American Fusion, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We believe transparency and clarity are the primary goals of successful financial reporting. We remain committed to increasing the transparency of our financial reporting, providing our shareholders with informative financial disclosures and presenting an accurate view of our financial position and operating results. 17 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections: ● O verview ● History ● Business Strategy, Core Philosophies, and Current Operations ● Results of Operations ● Liquidity and Capital Resources ● Off-Balance-Sheet Arrangements ● Qualitative and Quantitative Disclosures About Market Risk ● Outlook The following discussion and other sections of this Form 10-Q contain forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements are made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995 and are made based on management’s current expectations or beliefs, as well as assumptions made by, and information currently available to, management. All statements regarding future events, our future financial performance and operating results, our business strategy and our financing plans are forward-looking statements. In many cases, you can identify forward-looking statements by terminology, such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. These statements are only predictions. Known and unknown risks, uncertainties and other factors could cause our actual results to differ materially from those projected in the forward-looking statements. THE INFORMATION CONTAINED IN THIS FORM 10-Q IS NOT A COMPLETE DESCRIPTION OF OUR BUSINESS OR THE RISKS ASSOCIATED WITH AN INVESTMENT IN US. READERS ARE REFERRED TO DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, WHICH IDENTIFY IMPORTANT RISK FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. OVERVIEW As of the end of the quarter, March 31, 2008, Renewal Fuels, Inc. (“Renewal”) had three wholly-owned subsidiaries - Renewal Biodiesel, Inc. (“Renewal Biodiesel”), Biodiesel Solutions, Inc. (“BSI”), and Renewal Plantations, Inc (“RPI”). Renewal Biodiesel was incorporated in the state of Delaware on March 9, 2007 and acquired the business, fixed assets and inventory of the FuelMeister business of BSI, effective March 30, 2007. Renewal Biodiesel is engaged in the business of designing, developing, manufacturing and marketing personal biodiesel processing equipment and accessories to convert used and fresh vegetable oil into clean-burning biodiesel. Renewal Biodiesel’s products allow customers to make biodiesel fuel, which is capable of powering all diesel fuel engines, for a current cost of approximately 70 cents per gallon. Renewal Biodiesel has developed a network of dealers in the United States for sale and distribution of its products. Renewal Biodiesel’s manufacturing facilities are currently located in Sparks, Nevada. BSI is developing and will manufacture a factory-built biodiesel processing plant that is designed to produce 350,000 gallons of biodiesel per year, appropriately scaled for a variety of customers, including small communities, farms, farm co-ops and trucking fleets. The design will provide a biodiesel production system that is continuous, flexible, efficient, affordable, and fully-automated. The automated control system will minimize labor costs and facilitates remote diagnostics. BSI’s manufacturing facilities are currently located in Sparks, Nevada, adjacent to the manufacturing facilities for Renewal Biodiesel. 18 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. We are currently completing installation of the nurseries and establishing customers for the products to be produced by RPI. HISTORY Reorganization of Tech Laboratories, Inc. and Reverse Merger with Renewal Biodiesel, Inc. On April 20, 2007, Tech Laboratories, Inc. entered into a Merger Agreement with Renewal Biodiesel, a Delaware corporation formed in 2007 for the purposes of the asset acquisition of the FuelMeister Business described below. Under the terms of the agreement, we acquired 100% of the common stock of Renewal Biodiesel in exchange for the issuance by us of 343,610 shares of our series A convertible preferred stock, which was subsequently converted into 22,907,323 common shares. The officers and directors of Renewal Biodiesel assumed similar positions with us. Although we were the legal acquirer, Renewal Biodiesel was considered the accounting acquirer and as such the acquisition was accounted for as a reverse merger and recapitalization. As a result, the accompanying consolidated financial statements represent the results of operations and cash flows of the accounting acquirer (Renewal Biodiesel) from the date of its inception on March 9, 2007. Immediately prior to the reorganization, we had 673,356 shares of common stock outstanding and net liabilities of $1,677,020, consisting of the following, at fair value: Net liabilities assumed: Accounts payable $ 203,992 Long term debt, including accrued interest 1,473,028 Net liabilities assumed $ 1,677,020 The net liabilities assumed primarily represent debt obligations to YA Global Investments, L.P. (“YA Global”) and were assumed in connection with the provision of additional long-term debt financing provided by YA Global (see Note 7 in our accompanying consolidated financial statements included in this Report), which additional funding was provided simultaneously with the reverse merger and recapitalization. Accordingly, the net liabilities assumed were recorded as deferred financing costs incurred in connection with the additional debt funding provided by YA Global and are being amortized by periodic charges to income on a straight-line basis over the life of that debt funding. 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, former Chief Executive Officer and Mr. David Marks, Chairman were officers and directors and were minority shareholders of Renewal Biodiesel. Immediately prior to the reorganization, Renewal Biodiesel issued an aggregate of 5,727,979 shares of its common stock to 23 accredited investors for an aggregate consideration of $57,279. Under the terms of the agreement, we acquired 100% of the 5,727,979 shares of common stock of Renewal Biodiesel in exchange for the issuance by us of 343,610 shares of series A preferred stock, which were subsequently converted into 23,907,323 common shares (approximately 97% of the outstanding common shares immediately after the reorganization). The average share price paid for the 5,727,979 shares of Renewal Biodiesel exchanged for our common shares was $0.01. Current officers, directors and principal stockholders of ours, who beneficially own in the aggregate approximately 80% of our outstanding common stock, owned the following aggregate shares of common stock of Renewal Biodiesel: Name Common Shares Received Renewal Biodiesel Shares Owned Average Price Paid Crivello Group LLC (1) 666,666 166,700 $ 0.01 Frank P. Crivello SEP IRA (1) 13,333,333 3,334,000 $ 0.01 John King 2,300,000 575,115 $ 0.01 David Marks (2) 2,700,000 675,135 $ 0.01 Other investors as a group (17) 3,907,324 977,029 $ 0.01 22,907,323 5,727,979 (1) Mr. Crivello is also the managing member of Crivello Group, LLC. 19 (2) Of the shares attributed to Mr. Marks, 200,000 shares are registered in the name of the Irrevocable Children’s Trust of which Mr. Marks is a trustee and 200,000 are registered in the name of Phoenix Investors, LLC of which Mr. Marks is Managing Director. Although we were the legal acquirer, Renewal Biodiesel was considered the accounting acquirer and as such the acquisition was accounted for as a reverse merger and recapitalization. The officers and directors of Renewal Biodiesel assumed similar positions with us. As a result, the accompanying consolidated financial statements represent the results of operations and cash flows of the accounting acquirer (Renewal Biodiesel) from the date of its inception on March 9, 2007. The fair value of the common stock issued to the shareholders of Renewal Biodiesel was estimated to be $0.2265 per share, based on the trading price of our common stock immediately prior to the reorganization and reverse merger. The difference between the fair value of the shares issued and the amount paid by the shareholders of Renewal Biodiesel for their shares resulted in an immediate expense of $5,131,231. On July 9, 2007, the Company, which was a New Jersey entity (“Tech Labs-NJ”), entered into an Agreement and Plan of Merger with Tech Laboratories, Inc., a Delaware entity (“Tech Labs - DE”) under which Tech Labs - NJ and Tech Labs - DE were merged with and into the surviving corporation, Tech Labs - DE, whose name was subsequently changed on August 1, 2007 to Renewal Fuels, Inc. The certificate of incorporation and bylaws of the surviving corporation became the certificate of incorporation and bylaws of the Company, and the directors and officers in office of the surviving corporation became the directors and officers of the Company. On July 10, 2007, the majority stockholders of the Company authorized a 1-for-15 reverse stock split which was effective on August 1, 2007. As a result, the shares of common stock of the Company (the "Old Shares") that were outstanding at July 31, 2007 automatically converted into 23,805,126 shares of common stock (the "New Shares"). All common share and per share amounts in our financial statements have been retroactively restated to reflect this reverse stock split. The New Shares issued pursuant to the reverse stock split are fully paid and non-assessable. All New Shares have the same par value, voting rights and other rights as the Old Shares. Stockholders of the Company do not have preemptive rights to acquire additional shares of common stock which may be issued. Also on August 1, 2007, the Company changed its name from Tech Laboratories, Inc. to Renewal Fuels, Inc. and the Company’s quotation symbol on the OTC Bulletin Board was changed from TLBT to RNWF. Acquisition of Assets of FuelMeister Business and BSI On March 9, 2007, Crivello Group, LLC (“Crivello”) and its wholly-owned subsidiary, Renewal Biodiesel, entered into an Asset Purchase Agreement with Biodiesel Solutions, Inc. (“BSI”), which was effective March 30, 2007. Pursuant to the Asset Purchase Agreement, BSI sold substantially all of the assets and property of its FuelMeister operations (the “FuelMeister Business” , the “Predecessor” or the “Predecessor Business”, an unrelated Company) to Renewal Biodiesel, in exchange for an aggregate purchase price of $500,000, subject to adjustment. Under the terms of the Agreement, the purchase price was subsequently adjusted to $494,426 to reflect the inventory on hand at closing. Of the adjusted purchase price, $100,000 was paid on execution of the Agreement as a down payment, $100,000 was paid at closing, $50,000 was paid on April 11, 2007, and the balance of the purchase price was paid by delivery of a promissory note, as amended, in the amount of $244,426. The promissory note was subsequently paid on April 20, 2007. The $250,000 cash portion of the $494,426 purchase price of the assets was funded by loans received from Crivello of $200,000 and cash of $57,279 received by Renewal Biodiesel from our founders for common stock. The loans from Crivello, together with the promissory note for $244,426, were repaid from the proceeds of loans from YA Global (see Note 7 in the accompanying consolidated financial statements). The difference of $5,131,231 between the fair value of the 22,907,323 common shares issued to our founders as a result of the reverse merger described above, determined based on the trading price of $0.2265 per share immediately prior to the reorganization and reverse merger, and the amount they paid for their shares of Renewal Biodiesel of $57,279 has been recorded as stock-based transaction expense. Renewal Biodiesel also entered into a management services agreement with BSI, pursuant to which BSI agreed to provide general management and administrative services to Renewal Biodiesel, as well as the use of its facilities. Renewal Biodiesel reimbursed BSI for the direct cost of services and facilities, as provided. The agreement terminated 90 days after the FuelMeister acquisition or upon ten days notice by Renewal Biodiesel. As discussed in Note 1 to the financial statements, we acquired BSI on July 2, 2007, which effectively resulted in termination of the agreement. The acquisition of the FuelMeister Business was accounted for by the purchase method in accordance with Financial Accounting Standards Board Statement No. 141 ("FAS 141") and the results of its operations are included in these consolidated financial statements from the date of acquisition. The aggregate purchase price determined in accordance with FAS 141 was $494,426. The following is a summary of the net assets acquired at the date of acquisition, at fair value: Net assets acquired: Inventory $ 34,426 Fixed assets 9,145 Website domain 50,150 Tradename 118,000 Customer lists, engineering drawings and other intangibles 189,000 Goodwill 93,705 Net assets acquired $ 494,426 20 On July 2, 2007, we entered into a merger agreement with BSI, as a result of which we acquired the remainder of BSI's business (i.e., other than the FuelMeister Business acquired previously). BSI is engaged in the business of designing, manufacturing and marketing processing equipment and accessories, including personal biodiesel processors and “community scale” biodiesel processor systems, which convert fresh and used vegetable oils into clean burning biodiesel fuel. It complements and optimizes Renewal’s ability to design, develop, manufacture and market both personal and community scale biodiesel processing equipment and accessories. As consideration for the acquisition of BSI, we issued an aggregate of 3,333,333 shares of common stock, 1,000,000 new Series B preferred shares of BSI, initially convertible into 1,333,333 shares of our common stock, options to purchase 96,400 shares of our common stock and $500,000 in cash. The BSI Preferred Stock is immediately convertible at the option of the holders into common stock of the Company at a conversion price equal to the greater of (i) $0.75, or (ii) the average closing price of the common stock during the ten trading days immediately preceding the conversion date. Prior to the acquisition of BSI, the Company loaned $200,000 to BSI under an 8% 180 day secured promissory note, due November 24, 2007. Upon the acquisition of BSI, the note receivable was reclassified as an investment to BSI. Also on July 2, 2007, we entered into a Securities Purchase Agreement with YA Global providing for the sale to YA Global of secured convertible debentures in the aggregate principal amount of $2,700,000, of which $2,000,000 was advanced immediately. The second installment of $700,000 will be funded within two business days after the Company has unconditionally booked and received at least a 50% deposit for the sale of at least one BiodieselMaster® unit. We also issued to YA Global five-year warrants to purchase 2,250,000 shares of our common stock at $0.90 per share. The Debentures bear interest at the prime rate plus 2.75% (but not less than 10%) and mature two years from the date of issuance (the "Maturity Date"). The Company is not required to make any payments until the Maturity Date. The holder of the Debentures may convert at any time amounts outstanding into shares of Common Stock at a conversion price per share equal to the lesser of (i) $0.05, or (ii) 80% of the lowest closing bid price of the Common Stock during the ten trading days immediately preceding the conversion date. The aggregate purchase price for the BSI acquisition was determined based on the fair value of the consideration issued, which consisted of common stock, preferred shares of BSI convertible into our common stock, options to purchase our common stock and cash, as follows: 3,333,333 shares of common stock $ 2,000,000 1,000,000 shares of preferred stock of BSI 800,000 96,400 common stock options 48,181 Note receivable from BSI reclassified to contributed capital 200,000 Cash paid, net of $77,986 cash acquired 422,014 Total purchase price $ 3,470,195 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 and based on a report by an independent, reputable appraiser in accordance with the professional standards of the American Society of Appraisers and the Institute of Business Appraisers. 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 90,477 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 Predecessor Business As described above, under the terms of the Renewal Merger Agreement, we acquired 100% of the common stock of Renewal Biodiesel in exchange for the issuance by us of 22,907,323 common shares. Although we were the legal acquirer, Renewal Biodiesel was considered to be the accounting acquirer and, as such, the acquisition was accounted for as a reverse merger and recapitalization. As a result, the accompanying unaudited consolidated financial statements represent the results of operations and cash flows of the accounting acquirer and Successor (Renewal Fuels) for the period ending March 31, 2008. The FuelMeister Business acquired by Renewal Fuels constitutes our Predecessor business. The accompanying unaudited consolidated financial statements, as of March 31, 2008 and for the period March 9, 2007 (date of inception) through March 31, 2007, are those of the Successor. The statements of operations for the three months ended March 31, 2007, and the statements of cash flows for the three months ended March 31, 2007 are those of our Predecessor, the FuelMeister Business. 21 BUSINESS STRATEGY, CORE PHILOSOPHIES, CURRENT OPERATIONS Renewal Fuels is dedicated to technologies that enable the production of high quality fuels from a variety of non-food feedstock sources and waste streams. We believe that developed and emerging technologies to produce fuels from waste will provide an important alternative to feedstock sources which compete with uses for food. Renewal Fuels’ business model includes strategic partnerships and acquisitions in the expanding biofuels industry. Increasing political and social responsiveness, combined with exciting developments in biofuel technology, has created an unprecedented environment for organic growth as well as growth through acquisitions. Our focused business model is designed to facilitate high profit margins and security of feedstock pricing. The management of Renewal Fuels is establishing relationships with multiple biofuel entities with projects, products, and technologies at various stages of development, fitting the Company’s mission. The company is currently seeking additional technologies and businesses to add to its portfolio, which currently includes the businesses described below. Renewal manufactures and markets the FuelMeister® line of personal biodiesel processors from its facility in Sparks, NV. The FuelMeister allows a user to make biodiesel from waste vegetable oil, for personal use. The FuelMeister line of biodiesel processors are produced from industrial-grade materials. In general, it takes approximately 1/2 hour hands-on time per batch of biodiesel fuel production. The products offered are not do-it-yourself kits, but complete systems with all key components needed to make biodiesel ‘at home’ with ease and confidence. FuelMeister biodiesel processors are supplied with a user safety kit, oil titration and field test kit, high quality steel methanol pump, and easy prime oil draw tube. Quick disconnect fittings allow for future expansion and more convenient connection of tanks. If capacity needs change, additional modular tanks, lids, and accessories can be added to the FuelMeister II platform. A customer can start making biodiesel the same day the system arrives. All that is required is a barrel of used fryer oil (typically collected at no charge from local restaurants), lye (at a typical cost of 20¢/gallon of biodiesel), a barrel of racing methanol (at a typical cost of 50¢ /gallon of biodiesel), a barrel for the finished biodiesel, AC power, and a water hose. Renewal’s products are designed specifically to allow shipment by UPS in order to minimize customers’ freight expenses. This design was accomplished during an extensive upgrade to the product’s specifications in 2006. Any machines operating on diesel fuel, including cars, trucks, generators, tractors, furnaces, etc. may be powered with the biodiesel produced with the FuelMeister II biodiesel production system. BSI, which was acquired on July 2, 2007, manufactures a complementary product to FuelMeister called BiodieselMaster®. This product is a factory-built biodiesel processing plant that is appropriately scaled for a variety of customers, including small communities, farms, farm co-ops and trucking fleets. The BiodieselMaster® is a community-scale biodiesel processing unit that is designed to produce 350,000 gallons of biodiesel per year. The design provides a biodiesel production system that is continuous, flexible, efficient, affordable, and fully-automated. The automated control system minimizes labor costs and facilitates remote diagnostics. 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. We are currently completing installation of the nurseries and establishing customers for the products to be produced by RPI. RESULTS OF OPERATIONS Although the revenue generating activities of the FuelMeister Business, the Predecessor business, remained significantly intact after the acquisition, there have been changes in our marketing strategy, administrative costs (including those expenses related to public equity market participation) and financing activities. As a result, we believe that the expenses of the Predecessor business are not representative of our current business, financial condition or results of operations. Accordingly, where practicable we have included various forward looking statements regarding the effects of our new operating structure. The discussion that follows of Results of Operations is in the following sections: · Results of operations for the three months ended March 31, 2008( Uunaudited)(Successor); · Results of operations for the period March 9, 2007 (date of inception) through March 31, 2007(Unaudited) (Successor); 22 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 The information contained in this section is that of the Successor, Renewal Fuels, Inc., for the three months ended March 31, 2008 (unaudited). Net Sales $ 345,862 100.0 % Cost of sales 221,697 64.1 % Gross Profit 124,165 35.9 % Operating Expenses: Employee compensation and benefits 263,057 76.1 % Occupancy and equipment 42,984 12.4 % Advertising 29,523 8.5 % Professional fees 119,295 34.5 % Other general and administrative expenses 116,888 33.0 % Amortization of intangible assets 105,056 30.4 % Total Operating Expenses 676,803 195.7 % Operating Income (Loss) (552,638 ) -159.8 % Interest expense (295,668 ) -85.5 % Other income (expenses) 109 0.0 % Net Income (Loss) $ (848,197 ) -245.2 % Revenues For the three months ended March 31, 2008, revenues were $345,862, an increase when compared with the Successor’s period of March 9, 2007 (Date of Inception) to March 31, 2007, due to an increase in sales of the Fuelmeister product. Cost of Sales and Gross Profit Cost of sales for the three months ended March 31, 2008 was $221,697 or 64.1% of revenues for the quarter, resulting in a gross profit margin of $124,165 or 35.9% for the three months ended March 31, 2008. Employee Compensation and Benefits Employee compensation and benefits were $263,057 or 76.1% of revenues for the three months ended March 31, 2008. These expenses have increased when compared with the Predecessor’s three months ended March 31, 2007 due to increased engineering and labor costs associated with the Fuelmeister and BiodieselMaster® products. Occupancy and Equipment Occupancy and equipment expenses, consisting of rent, depreciation, amortization, and other miscellaneous expenses, amounted to $42,984 or 12.4% of revenues for the three months ended March 31, 2008, an increase when compared with the Predecessor’s three months ended March 31, 2007 due to facility expansion for the Fuelmeister and BiodieselMaster ® products. Advertising Expenses Advertising expenses were $29,523, or 8.5% of revenues, for the three months ended March 31, 2008 and increased when compared with the Predecessor’s three months ended March 31, 2007due to website costs and management’s re-launch of the FuelMeister product. Professional Fees Professional fees, consisting primarily of accounting, attorney and valuation fees, were $119,295 or 34.5% of revenues for the three months ended March 31, 2008 and increased compared with the Predecessor’s three months ended March 31, 2007 due to increased costs associated with SEC compliance and related matters. General and Administrative Expenses General and administrative expenses, consisting of administrative expenses, insurance and other non-manufacturing related expenses were $116,888 or 33% of revenue for the three months ended March 31, 2008 and increased compared with the Predecessor’s three months ended March 31, 2007 due to additional costs associated with the Fuelmeister and BiodieselMaster® products. 23 Amortization of Intangible Assets Amortization of intangible assets was $105,056 or 30.4% of revenue for the three months ended March 31, 2008, primarily due to the amortization of assets acquired in the acquisition of BSI and Fuelmeister. Net Financial (Income) Expense Net financial (income) expense, consisting primarily of interest expense of $295,668 and other income of $109, amounted to a net expense of $295,559 for the three months ended March 31 2008, and increased compared with the Predecessor’s three months ended March 31, 2007, due to the interest and debt discount associated with our convertible debenture obligations. Net Loss As a result of the above, we reported a net loss of $848,197 for the three months ended March 31, 2008. RESULTS OF OPERATIONS FOR THE PERIOD MARCH 9, 2007 (DATE OF INCEPTION) THROUGH MARCH 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 March 31, 2007 (unaudited). Net Sales $ - 100.0 % Cost of Sales - 0 % Gross Profit - 0 % Operating Expenses: Employee compensation and benefits - 0 % Professional fees - 0 % Other general and administrative expenses 31,494 0 % Total Operating Expenses 31,494 0 % Operating Income (Loss) (31,494 ) 0 % Interest expense (35,654 ) 0 % Other income (expenses) 71,916 0 % Net Income (Loss) $ 4,768 0 % Net Sales For the period from March 9, 2007 (inception) through March 31, 2007, net sales were $0 and decreased when compared with the Predecessor’s three months ended March 31, 2007 due to management’s focus on the acquisition of FuelMeister and BiodieselMaster® products. Cost of Sales and Gross Profit Cost of sales for the period ended March 9, 2007 (inception) through March 31, 2007 was $0 due to management’s focus on the acquisition of FuelMeister and BiodieselMaster® products. Employee Compensation and Benefits Employee compensation and benefits were $0 for the period from March 9, 2007 (inception) through March 31, 2007 due to management’s focus on the acquisition of FuelMeister and BiodieselMaster® products. Professional Fees Professional fees were $0 for the period from March 9, 2007 (inception) through March 31, 2007 due to management’s focus on the acquisition of FuelMeister and BiodieselMaster® products. General and Administrative Expenses General and administrative expenses were $31,494 for the period from March 9, 2007 (inception) through March 31, 2007 and increased due to management’s focus on the acquisition of FuelMeister and BiodieselMaster® products. 24 Net Financial (Income) Expense Net financial (income) expense, consisting primarily of interest expense of $35,654 and a gain on sale of assets of $(71,916), amounted to a net income of $36,242 for the period from March 9, 2007 (inception) through March 31, 2007. Net Income As a result of the above, we reported a net income of $6,768 for the period from March 9, 2007 (inception) through March 31, 2007. LIQUIDITY AND CAPITAL RESOURCES Cash and Cash Flows From Operations: The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern. During the three months ended March 31, 2008, we had a net loss of $848,197 which included non-cash items totaling $411,498, consisting primarily of depreciation, amortization of financing fees, convertible debt, and intangible assets. Our existence is dependent on management’s ability to develop profitable operations and successful integration of our acquired businesses. Net cash used in investing activities was $884, which is the purchase of depreciable assets. Net cash provided by financing activities was $39,541 which was provided by proceeds from note payables from stockholders. OFF-BALANCE SHEET ARRANGEMENTS We currently have no off balance sheet arrangements, other than the property leases described in the footnotes to the financial statements. CRITICAL ACCOUNTING POLICIES Going Concern Our ability to continue as a going concern is dependent on our ability to obtain additional funds through debt and equity funding as well as increasing sales of biodiesel units. With these sales the Company anticipates that it will become less reliant on short-term financing. Concentrations of Credit Risk The Company has several customers that accounted for the total revenue for the three months ended March 31, 2008. Revenue Recognition The Company recognizes sales when earned. At the time of the transaction, the Company assesses payment terms associated with the transaction and whether collectibility is reasonably assured. If a significant portion of a fee is due after the normal payment terms, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company recognizes revenue as the fees become due. Where the Company provides a sale at a specific point in time and there are no remaining obligations, the Company recognizes revenue upon completion of the sale. ITEM 3. - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK None. ITEM 4 . - CONTROLS AND PROCEDURES . Disclosure Controls and Procedures As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of March 31, 2008 and (ii) no change in internal controls over financial reporting occurred during the quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 25 Disclosure controls and procedures and other procedures are designed to ensure that information required to be disclosed in our reports or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and financial officer as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control Over Financial Reporting There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2008, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None.