10QSB 1 0001.txt FORM 10-QSB As filed with the Securities and Exchange Commission on November 14, 2000 ================================================================================ Securities And Exchange Commission Washington, D.C. 20549 _________________ FORM 10--Q/SB _________________ (Mark One) [X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 For The Nine-Month Period Ended September 30, 2000; Or [_] Act Of 1934 For The Transition Period From ________ To _______ Commission File No. 333-88207 CLEAN ENERGY COMBUSTION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 98-0211550 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7087 MacPherson Avenue, British Columbia, Canada V5J 4N4 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (604) 435-9339 Indicate by check mark whether the registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registration was required to file such Reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 10,017,365 shares of common stock, par value $0.0001 per share, as of November 8, 2000 ================================================================================ CLEAN ENERGY COMBUSTION SYSTEMS, INC. QUARTERLY REPORT ON FORM 10--Q/SB TABLE OF CONTENTS
Page ---- PART I. Financial Information................................................................ 3 Item 1. Financial Statements................................................................. 3 Consolidated Balance Sheet........................................................... 3 Consolidated Statement Of Operations................................................. 4 Consolidated Statement Of Deficiency In Assets....................................... 5 Consolidated Statement Of Cash Flows................................................. 6 Notes To Consolidated Financial Statements........................................... 7 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations........................................................................ 11 General.............................................................................. 11 Overview............................................................................. 11 Results Of Operations................................................................ 11 Liquidity And Capital Resources...................................................... 12 Other Matters........................................................................ 13 Uncertainties And Other Factors That May Affect Our Future Results And Financial Condition............................................................................ 14 Item 3. Quantitative And Qualitative Disclosures About Market Risk........................... 25 Currency Fluctuations................................................................ 25 Interest Rate Fluctuations........................................................... 25 ITEM II Other Information.................................................................... 25 Item 1. Legal Proceedings.................................................................... 25 Item 2. Changes In Securities And Use Of Proceeds............................................ 25 Item 3. Defaults Upon Senior Securities...................................................... 25 Item 4. Submission Of Matters To A Vote Of Security Holders.................................. 26 Item 5. Other Information.................................................................... 26 Item 6. Exhibits............................................................................. 26 Exhibits............................................................................. 26 Reports on Form 8-K.................................................................. 26
-ii- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CLEAN ENERGY COMBUSTION SYSTEMS, INC, (A development stage enterprise) Consolidated Balance Sheet September 30, 2000 (Expressed in U,S, Dollars) (Unaudited) --------------------------------------------------------------------------------
September 30, December 31, 2000 1999 ------------- ------------ ASSETS CURRENT Cash and cash equivalents $ 24,489 $ 26,414 Short term investments 719 10,000 Accounts receivable and prepaid expenses 25,354 21,261 Advances to an affiliated company 49,794 52,514 Taxes receivable 127,899 0 ----------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 228,255 110,189 PATENTS 21,505 11,427 PROPERTY AND EQUIPMENT 61,479 43,429 ----------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 311,239 $ 165,045 ===================================================================================================== LIABILITIES CURRENT Accounts payable $ 23,290 $ 23,297 Accrued liabilities 4,232 11,458 Current payroll taxes 13,748 11,620 Advances from related parties 157,462 254,572 ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 198,732 300,947 ===================================================================================================== Going concern (Note 2) DEFICIENCY IN ASSETS Stockholders' Equity Authorized Preferred stock; $.0001 par value; 1,000,000 shares Common stock; $.0001 par value; 15,000,000 shares Issued Series A preferred stock; $.0001 par value Liquidation preference $1,000 1,000 shares issued and outstanding 1 1 Series B preferred stock; $.0001 par value Liquidation preference $500,000 250,001 shares issued and outstanding 250 250 Common stock; $.0001 par value; 10,017,365 shares (December 31, 1999 - 9,643,750) issued and outstanding 1,001 964 Additional paid-in capital 1,251,021 502,287 Accumulated deficit (1,139,766) (639,404) ----------------------------------------------------------------------------------------------------- TOTAL DEFICIENCY IN ASSETS 112,507 (135,902) ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 311,239 $ 165,045 =====================================================================================================
See accompanying notes to consolidated financial statements CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Consolidated Statement of Operations (Expressed in U.S. Dollars) (Unaudited) ----------------------------------------------------------------------------
March 1, 1999 to Three months ended September 30, Nine months ended September 30, September -------------------------------- ------------------------------- 30, 2000 2000 1999 2000 1999 (cumulative) ---------------------------------------------------------------------------------------- ADMINISTRATION EXPENSES Accounting $ 4,400 $ 2,395 $ 8,661 $ 12,113 $ 30,737 Administrative wages and benefits 38,534 41,206 138,628 122,794 296,139 Amortization 5,175 2,928 15,816 6,680 24,617 Communications 1,636 1,855 5,668 5,288 13,369 Foreign exchange loss (gain) (2,045) 834 2,930 6,790 11,515 Interest 884 (337) 20,121 2,725 25,982 Legal 7,981 3,083 31,564 52,273 101,014 Marketing 25,747 17,130 73,245 48,698 152,436 Occupancy 8,045 7,145 25,731 22,602 56,951 Office and miscellaneous 12,326 2,748 21,891 9,040 37,472 Transfer agent fees (1,437) 2,671 1,590 4,213 13,980 --------------------------------------------------------------------------------------------------------------------------------- 101,246 81,658 345,845 293,216 764,212 --------------------------------------------------------------------------------------------------------------------------------- RESEARCH AND DEVELOPMENT EXPENSES Wages and benefits 55,317 48,179 188,287 141,961 384,709 Development 70,361 9,861 94,220 19,740 118,835 Tax recovery (127,990) - (127,990) - (127,990) --------------------------------------------------------------------------------------------------------------------------------- (2,312) 58,040 154,517 161,701 375,554 --------------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES AND NET LOSS FOR THE PERIOD $ 98,934 $ 139,698 $ 500,362 $ 454,917 $1,139,766 ================================================================================================================================= BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.01) $ (0.05) $ (0.05) ============================================================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 9,768,288 9,643,750 9,685,263 9,643,750 ==============================================================================================================
See accompanying notes to consolidated financial statements. CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Consolidated Statement of Deficiency in Assets From commencement of operations on January 1, 1999 to September 30, 2000 (Expressed in U.S. Dollars) (Unaudited) --------------------------------------------------------------------------------
Series A Series B Preferred Stock Preferred Stock Common Stock Additional Total ---------------- ----------------- ------------------ Paid-in Deficiency Shares Amount Shares Amount Shares Amount Capital Deficit in Assets ------ ------ ------- ------ ---------- ------ ------------ ----------- ----------- Issued on incorporation 1,000 $ 1 - $ - 9,643,750 $ 964 $ 535 $ - $ 1,500 Private placement - - 250,001 250 - - 499,793 - 500,043 Issue of options to consultant - - - - - - 2,000 - 2,000 Net loss - - - - - - - (639,404) (639,404) ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 1,000 1 250,001 250 9,643,750 964 502,328 (639,404) (135,861) Issue of option to consultant - - - - - - 1,500 - 1,500 Issued on conversion (Note 5(b)) - - - - 373,615 37 747,193 - 747,230 Net loss - - - - - - - (500,362) (500,362) ----------------------------------------------------------------------------------------------------------------------------------- Balance, September 30, 2000 1,000 1 250,001 250 10,017,365 1,001 1,251,021 (1,139,766) 112,507 ===================================================================================================================================
See accompanying notes to consolidated financial statements CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Consolidated Statement of Cash Flows (Expressed in U.S. Dollars) (Unaudited) --------------------------------------------------------------------------------
Nine months ended September 30, ---------------------------------- 2000 1999 ----------- -------- OPERATING ACTIVITIES Total operating expenses for the period (500,362) (454,916) Adjustments to reconcile total operating expenses to net cash utilized in operating activities Amortization 15,816 6,680 Non-cash consulting expense 1,500 - Change in operating assets and liabilities: Accounts receivable and prepaid expenses (4,093) (15,133) Accounts payable (7) 15,319 Accrued liabilities (7,226) - Payroll taxes 2,128 13,247 Tax receivable (127,899) - -------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (620,143) (434,803) -------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of short-term investment 9,281 (47,703) Purchase of a patent (10,078) (11,137) Purchase of property and equipment (33,678) (48,188) -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (34,475) (107,028) -------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Advances to an affiliated company 2,720 (51,652) Proceeds from long-term obligations (97,110) 128,175 Proceeds from advances from related parties 747,083 - Proceeds from issue of common stock - 964 Proceeds from issue of Series A convertible preferred stock - 250 Proceeds from issue of Series B preferred stock - 1 Additional paid in capital - 501,420 -------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 652,693 579,158 -------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,925) 37,327 CASH (BANK OVERDRAFT) AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,414 - -------------------------------------------------------------------------------------------------------------------------- CASH (BANK OVERDRAFT) AND CASH EQUIVALENTS, END OF PERIOD 24,489 37,327 ==========================================================================================================================
See accompanying notes to consolidated financial statements CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Notes to the Consolidated Financial Statements September 30, 2000 (Expressed in U.S. Dollars) (Unaudited) -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLIIES (a) Basis of presentation These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and pursuant to the instructions of the United States Securities and Exchange Commission For 10-Q SB and Article 10 of Regulation S-X. While these financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report filed on Form 10-K SB for the year ended December 31, 1999. (b) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (c) Recent pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which standardizes the accounting for derivative instruments. SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The impact on the Company's financial statements is not expected to be material. 2. NATURE OF BUSINESS AND GOING CONCERN Clean Energy Combustion Systems Inc. ("Company") was incorporated in Delaware, organized and commenced operations on March 1, 1999. These financial statements also reflect certain preorganization transactions and commitments incurred between January 1, 1999 and the date of incorporation on March 1, 1999, which have been accepted by the Board of Directors as obligations of the Company. The Company is a development stage company with principal executive offices located in Vancouver, British Columbia, Canada. CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Notes to the Consolidated Financial Statements September 30, 2000 (Expressed in U.S. Dollars) (Unaudited) -------------------------------------------------------------------------------- 2. NATURE OF BUSINESS AND GOING CONCERN (Continued) The Company was formed for the specific purpose of acquiring exclusive world-wide license rights entitling it to design, engineer, manufacture, market, distribute, license and otherwise commercially exploit two innovative, patented "burner" technologies, the Pulse Blade Combustion or "PBC" Technology and the Diesel Technology. The Company acquired two licenses in the amount of $10 each from founding shareholders of the Company. The Company has incurred losses from inception totalling $1,139,766 and has working capital of $29,523 and does not currently have the financial resources to complete its business plan. The Company's ability to continue as a going concern is dependent upon its ability to attain future profitable operations and to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. External financing, predominately by the issuance of common stock to the public will be sought to finance development of the Company's products; however, there can be no assurance that sufficient funds will be raised. The Company's objective is to enter into licensing, royalty, joint venture, or manufacturing agreements with established national and international heat transfer industry manufacturers. 3. ADVANCES TO AN AFFILIATED COMPANY As at September 30, 2000, the Company had advanced $49,794 (Cdn $76,202) (December 31, 1999 - $52,514 (Cdn $75,794)) to a company controlled by shareholders in common. These advances are non-interest bearing, are repayable in Canadian dollars and have no specific terms of repayment. CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Notes to the Consolidated Financial Statements September 30, 2000 (Expressed in U.S. Dollars) (Unaudited) -------------------------------------------------------------------------------- 4. PROPERTY AND EQUIPMENT
September 30, December 31, 2000 1999 ----------------------------------------------------------------- -------------------- Accumulated Net Book Net Book Cost Depreciation Value Value ----------------- -------------------- ----------------- -------------------- Communications equipment $ 5,923 $ (2,673) $ 3,250 $ 4,391 Computer hardware 21,507 (8,708) 12,799 9,705 Computer software 4,182 (1,997) 2,185 1,722 Display/promotional equipment 4,690 (1,042) 3,648 - Furnishings 2,277 (671) 1,606 1,425 Lab equipment 35,771 (8,077) 27,694 20,971 Leasehold improvements 11,345 (1,424) 9,921 5,215 Office equipment 511 (135) 376 - -------------------------------------------------------------------------------------------------------------------------- $86,206 $(24,727) $61,479 $43,429 --------------------------------------------------------------------------------------------------------------------------
5. ADVANCES FROM RELATED PARTIES
September 30, December 31, 2000 1999 ------------ ----------- Advance from related company 7,170 13,289 Advance from shareholders $ 150,292 $ 241,283 -------------------------------------------------------------------------------------------------------------------------- $ 157,462 $ 254,572 --------------------------------------------------------------------------------------------------------------------------
(a) Advance from related company As at September 30, 2000, the Company had received advances of $7,169 (Cdn $10,972) (December 31, 1999 - $13,289 (Cdn $19,552)) from a company controlled by shareholders in common. The advances bear interest at the rate of 8.75% per annum, are repayable in Canadian dollars, and have no specific terms of repayment. CLEAN ENERGY COMBUSTION SYSTEMS, INC. (A development stage enterprise) Notes to the Consolidated Financial Statements September 30, 2000 (Expressed in U.S. Dollars) (Unaudited) -------------------------------------------------------------------------------- 5. ADVANCES FROM RELATED PARTIES (Continued) (b) Advance from shareholder (Continued) As at September 30, 2000, the Company had borrowed $150,292 (Cdn $230,000) (December 31, 1999 - $241,283 (Cdn $355,000)) from a significant shareholder. The loan bears interest at Canadian prime rate plus 2% per annum and is repayable in Canadian dollars. The holder of the loan has the right to covert any portion of the principal amount and all interest into common shares at the conversion rate of $2.00 per share. During the three months ended September 30, 2000, the holder converted $747,230 of loan principle and accrued interest into common shares. Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations General The following discussion of our consolidated financial condition and the results of operations should be read in conjunction with our consolidated financial statements and the notes to our consolidated financial statements included in Part I, Item 1, of this report. The information set forth below in this report is current as of the date of this report, November, 2000, unless an earlier or later date is indicated. All references to "dollars" in this report refer to United States, or U.S., dollars unless specific reference is made to Canadian, or Cdn., dollars. For information relative to currency conversion, see note Foreign Exchange Fluctuations, under Other Matters, below. The rate of exchange of Canadian dollars to United States dollars as of September 30, 2000, was Cdn. $1.53035 to U.S. $1. Overview Clean Energy Combustion Systems, Inc. ("we," "our company" or "Clean Energy") is a development stage enterprise formed on March 1, 1999, for the specific purpose of acquiring exclusive world-wide license rights entitling us to design, engineer, manufacture, market, distribute, license and otherwise commercially exploit two innovative patented "burner" technologies, our pulse blade combustion technology and our diesel fuel combustion technology. Both of these technologies have completed the primary development stage and are in a position to be commercially exploited. Our objective is to enter into licensing, royalty, joint venture or manufacturing agreements with established national and international heat transfer industry manufacturers which will result in the introduction of a variety of different burner units based upon our technology into various selected market segments. We have no revenues to date, nor have we entered into any revenue producing contracts to date, although we are currently working on a number of proto-types under several proposal requests which could lead to revenue producing contracts over the next four to six months. For additional and more detailed information relating to our company and our business, see our registration statement on form SB-2 (amendment no. 3). Results Of Operations Operating Revenues We had no revenues for our nine-month interim fiscal periods ended September 30, 2000 and September 30, 1999. Operating Loss . First Nine Months Of Fiscal 2000 As Compared To First Nine Months Of Fiscal 1999 We incurred an operating loss of $500,362 for the first nine months of fiscal 2000, as compared to $454,917 for the first nine months of fiscal 1999, representing a $45,445, or 10.0%, overall increase. . The operating loss for the first nine months of fiscal 1999 included $108,888 in pre-incorporation operating expenses incurred from January 1, 1999 through February 28, 1999, which we assumed upon our incorporation. The 10.0% increase in our operating loss for the first nine months of fiscal 2000 over the first nine months of fiscal 1999 was primarily attributable to the following changes in costs and expenses: . a $52,629, or 17.96%, increase in administration expense from $293,216 to $345,845; . a 127,990 tax recovery in fiscal 2000, and. . a $79,194, or 74.7%, increase in research and development expense from $161,701 to $282,507. The $52,668 increase in administration expense for the first nine months of fiscal 2000 over the first nine months of fiscal 1999 was primarily attributable to across-the-board net increases in costs to support our increased level of business activities for the first nine months of fiscal 2000, the most significant of which were increases of $15,834 in wages and benefits, $17,396 in interest payments and $24,547 in marketing costs, partially offset by a $24,161 decline in legal and accounting fees. Research and development expense generally relates to the cost--including allocable salaries--to develop, improve and test our burner systems and related components. The $79,194 increase in research and development expense for the first nine months of fiscal 2000 over the first nine months of fiscal 1999 was principally attributable to the cost of materials and equipment associated with additional research and development efforts. . Third Quarter Of Fiscal 2000 As Compared To Third Quarter Of Fiscal 1999 We incurred an operating loss of $98,934 for the third quarter of fiscal 2000, as compared to $139,698 for the third quarter of fiscal 1999, representing a $40,764, or 29.18%, overall decrease. . The 29.18% decrease in our operating loss for the third quarter of fiscal 2000 over the third quarter of fiscal 1999 was primarily attributable to the following changes in costs and expenses: . a $19,588, or 24.0%, increase in administration expense from $81,658 to $101,246; and . a $67,638 or 116.54%, increase in research and development expense from $58,040, to $125.678. . a 127,990 tax recovery in the third quarter of fiscal 2000 The $19,588 increase in administration expense for the third quarter of fiscal 2000 over the third quarter of fiscal 1999 was primarily attributable to across-the-board net increases in costs to support our increased level of business activities for the third quarter of fiscal 2000, the most significant of which were increases of $14,279 in wages and benefits, $4,898 in interest payments and $8,617 in marketing costs. The $67,638 increase in research and development expense for the third quarter of fiscal 2000 over the third quarter of fiscal 1999 was principally attributable to the cost of materials and equipment associated with additional research and development efforts. Liquidity And Capital Resources . Sources of Cash Our cash flow requirements from our inception through September 30, 2000 were funded primarily from the following sources: . $747,083 in short-term advances by one of our directors, Mr. R. Dirk Stinson, which were, in the current quarter, converted under our financing agreement with Mr. Stinson, to common shares at a conversion price of US$2.00 per share. . $500,002 in gross proceeds from a private placement of series "B" preferred stock which closed on April 6, 1999, and . $150,292 in short-term advances by one of our directors, Mr. R. Dirk Stinson. $619,441 was advanced by Mr. Stinson under a promissory note in the original amount of $50,000 dated August 8, 1999. This note required our company to repay the $50,000, plus any additional amounts Mr. Stinson agrees to advance to our company ($150,292 as of Sept.30, 2,000), plus interest accrued on these amounts at the rate of prime plus 2% per annum, by August 10, 2000, or any earlier time we raise Cdn. $750,000 in equity, debt or joint-venture financing or product revenues. Mr. Stinson is also afforded the right under the note to convert any portion of the outstanding indebtedness under the note into our common stock at any time at the conversion rate of one share of common stock per $2.00 of indebtedness. On August 15, 2000, Mr. Stinson converted the current balance of loan into common shares pursuant to the terms of the promissory note and has continued, since that date to fund the company through convertible short-term advances. . Cash Position and Sources And Uses Of Cash Our cash and cash equivalents position as of Sept.30, 2000 was 24,489, as compared to $26,414 as of December 31, 1999. Our cash position as of Sept.30, 1999 was $37,328, as compared to $0 as of March 1, 1999. The $1,925 decrease in our cash position as of Sept.30, 2000 as compared to December 31, 1999 was attributable to $620,143 in cash used in operating activities and $34,475 in cash used in financing activities, partially offset by $652,693 in cash raised in investing activities. The $37,328 increase in our cash position as of Sept.30, 1999 as compared to March 1, 1999 was attributable to $579,161 in cash raised through financing activities, partially offset by $434,804 in cash used in operating activities and $107,029 in cash used in investing activities. Our operating activities required cash in the amount of $620,143 for the first nine months of fiscal 2000, as compared to cash requirements of $434,804 for the first nine months of fiscal 1999. The $620,143 in cash used in operating activities for the first nine months of fiscal 2000 reflected our net loss of $500,362 for that period, as decreased for non-cash deductions and a net increase in non-cash working capital balances. The $434,804 in cash used in operating activities for the first nine months of fiscal 1999 reflected our net loss of $454,916 for that period, as decreased for non-cash deductions and a net increase in non-cash working capital balances. We used cash in the amount of $33,475 for investing activities for the first nine months of fiscal 2000, as compared to $107,029 in cash used for investing activities for the first nine months of fiscal 1999. The principal use of cash for the first nine months of fiscal 2000 was to acquire property and equipment of $33,678, compared to acquisitions of property and equipment of $48,188 for the first nine months of fiscal 1999. We raised $652,693 in cash from financing activities for the first nine months of fiscal 2000, as compared to $579,161 in cash raised from financing activities for the first nine months of fiscal 1999. The $652,693 in cash raised through financing activities for the first nine months of fiscal 2000 was principally comprised of $649,973 funds advanced by a shareholder and subsequently converted to common shares. The $579,158 in cash raised through financing activities for the first nine months of fiscal 1999 was principally comprised of $500,002 in net proceeds from the private placement of series"B" preferred stock, partially offset by $51,652 in advances to a related company. Other Matters Foreign Exchange Fluctuations We recorded a $2,930 foreign currency translation loss for the first nine months of fiscal 2000 as an administration expense item on our statements of operations and deficiency in assets in consolidating our books for financial reporting purposes as a result of the fluctuation in United States--Canadian currency exchange rates during that period. We anticipate that our exposure to significant foreign currency gains or losses on our books will increase as we invest a greater portion of our United States-dollar denominated cash reserves into our Canadian operations and properties through intercompany advancements. We cannot give you any assurance that our future operating results will not be similarly adversely affected by currency exchange rate fluctuations. See Part I, Item 3, of this report captioned "Quantitative and Qualitative Disclosure About Market Risk," for a description of other aspects of our company that may be potentially affected by foreign exchange fluctuations. Effect Of Inflation We do not believe that our operating results were adversely affected during the first ninesix months of fiscal 2000 or fiscal 1999 by inflation or changing prices. Year 2000 Compliance During fiscal 1999 we reviewed our internal computer systems and software products for Year 2000 problems, and found them to be generally Year 2000 compliant, and have had no Year 2000 complications as of the date of this report. Uncertainties And Other Factors That May Affect Our Future Results And Financial Condition Readers are urged to carefully review and consider the various uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this report, may affect our future results of operations or financial condition and an investment in our securities. These uncertainties and risks should also be considered in context with the various disclosures concerning our company and our business and uncertainties and risks that may affect our future results of operations or financial condition made in other reports we periodically file with the Securities and Exchange Commission, including the following fillings which we incorporate by reference into this report: . our registration statement on form SB-2 (amendment no. 3); . any quarterly reports on form 10-Q/SB we may filed during the remainder of fiscal 2000, and . any current reports on Form 8-K/SB we may file subsequent to this report. Uncertainties and Risk Factors Generally Relating To Our Company And Our Business . As a recently formed company with a limited operating history, we are subject to all the risks and issues inherent in the establishment and expansion of a new business enterprise, and our failure to address these risks and issues will adversely affect our ability to complete pending project proposals, introduce our products to the market, generate revenues and profits, and raise additional working capital We were only recently organized, on March 1, 1999, and have a limited operating history. We are, as a consequence, subject to all the risks and issues inherent in the establishment and expansion of a new business enterprise. Our failure to successfully address these risks would adversely affect our ability to: . complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital. Our activities through the date of this report have been limited to: . developing our business plan; . obtaining license rights to our burner technologies; . establishing administrative offices and laboratory facilities; engaging administrative and research and development personnel; and . commencing work on various burner proto-types under pending proposals intended to lead to commercial contracts. Risks and issues inherent in the establishment and expansion of a new business enterprise which we face include, among others, problems of entering new markets, marketing new technologies, hiring and training personnel, acquiring reliable facilities and equipment, and implementing operational controls. In general, startup businesses are subject to risks and or levels of risk that are often greater than those encountered by companies with established operations and relationships. Startups often require significant capital from sources other than operations. The management and employees of startup business shoulder the burdens of the business operations and a workload associated with company growth and capitalization that is disproportionately greater than that for an established business. Our limited operating history makes it difficult, if not impossible, to predict future operating results. We cannot give you any assurance that we will successfully address these risks. . We have accumulated losses since our inception. and our continued inability to generate revenues and profits would adversely affect our ability to complete pending project proposals, introduce our products to the market and raise additional working capital, and could ultimately force us to suspend our operations and even liquidate our assets and wind-up and dissolve our company We are a developmental stage company since we have not commenced commercial sales of our burner technologies and have no revenues to date. Our failure to generate revenues and ultimately profits would: . in the shorter-term, adversely affect our ability to: . complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital; and . in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. We do not anticipate that we will generate revenues for at least four to six months at the earliest, assuming that one or more of our pending projects lead to a commercial contract. We have, as a result of our lack of revenues, incurred operating losses in the amount of $1,139,766 from our inception in March 1999 through September 30, 2000, and we anticipate that we will continue to incur substantial operating losses for the foreseeable future, despite any revenues we may receive in the short-term from any of our pending projects, due to the significant costs associated with the development and marketing of our burner technologies. We cannot give you any assurance that we will generate revenues or profits in the near future or at all. . If we do not raise additional working capital funds to pay our operating and project expenses, we will not be able to sustain our operations, and may even be forced to liquidate our assets and wind-up and dissolve our company We currently have insufficient working capital to fund our projected operating and project costs for more than one month. Our inability to raise sufficient additional working capital in the near future would likely force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. Our operating expenses are currently being funded through advances made by one of our directors and principal stockholders, Mr. R. Dirk Stinson. Although Mr. Stinson has indicated his willingness to continue funding operations for the near future, has also advised us that he will have no obligation to make any further advances beyond any amounts he has previously extended should he at any time deem it inadvisable to do so. We anticipate that we will need to raise at least $700,000 to fund our projected operating and project costs over the next twelve months, and at least $2.5 million, including the $700,000 noted above, in additional working capital to fully implement our longer-term business plan and marketing strategies. We have no current arrangements for obtaining this additional capital other than our current relationship with Mr. Stinson, and will seek to raise this amount in one or more increments through contract advances, public or private sales of debt or equity securities, debt financing or short-term loans, or a combination of the foregoing. We cannot give you any assurance that we will be able to secure the additional capital we require to continue our operation at all, or on terms which will not be objectionable to our company or our stockholders, including substantial dilution or the sale or licensing of our technologies. Note number one to our financial statements states that if we do not raise sufficient capital there is a substantial doubt as to our ability to continue as a going concern. Our independent auditors, Deloitte & Touche LLP, stated in their report accompanying our financial statements for our fiscal year ended December 31, 1999 that they would be required to express a going concern opinion were our financial statements prepared in accordance with United States reporting standards for auditors. . We have not entered into any revenue-generating contracts to date, and our failure to enter into revenue-generating contracts would force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company Although we are working on proto-types under several pending proposals, we have not entered into any revenue-generating contracts to date, and our ability to do so will be dependent in primary part upon our ability to satisfactorily complete the proto-types, to raise sufficient capital to fund these efforts, and to otherwise successfully implement our various market strategies under our business plan. Our failure to enter into any revenue- generating contracts would: . in the shorter-term, adversely affect our ability to: . complete other pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital; and . in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company unless we are otherwise able to raise sufficient working capital to fund our continuing operations until we enter into revenue-generating contracts in the farther future. Even if we enter into revenue-generating contracts, we cannot give you any assurance that we will attain or sustain operating profitability as a result of these contracts. . Our burner products are based upon burner technologies that are new and unique, and the failure of these products to achieve or sustain market acceptance would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company The failure of our burner products to achieve or sustain market acceptance would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company. Products using our burner technologies must compete with established conventional steady-state burner technologies and conventional "tubular" pulse combustion technologies which have already achieved market acceptance. The design for our burner technologies is new and unique, and no products based upon our technologies and configurations have been commercially produced or sold to date, either by our company or by any of our competitors. Additionally, although there is a market for pulse combustion burner products using differently configured pulse burner technology designs, these products are not widely accepted by the market, and therefore not particularly useful as a precedent for the introduction of our pulse combustion burner technology. As is typical in the case of any new technology, demand and market acceptance for products based upon new technologies are subject to a high level of uncertainty and risk, including the risk that the marketplace may not accept, or be receptive to, the potential benefits of these new products. The extent and pace of market acceptance of new burner products based upon our burner technologies will ultimately be a function of many variables, including the following: . the efficacy, performance and attributes of these new products; . the ability to obtain necessary regulatory approvals to commercially market these new products; . the effectiveness of marketing and sales efforts, including educating potential customers as to the distinctive characteristics and benefits of these new products; and . the ability to meet manufacturing and delivery schedules; and product pricing. The extent and pace of market acceptance of products based upon our burner technologies will also depend upon general economic conditions affecting customers' purchasing patterns. Because the market for our burner technologies is new and evolving, it is difficult, if not impossible, to predict the future growth rate, and the size of the potential market. We cannot give you any assurance that a market for our burner technologies will develop or, if developed, will be sustainable. . Our inability to develop our sales, marketing and distribution capabilities either internally or through strategic partners or third party marketing and distribution companies would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital, and may even force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company We currently have no internal sales, marketing and distribution capabilities, and will likely be forced to rely extensively on strategic partners or third party marketing and distribution companies. Our failure to generate substantial sales through any strategic partners or distribution arrangements we procure or to otherwise develop our own internal sales, marketing and distribution capabilities would: . in the shorter-term, adversely affect our ability to: . introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital; and . in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. As a consequence of our prospective reliance upon strategic partners or third party marketing and distribution partners, our ability to effectively market and distribute our burner products will be dependent in large part on the strength and financial condition of others, the expertise and relationships of our strategic partners or distributors and marketers with customers, and the interest of these parties in selling and marketing our products. Our prospective strategic partners and marketing and distribution parties may also market and distribute the products of other companies. If our relationships with any strategic partners or third party marketing and distribution partners were to terminate, we would need to either develop alternative relationships or develop our own internal sales and marketing forces to continue to sell our products. Even if we are able to develop our internal sales, marketing and distribution capabilities, these efforts would require significant cash and other resources that would be diverted from other uses, if available at all, and could cause delays or interruptions in our product supply to customers, which could result in the loss of significant sales or customers. We can give you no assurance that we will be successful in our efforts to engage strategic partners or third party marketing and distribution companies to meet our sales, marketing and distribution requirements. . Our strategic partners' or third party suppliers' failure to satisfy our manufacturing requirements would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital, and may even force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company We currently have no internal manufacturing capability, and will likely be forced to rely extensively on strategic partners or third party contract manufacturers or suppliers. A delay or interruption in the supply of components or finished products would: . in the shorter-term, adversely affect our ability to: . introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital; and . in the longer-term, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. Should we be forced to manufacture our burner products, we cannot give you any assurance that we will be able to develop or internal manufacturing capability or procure third party suppliers. Moreover, we cannot give you any assurance that any contract manufacturers or suppliers we procure will be able to supply our product in a timely or cost effective manner or in accordance with applicable regulatory requirements or our specifications. . Our inability to increase the amount of financial resources for our research and development requirements would adversely affect our ability to introduce our products to the market and to generate revenues and profits Due to the early developmental stage of our business, we have expended only limited amounts on research and development of our burner products to date, including development of project proto-types, and currently have very limited resources to devote to future research and development. Unless we are able to obtain and devote resources to our research and development efforts, including project proto-types, we may only be able to develop limited product offerings in the future and our ability to procure contracts or otherwise achieve market acceptance for our burner products will be limited. As a result, we may fail to achieve significant growth in revenues or profitability in the future. . Our inability to achieve or sustain market acceptance for our burner products as a consequence of the intense competition that is prevalent in the conventional burner industry would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company Products based upon our burner technologies will face intense domestic and foreign competition in all markets in which they are introduced from conventional products and technologies already being sold in these markets. The failure of our burner products to achieve or sustain market acceptance would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company. Additionally, many of our prospective competitors have significantly greater financial, technical and marketing resources and trade name recognition than ours, which may enable them to successfully develop and market products based on technologies or approaches similar to ours, or develop products based on other technologies or approaches which are, or may be, competitive with our burner technologies. The development by our competitors new or improved products, processes or technologies may make our burner technologies less competitive or obsolete. We will be required to devote significant financial and other resources to continue to develop our burner technologies in view of potential competition. We cannot give you any assurance that we will be able to initially penetrate or compete successfully within the heat transfer industry. . The loss of our technology licenses as a consequence of our failure to list our common stock on a national market would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company The licensors of our pulse combustion and diesel fuel combustion technologies reserved several termination rights as a condition for their licensing these technologies to our company. The loss of either of our technology licenses would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company. Specifically: . 818879 Alberta, Ltd., the licensor of our pulse combustion technology, reserves the right to terminate the pulse combustion technology license if our common stock does not actively trade on a "national market," which we define under the license agreement as The New York Stock Exchange, The American Stock Exchange or The Nasdaq Stock Market, on or after March 4, 2002. Should 818879 Alberta, Ltd., exercise this termination right, we reserve the right to over-ride 818879 Alberta, Ltd.'s exercise by purchasing the pulse combustion technology outright for a formula-based cash payment. . Mr. John D. Chato, the licensor of our diesel fuel combustion technology, reserves the right to terminate the diesel fuel combustion technology license if the 818879 Alberta, Ltd. terminates the pulse combustion technology license for the reasons stated above. . If we acquire title to our pulse combustion technology from 818879 Alberta, Ltd. by reason of our success in developing an active trading market on a national market, then 818879 Alberta, Ltd. will retain the right to repurchase the pulse combustion technology from us should we declare bankruptcy or become insolvent. We can give you no assurance in the event of the potential termination of either of our technology licenses that we will be able to preserve the license through the exercise of any cures or other protective rights available to us under the applicable technology license. . Our inability to retain our key managerial and research and development personnel would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital, and may even force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company Our success depends to a significant extent on the continued efforts of our research and development and senior management team, which currently is composed of a small number of individuals, including Mr. John D. Chato, our head of research and development and the inventor of our licensed technologies, Mr. John P. Thuot, our President, Mr. Barry A. Sheahan, our Chief Financial Officer, and Mr. James V. DeFina, our Projects Director. The loss of any of these management personnel would: . in the shorter-term, adversely affect our ability to: . complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital; and . in the longer-term, if not satisfactorily replaced, force us to suspend our operations, and possibly even liquidate our assets and wind-up and dissolve our company. Although Messrs. Chato, Thuot, Sheahan and DeFina have signed employment agreements, we cannot give you any assurance that one or more of these employees will not leave our company. We also do not carry key person life insurance on any of our key management personnel. . Our inability to attract the qualified personnel engineering, managerial, sales and marketing and administrative personnel required to implement our growth strategies would impede our growth Our ability to implement our growth strategies will be dependent upon our continuing ability to attract and retain highly qualified engineering, managerial, sales and marketing and administrative personnel. Our inability to attract and retain the necessary personnel would impede our growth. Competition for the type of personnel we require is intense and we cannot give you any assurance that we will be able to retain our key managerial and technical employees, or that we will be able to attract and retain additional highly qualified managerial and technical personnel in the future . Our inability to effectively manage our growth would adversely affect our ability to introduce our products to the market, generate revenues and profits, and raise additional working capital Our success will depend upon the rapid expansion of our business. Our inability to effectively manage our growth, or the failure of our new personnel to achieve anticipated performance levels, would adversely affect our ability to: . complete our pending project proposals and introduce burner products using our technologies onto the market and to compete, with consequential delays in our ability to generate revenues and profits; and . raise additional working capital. Expansion will place a significant strain on our financial, management and other resources, and will require us, among other things, to: . change, expand and improve our operating, managerial and financial systems and controls; . improve he coordination between our various corporate functions; and . hire additional engineering, sales and marketing, customer service and managerial personnel. We cannot give you any assurance that our efforts to hiring or retain these personnel will be successful, or that we will be able to manage the expansion of our business effectively. . Our inability to protect our patents and proprietary rights would force us to suspend our operations and possibly even liquidate our assets and wind-up and dissolve our company Our ability to compete effectively will be materially dependent upon the proprietary nature of our designs, processes, technologies and materials. The invalidation or circumvention of key patents or proprietary rights which we own or license would likely force us to suspend our operations, liquidate our assets, and wind-up and dissolve our company. Although we protect our proprietary property, technologies and processes through a combination of patent law, trade secrets and non-disclosure agreements, we cannot give you any assurance that these measures will prove to be effective. For example, in the case of patents, we cannot give you any assurance that our or our licensors' existing patents will not be invalidated, that any patents that we or our licensors' currently or prospectively apply for will be granted, or that any of these patents will ultimately provide significant commercial benefits. Moreover, it is possible that competing companies may circumvent any patents that we or our licensors may hold by developing products which closely emulate but do not infringe our or our these patents, and accordingly market products that compete with our products without obtaining a license from us. In addition to patented or potentially patentable designs, technologies, processes and materials, we also rely on proprietary designs, technologies, processes and know-how not eligible for patent protection. We cannot give you any assurance that our competitors will not independently develop the same or superior designs, technologies, processes and know-how as we possess. We believe that the international market for our products and technologies is as important as the domestic market, and we will therefore seek patent protection for our products and technologies or those of our licensors in selected foreign countries. Because of the differences in foreign patent and other laws concerning proprietary rights, our products and technologies may not receive the same degree of protection in a number of foreign countries as they would in the United States. We cannot give you any assurance that we will be able to successfully defend our patents and proprietary rights. We also cannot give you any assurance that we will not be required to defend against litigation involving the patents or proprietary rights of others, or that we will be able to obtain licenses for these rights. Legal and accounting costs relating to prosecuting or defending patent infringement litigation may be substantial. Matters Relating To Our Capital Stock . There is no public trading market for our common stock, and no public trading market may ever develop There is no public market for our common stock or other securities, and we cannot give you any assurance that any active or liquid public market for our common stock will develop or be sustained at any time in the future. Our common stock does not now, and may never qualify for, quotation or listing on any over-the-counter market or on any exchange. . In the absence of a public market for our common stock, your ability to sell our common stock will limited to privately negotiated transactions, and you will face difficulties in finding purchasers for your shares In the absence of a public market for our common stock on an over-the-counter market or an exchange, you will not be able to sell any common shares or other securities you may hold in Clean Energy through normal brokerage channels, and your ability to sell these securities will be limited to privately negotiated transactions. You will likely face difficulties in finding a purchaser for your shares, particularly in view of our limited operating history, our absence of revenues, profits and dividends, our need for additional capital, your position as a minority stockholder, and the other risk factors discussed in this report relating to an investment in our common stock. Lenders will also not readily accept your shares as collateral for these same reasons. Also, our company and our officers, directors, stockholders and agents are under no obligation to purchase these shares from you. As a result of these factors, you may not be able to sell or liquidate these shares should you need to do so due to a financial emergency or other exigent circumstances, including your death or disability. Moreover, if you do find a purchaser for your shares, the price you receive may be less than the price you believe to be warranted. Consequently, you should consider any common shares or other securities you hold in Clean Energy only as an illiquid long-term investment. . Our common stock may never be quoted on the OTC Bulletin Board Although we have promised some of our stockholders that we would use our best efforts to procure a market makers to file a Form 15c2-11 application with the NASD in order to quote our common stock on the OTC Bulletin Board, we have not procured any sponsoring market maker to date, and we cannot give you any assurance that we will be able to procure a sponsoring market maker or that an active or liquid public market for our common stock will develop or be sustained if the NASD eventually accepts our common stock for quotation. . Even if a public market for our common stock were to develop, your ability to sell shares on that market will be circumscribed by a number of regulatory and contractual restrictions Even if a public market for our common stock is eventually developed through its quotation on the OTC Bulletin Board or later quotation or listing on a national market, your ability to sell our common stock on that public market will be circumscribed by the following regulatory and contractual considerations: . the disclosure and investor suitability rules promulgated under the Penny Stock Reform Act of 1990 and limitations mandated by Rule 15c-2-6 promulgated by the Securities and Exchange Commission; . the necessity of complying with any state "Blue Sky" or Canadian provincial securities laws which may be applicable; . contractual volume restrictions on sale imposed on some of the holders of blocks of more than 3,000 shares of our common stock upon whom we have imposed lock-up restrictions as a condition to our cooperation in establishing a public market for our common stock on the OTC Electronic Bulletin Board; and . the amount of shares which you may freely trade under Rule 144 if applicable. Should a public market for our common stock develop, no prediction can be made as to the effect, if any, that the sale of shares or the availability of shares for sale will have on the market price prevailing from time to time. Moreover, sales of substantial amounts of our common stock on the public market, or the perception that substantial sales could occur, could adversely affect the prevailing market prices for our common stock and also, to the extent the prevailing market price for our common stock is reduced, adversely impact our ability to raise additional capital in the equity markets. . Even if a public market for our common stock were to develop, our stock price would likely be volatile due to market considerations beyond our control The securities markets have from time to time experienced significant price and volume fluctuations that can be unrelated to the operating performance or financial condition of any particular company. This is especially true with respect to emerging companies such as ours. Announcements of technology innovations or new products by other companies, release of reports by securities analysts, regulatory developments, economic or other external factors, as well as quarterly fluctuation in our or in our competitors' operating results, could have a significant impact on our stock price were a public market develop for our common stock. . You should not expect to receive a liquidation distribution If we were to wind-up and dissolve our company and liquidate and distribute our assets, you would share ratably with our other common stockholders in our assets only after we satisfy the following obligations: . any amounts we would owe to our creditors ($198,732 as of September, 2000); . any amounts we would owe to our series "A" preferred stockholders as a liquidation preference ($1,000 as of the date of this report); . any amounts we would owe to our series "B" preferred stockholders as a liquidation preference ($500,002 as of the date of this report); and . any amounts we would owe to our series "C" preferred stockholders as a liquidation preference (currently $0). If our liquidation were attributable to our inability to profitably operate our business, then it is likely that we would have material liabilities at the time of liquidation or dissolution. Accordingly, we cannot give you any assurance that sufficient assets will remain available after the payment of our creditors and preferred stockholders to enable you to receive any liquidation distribution with respect to any common shares or other securities of Clean Energy you may hold. . Our current principal stockholders will continue to control our company, and will accordingly retain the power to substantially influence corporate actions that conflict with the interests of public stockholders Our present executive officers and directors, as a group, will hold approximately 57.6% of our common stock following the completion of the sales and distributions contemplated under our registration statement on form SB-2 (amendment no. 3), and will, and as consequence, retain the power to substantially influence corporate actions that conflict with the interests of public stockholders, including: . our business expansion or acquisition policies; . whether we should raise additional capital through financing or equity sources, and in what amounts; . whether we should retain cash reserves for future product development, or distribute them as a dividend, and in what amounts; . whether we should sell all or a substantial portion of our assets, or should merge or consolidate with another corporation; and . transactions which may cause or prevent a change in control or the winding-up and dissolution of our company. An investment in our common stock will entail you entrusting these and similar decisions to our present management subject, of course, to their fiduciary duties and the business judgment rule. . Our right to issue additional capital stock at any time could have an adverse effect on your proportionate ownership and voting rights Our Certificate of Incorporation authorizes us to issue 15,000,000 shares of common stock, and 1,000,000 shares of preferred stock, including 248,999 shares of serial or "blank check" preferred stock that will contain rights, preferences and privileges to be prospectively fixed by our Board of Directors at the time of issuance--without stockholder consent or approval-- based upon any factors our Board may deem relevant at that time. Your proportionate ownership and voting rights as a common stockholder could be adversely effected by the issuance of additional shares of our common stock or our series "C" convertible or "blank check" preferred stock, depending on their rights, preferences and privileges, including a substantial dilution in your net tangible book value per share. We cannot give you any assurance that we will not issue shares of either our common stock or our series "C" convertible or "blank check" preferred stock under circumstances we may deem appropriate at the time. See that section of this report captioned "Description Of Our Securities" for information concerning our capitalization, including the rights, preferences and privileges of our preferred stock. . A third party acquisition of our company would be difficult due to "anti- takeover" provisions contained in our charter documents and provided for under Delaware corporate law Some of the provisions contained in our charter documents and Delaware corporate law may discourage transactions involving an actual or potential change in control of our company, and may limit the ability of our stockholders to approve these transactions should they deem them to be in their best interests. For example, our Certificate of Incorporation and Bylaws: . reserve the right to fill any vacancies in any Non-Series A Director positions exclusively to our Board of Directors; . stipulate that our Non-Series A Directors can only be removed for cause; . require any action to be taken by our common and series "B" preferred stockholders to be effected at a duly called annual or special meeting of these stockholders, and prohibit these stockholders from effecting any action by written consent unless approved by a two-thirds affirmative vote of these stockholders; . reserve the right to call special meetings of our common and series "B" preferred stockholders exclusively to our Board of Directors and designated executive officers; and . require any amendments to the preceding provisions to be approved by a two-thirds affirmative vote of our stockholders. We are also subject to Section 203 of the Delaware General Corporation Law which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that stockholder became an interested stockholder. Our Board of Directors also has the authority to fix the rights and preferences of and issue shares of our "blank check" preferred stock without the approval of our common stockholder and, in some cases, our series "B" and series "C" preferred stockholders. Any "blank check" preferred stock we issue could also be utilized as a method for raising additional capital or discouraging, delaying or preventing a change in control of our company. We cannot give you any assurance that we will not issue "blank check" preferred stock under circumstances we may deem appropriate at the time. Our Statements About Anticipated Events Or Future Trends May Prove To Be Inaccurate In this report we have made a number of statements, which we refer to as "forward-looking statements," generally relating to our expectations or speculations as to future events and our observations as to trends and factors that may impact our future operating results. You can generally identify any forward-looking statements contained in this report through words such as "anticipate," "believe," "estimate," "expect," "budget" and "project" and similar expressions. Forward-looking statements that contained in this report, for example, include statements relating to: . the amount and character of future revenues we may receive, the timing of receipt of revenues, and the timing of break-even, including, by way of example and not limitation, those statements contained in those sections in Part I, Item 2 of this report captioned "Management's Discussion And Analysis Of Financial Condition And Results Of Operations--Overview;" and "Management's Discussion And Analysis Of Financial Condition And Results Of Operations--Capital Requirements;" . the amount and character of expenses we may incur, and the timing of these expenditures including, by way of example and not limitation, those statements contained in those sections in Part I, Item 2, of this report captioned "Management's Discussion And Analysis Of Financial Condition And Results Of Operations--Capital Requirements" and "Management's Discussion And Analysis Of Financial Condition And Results Of Operations--Results Of Consolidated Operations;" and . the amount and composition of our capital expense budget, and the timing of these capital outlays including, by way of example and not limitation, those statements contained in those sections in Part I, Item 2, of this report captioned "Management's Discussion And Analysis Of Financial Condition And Results Of Operations--Capital Requirements" and "Management's Discussion And Analysis Of Financial Condition And Results Of Operations--Results Of Consolidated Operations." Whenever you read any forward looking statement contained in this report, you should be aware of and take into consideration that: . the forward-looking statement merely reflects the current expectations and speculation of our management as to anticipated events or observations relating to future trends based, in part, upon currently available information and our current business plan, and . actual results from these future events may differ materially from the results expected or speculated or trends observed as expressed in, or implied by, the forward-looking statement, as a result of changes in circumstances and events and other uncertainties and risks, including: . changes in our business plan; and . the occurrence of the various types of uncertainties and risk factors described above in this section as well as those described in Part I, Item 3, of this report captioned "Quantitative and Qualitative Disclosure About Market Risk;" and . the forward-looking statement must, in any event, be considered in context with the various disclosures concerning our company and our business made in this report as well as other reports we periodically file with the Securities and Exchange Commission. As a consequence of the forgoing factors, you are cautioned not to put undue reliance on any forward-looking statement contained in this report. We are not obligated to update or revise any forward looking statement contained in this report to reflect new events or circumstances except to the extent required by law. You are also cautioned that we intend for all forward-looking statements contained in this report to be construed as "forward-looking statements" within the meaning Section 21E of the United States Securities Exchange Act of 1934, which establishes a safe-harbor from private actions for forward-looking statements as defined by Section 21E. Item 3. Quantitative And Qualitative Disclosures About Market Risk Currency Fluctuations We intend to sell our products and technologies internationally as well as to the United States and within Canada. This will subject us to various risks associated with international transactions that may adversely effect our results of operations, including risks associated with: . fluctuating exchange rates, . the regulation by the governments of the United States and Canada as well as foreign governments of fund transfers and export and import duties and tariffs; and . political instability. We do not currently engage in activities to mitigate the effects of foreign currency fluctuations, and we anticipate we will be paid in U.S. dollars with respect to any international transactions we may enter into. If earnings from international operations increase, our exposure to fluctuations in foreign currencies may increase, and we may utilize forward exchange rate contracts or engage in other efforts to mitigate foreign currency risks. We can give no you assurance as to the effectiveness of these efforts in limiting any adverse effects of foreign currency fluctuations on our international operations and our overall results of operations. Interest Rate Fluctuations Our interest income from short-term investments could be adversely affected by any material changes in interest rates within the United States. ITEM II OTHER INFORMATION Item 1. Legal Proceedings As of the date of this report: (1) there are no material legal proceedings pending or, to the knowledge of our management, contemplated or threatened, to which to our company or properties are or may become a party; and (2) to the knowledge of our management, no material proceedings to which any director, officer of affiliate of our company is a party adverse to our company or has a material interest adverse to our company. Item 2. Changes In Securities And Use Of Proceeds Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission Of Matters To A Vote Of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits Exhibits 27 Financial Data Table Reports on Form 8--K None Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this quarterly report on form 10--Q/SB to be signed on its behalf by the undersigned, thereunto duly authorized. Dated at Burnaby, British Columbia, Canada, this 13th day of November, 2000. CLEAN ENERGY COMBUSTION SYSTEMS, INC. By: /s/ John P. Thuot ------------------------------ John P. Thuot President (principal executive officer) By: /s/ Barry A. Sheahan ------------------------------ Barry A. Sheahan Chief Financial Officer (principal accounting officer)