of our common stock at the calculated conversion rate.
On May 10, 2006, David Karp converted 205 of our preferred shares into 624,430 shares of our common stock at the calculated conversion rate.
On May 10, 2006, Outward Trading converted 1000 of our preferred shares into 3,046,000 shares of our common stock at the calculated conversion rate.
On May 10, 2006, Jose Marsicobetre converted 1000 of our preferred shares into 3,046,000 shares of our common stock at the calculated conversion rate.
On May 10, 2006, Michael Flax converted 500 of our preferred shares into 1,523,000 shares of our common stock at the calculated conversion rate.
15
On May 10, 2006, Larisa Schneider converted 1000 of our preferred shares into 3,046,000 shares of our common stock at the calculated conversion rate.
On May 10, 2006, David Schneider converted 1000 of our preferred shares into 3,046,000 shares of our common stock at the calculated conversion rate.
On May 10, 2006, the Internal Revenue Service converted 511 of our preferred shares into 1,556,506 shares of our common stock at the calculated conversion rate.
On June 29, 2006, William Woodward converted 49 of our preferred shares into 149,254 shares of our common stock at the calculated conversion rate.
On June 29, 2006, David Karp converted 214 of our preferred shares into 651,844 shares of our common stock at the calculated conversion rate.
On June 29, 2006, Outward Trading converted 1306 of our preferred shares into 3,978,076 shares of our common stock at the calculated conversion rate.
On June 29, 2006, Jose Marsicobetre converted 1000 of our preferred shares into 3,067,267 shares of our common stock at the calculated conversion rate.
On June 29, 2006, Bennett Grocock converted 91 of our preferred shares into 283,333 shares of our common stock at the calculated conversion rate.
On June 29, 2006, David Popper converted 100 of our preferred shares into 304,600 shares of our common stock at the calculated conversion rate.
On June 29, 2006, Tower Communications converted 686 of our preferred shares into 2,089,556 shares of our common stock at the calculated conversion rate.
On September 20, 2006, Joe Cole converted 100 of our preferred shares into 304,600 shares of our common stock at the calculated conversion rate.
On September 27, 2006, David Popper converted 225 of our preferred shares into 1,098,900 shares of our common stock at the calculated conversion rate.
On October 3, 2006, Holy S. Wallman converted 30 of our preferred shares into 146,520 shares of our common stock at the calculated conversion rate.
On October 11, 2006, William Woodward converted 27 of our preferred shares into 131,868 shares of our common stock at the calculated conversion rate.
On October 11, 2006, David Karp converted 192 of our preferred shares into 937,728 shares of our common stock at the calculated conversion rate.
On October 11, 2006, Outward Trading converted 994 of our preferred shares into 4,854,696 shares of our common stock at the calculated conversion rate.
On October 11, 2006, Tom Morter converted 619 of our preferred shares into 3,023,196 shares of our common stock at the calculated conversion rate.
On October 11, 2006, Bennett Grocock converted 50 of our preferred shares into 244,200 shares of our common stock at the calculated conversion rate.
On October 11, 2006, Carl Killian converted 50 of our preferred shares into 244,200 shares of our common stock at the calculated conversion rate.
On October 11, 2006, Acacia Investors converted 231 of our preferred shares into 1,128,204 shares of our common stock at the calculated conversion rate.
On October 11, 2006, Michael Flax converted 250 of our preferred shares into 1,221,000 shares of our common stock at the calculated conversion rate.
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On October 11, 2006, Angelo Abbenante converted 250 of our preferred shares into 1,221,000 shares of our common stock at the calculated conversion rate.
On January 16, 2007, William Woodward converted 20 of our preferred shares into 97,680 shares of our common stock at the calculated conversion rate.
On January 16, 2007, Angelo Abbenante converted 205 of our preferred shares into 1,000,000 shares of our common stock at the calculated conversion rate.
On January 16, 2007, J.B. Grocock converted 90 of our preferred shares into 442,000 shares of our common stock at the calculated conversion rate.
On January 16, 2007, Acacia Investors converted 205 of our preferred shares into 1,000,000 shares of our common stock at the calculated conversion rate.
On March 9, 2007, William Woodward converted 82 of our preferred shares into 400,488 shares of our common stock at the calculated conversion rate.
On April 25, 2007, Leman Capital converted 771 of our preferred shares into 3,768,000 shares of our common stock at the calculated conversion rate.
On April 25, 2007, Angelo Abbenante converted 410 of our preferred shares into 2,000,000 shares of our common stock at the calculated conversion rate.
On April 25, 2007, E. Zabaleta converted 410 of our preferred shares into 2,000,000 shares of our common stock at the calculated conversion rate.
On April 25, 2007, J.B. Grocock converted 205 of our preferred shares into 1,000,000 shares of our common stock at the calculated conversion rate.
On April 25, 2007, Acacia Investors converted 205 of our preferred shares into 1,000,000 shares of our common stock at the calculated conversion rate.
On October 10, 2007, we issued 75,000 shares of our common stock to Jeff Rike in exchange for energy related acquisition consulting services rendered by Jeff Rike. Each share of common stock was valued at $0.03 or an aggregate of $2,250.
On October 10, 2007, we issued 1,500,000 shares of our common stock to Joel Brownstein in exchange for energy related acquisition consulting services rendered by Joel Brownstein. Each share of common stock was valued at $0.03 or an aggregate of $45,000.
On October 10, 2007, we issued 1,000,000 shares of our common stock to John Macho in exchange for energy related acquisition consulting services rendered by John Macho. Each share of common stock was valued at $0.03 or an aggregate of $30,000.
On October 10, 2007, we issued 1,500,000 shares of our common stock to James Connolly in exchange for energy related acquisition consulting services rendered by James Connolly. Each share of common stock was valued at $0.03 or an aggregate of $45,000.
On October 10, 2007, we issued 3,000,000 shares of our common stock to Emilio Zabaleta in exchange for energy related acquisition consulting services rendered by Emilio Zabaleta. Each share of common stock was valued at $0.03 or an aggregate of $90,000.
On October 10, 2007, we issued 2,000,000 shares of our common stock to Trevor Klein in exchange for accounting services rendered by Trevor Klein. Each share of common stock was valued at $0.03 or an aggregate of $60,000.
On October 10, 2007, we issued 1,000,000 shares of our common stock to Bryan Salter in exchange for energy related acquisition consulting services rendered by Bryan Salter. Each share of common stock was valued at $0.03 or an aggregate of $30,000.
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On October 10, 2007, we issued 10,000,000 shares of our common stock to Tom Morter in exchange for energy related acquisition consulting services rendered by Tom Morter. Each share of common stock was valued at $0.03 or an aggregate of $300,000.
On October 10, 2007, we issued 75,000 shares of our common stock to Babette Walsh in exchange for energy related acquisition consulting services rendered by Babette Walsh. Each share of common stock was valued at $0.03 or an aggregate of $2,250.
On October 10, 2007, we issued 10,000,000 shares of our common stock to Michael Flax in exchange for energy related acquisition consulting services rendered by Michael Flax. Each share of common stock was valued at $0.03 or an aggregate of $300,000.
On October 10, 2007, we issued 10,000,000 shares of our common stock to Tom Morter in exchange for energy related acquisition consulting services rendered by Tom Morter. Each share of common stock was valued at $0.03 or an aggregate of $300,000.
On November 29, 2007, we sold 3,250,000 shares of our common stock to Matthew Duffy at $0.01 per share or an aggregate payment to us of $32,500.
On November 29, 2007, we sold 2,000,000 shares of our common stock to Tom Bader at $0.01 per share or an aggregate payment to us of $20,000.
On November 29, 2007, we sold 1,250,000 shares of our common stock to Ian Reynolds at $0.01 per share or an aggregate payment to us of $12,500.
On November 29, 2007, we issued 3,000,000 shares of our common stock to Trust Company Marshall in exchange for energy related acquisition consulting services rendered to us by Trust Company Marshall. Each shares of common stock was valued at 0.03 or an aggregate of $90,000.
On November 29, 2007, we issued 14,000,000 shares of our common stock to Marilyn Salmonson, Custodian, in exchange for off-setting the loan account obligating us to pay Marilyn Salmonson’s husband, Chris Salmonson, our Chief Executive Officer. Each share was valued at $0.01 or an aggregate of $140,000.
On November 29, 2007, we 75,000 shares of our common stock to Amanda Rodriguez in exchange for energy related acquisition consulting services rendered to us by Amanda Rodriguez. Each share was valued at $0.03 or an aggregate of $2,250.
On November 29, 2007, we sold 2,000,000 shares of our common stock to David Karp at $0.01 per share or an aggregate payment of $20,000 by David Karp to us.
On November 29, 2007, we sold 1,000,000 shares of our common stock to Victor Spektor at $0.01 per share or an aggregate payment of $10,000 by Victor Spektor to us.
On December 26, 2007, First Clearing LLC converted 667 shares of our preferred stock into 3,247,628 shares of our common stock at the calculated conversion rate.
ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and notes appearing elsewhere in this report.
Critical Accounting Policies
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the 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. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation allowances for inventory and accounts receivable, and impairment of long-lived assets. We base our estimates and judgments on historical experience and
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on various other factors that are believed to be reasonable under the circumstances. The result of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The SEC suggests that all registrants list their most “critical accounting policies” in Management’s Discussion and Analysis. A critical accounting policy is one which is both important to the portrayal of the Company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management believes the following critical accounting policies affect its more significant judgments and estimates in the preparation of its consolidated financial statements.
These policies include, but are not limited to, the carrying value of the inventory and fixed assets, the life of fixed assets, the expensing of the costs relating to FDA and European Union, Russian and Iraq licensing activities, and the valuation of common stock related to compensation and other services. Complex judgments and estimates underlie these critical accounting policies, such as the estimated life of fixed assets for depreciation purposes, the market valuation of inventory in reporting inventory at the lower of cost or market, dividing consultants’ compensation between expense categories of FDA licensing activities and sales activities, dividing compensation and payments to third parties between cost of goods sold category and general and administrative expense, and the determination of the market value of restricted stock when issued as compensation or as repayment for loans.
For the Years Ended December 31, 2007 and 2006
Operations.
The following discussion and analysis of our plan of operation should be read in conjunction with the financial statements and the related notes. This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this document.
We have identified certain policies as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our report and expected financial results. See the section entitled "Critical Accounting Policies" at the end of this discussion.
OVERVIEW
Our future business operations principally will involve the transportation of petroleum products from Iraq to other countries located in the Arabian Gulf and negotiating agreements for purchase, storage and resale of petroleum products and crude oil.
We have assembled a management team to assist in executing the oil trading in Geneva, Switzerland and a memorandum of understanding to buy the Ventspils Nafta Terminal agreement to buy crude oil in Russia and have it refined for export. Our business plan is contingent upon receiving adequate financing. Our primary needs for cash are for the operation, development, production, exploration and acquisition of undervalued energy assets primarily in the oil sector in Russia and other countries in the Former Soviet Union and in the Middle East, principally Iraq and for working capital obligations.
OPERATIONAL AND FINANCIAL OBJECTIVES
We plan to acquire undervalued energy assets primarily in the oil sector in Russia and other countries in the Former Soviet Union and in the Middle East, primarily Iraq. Additionally, we will continue our efforts to procure crude oil supply contracts and refined petroleum from Western Siberia, Russia; Middle East and Southeast Asia. These contracts will generally range from one to five years in duration and sometimes longer.
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Financial Condition and Changes in Financial Condition
At December 31, 2007 we had negative cash resources and needed to borrower additional funds of $50,000 USD from an affiliate, which is sufficient to conduct our activities and meet our obligations for approximately 3 months before additional borrowings are needed. Our continued activities are dependent on obtaining adequate financing. Our financial condition as of our year end at December 31, 2007, compared with our year end at December 31, 2007, is summarized as follows:
Assets
As of December 31, 2007, we had total assets of $166,148 compared to total assets of $225,021 as of December 31, 2006, representing an decrease of $58,873. The decrease in assets is from a refund of deposits. Other Receivables comprise the majority of our assets as follows:
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