UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC  20549





FORM
10-K





x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
fiscal year ended DECEMBER 31,
2009





o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





Commission
file number 0-31981





ENERTECK
CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
              (State
      or other jurisdiction
              of
      incorporation or organization)
            47-0929885
              (I.R.S.
      Employer
              Identification
      Number)





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





Registrant’s
telephone number, including area code:(281)
240-1787





Securities
registered pursuant to Section 12(b) of the Exchange Act:None





Securities
registered pursuant to Section 12(g) of the Exchange Act: Common Stock ($.001 par
value)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes o         No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yes o         No  x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x        No 
o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  o      
No  o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o





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


Large accelerated
filer                               o                      Accelerated
filer                                                      o


Non-accelerated
filer                                
o                      Smaller
reporting
company                                    x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes o         No x





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant (12,005,134 shares) as of June 30, 2009, the
last business day of the registrant’s most recently completed second fiscal
quarter, was approximately $9,004,000.  The number of shares
outstanding of the Common Stock ($.001 par value) of the registrant as of the
close of business on March 8, 2010was
21,637,788.





Documents
Incorporated by Reference:  None














ENERTECK
CORPORATION





TABLE
OF CONTENTS





PART
      IPageItem
      1.
            Description
      of Business
            3Item
      1A.
            Risk
      Factors
            11Item
      1B.
            Unresolved
      Staff Comments
            16Item
      2.
            Properties
            16Item
      3.
            Legal
      Proceedings
            16Item
      4.
            Reserved
            17PART
      IIItem
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            17Item
      6.
            Selected
      Financial Data
            18Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            18Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            26Item
      8.
            Financial
      Statements and Supplementary Data
            26Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            26Item
      9A(T).
            Controls
      and Procedures
            26Item
      9B.
            Other
      Information
            26PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            27Item
      11.
            Executive
      Compensation
            28Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and RelatedStockholder
      Matters
            31Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            31Item
      14.
            Principal
      Accountant Fees and Services
            32PART
      IVItem
      15.
            Exhibits
      and Financial Statement Schedules
            32Signatures
            35





2




Forward-Looking
Statements





When used in this document, the words
“may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,”
“plans”, and similar expressions are intended to identify forward-looking
statements regarding events, conditions and financial trends which may affect
our future plans of operations, business strategy, operating results and
financial position. Forward looking statements in this prospectus include
without limitation statements relating to trends affecting our financial
condition or results of operations, our business and growth strategies and our
financing plans.




Such
statements are not guarantees of future performance and are subject to risks and
uncertainties and actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors include, among other things, general economic conditions; cyclical
factors affecting our industry; lack of growth in our industry; our ability to
comply with government regulations; a failure to manage our business
effectively; our ability to sell products at profitable yet competitive prices;
and other risks and factors set forth from time to time in our filings with the
Securities and Exchange Commission (the “SEC”).




Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date made. We undertake no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.








PART
I





Item
1. Business.





Introduction





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





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





·
            EnerBurn
      was clearly beginning to gain market
acceptance;


·
            the
      gross margins associated with EnerBurn sales would support the business
      model, since existing customers would likely continue to buy the product
      due to the significant impact on  diesel fuel savings and
      reduced emissions;


·
            EnerBurn
      had been professionally tested extensively in field applications as well
      as in the laboratory, clearly demonstrating its effectiveness in
      increasing fuel economy and reducing emissions and engine
      wear;


·
            use
      of the product in diesel applications has a profound impact on a cleaner
      environment.





3





Business
of the Company and Current Operations





We, through our wholly owned
subsidiary, specialize in the sales and marketing, and since August 2006, in the
manufacturing of a fuel borne catalytic engine treatment for diesel engines
known as EnerBurn®. We utilize a sales process that includes detailed
proprietary customer fleet monitoring protocols in on-road applications that
quantify data and assists in managing certain internal combustion diesel engine
operating results while utilizing EnerBurn. Test data prepared by Southwest
Research Institute and actual customer usage has indicated that the use of
EnerBurn in diesel engines improves fuel economy, lowers smoke, and decreases
engine wear and the dangerous emissions of both Nitrogen Oxide (NOx) and
microscopic airborne solid matter (particulates). Our principal target markets
are presently the railroad, trucking, heavy construction and maritime shipping
industries. We also expect that revenues will be derived in the future from the
mining and offshore drilling industries.  Each of these industries
share certain common financial characteristics, i.e. (i) diesel fuel represents
a disproportionate share of operating costs; and (ii) relatively small operating
margins are prevalent. Considering these factors, management believes that the
use of EnerBurn and the corresponding derived savings in diesel fuel costs can
positively effect the operating margins of its customers while contributing to a
cleaner environment.





We own the EnerBurn trademark and,
since July 2006, the EnerBurn formulas and technology.  Prior to July
13, 2006, we obtained EnerBurn products and services from Ruby Cat and its
affiliates pursuant to arrangement made with Ruby Cat.   Pursuant
to a memorandum of understanding with Ruby Cat which expired on December 31,
2003, the Company was granted the exclusive, global marketing rights from Ruby
Cat and an option to purchase the EnerBurn technology and associated assets by
December 31, 2003 for $6.6 million which was not exercised.  Following
expiration of the memorandum of understanding, Ruby Cat and its affiliates
continued to supply EnerBurn products to the Company but not pursuant to a
formal written contract.  On July 13, 2006, we completed the
acquisition of the EnerBurn formulas, technology and associated assets pursuant
to an Asset Purchase Agreement executed as of the same date between the Company
and the owner of Ruby Cat (see “Our Purchase of the EnerBurn Technology”
below).  Since we were primarily a sales and marketing organization
prior our acquisition of the EnerBurn formulas and technology, we have not spent
any funds on research and development activities through 2007.  We
expect this to change however in the future.





Since inception and through 2005, we
engaged in limited marketing of the EnerBurn technology and generated minimal
sales, principally to the trucking and maritime industries.  Total
revenue from sales for 2004 amounted to $179,000 and for 2005 amounted to
$48,000, much of which came during the fourth quarter of 2005.  Due to
a lack of working capital, and a nearly complete turnover in upper management
and sales staff dating back into 2004, senior management changed its method of
marketing the operation during 2005.  The majority of the marketing
effort was directed at targeting and gaining a foothold in one of our major
target areas, the inland marine diesel market.  Management focused
virtually all of our resources at pinpointing and convincing one major customer
within this market, Custom Fuel Services Inc. (“Custom”) to go full fleet with
our diesel fuel additive product lines.  A substantial portion of 2005
was spent testing our primary product, EnerBurn, on one large inland marine
vessel belonging to this major potential customer.





As a
result thereof, on July 28, 2005, EnerTeck Sub entered into an Exclusive
Reseller and Market Development Agreement (the “Custom Agreement”) with
Custom.  Under the Custom Agreement, EnerTeck Sub has appointed
Custom, which provides dockside and midstream fueling from nine service
locations in Louisiana, Kentucky, Illinois, West Virginia, Missouri and Iowa, as
its exclusive reseller of EnerBurn and the related technology on the Western
Rivers of the United States, meaning the Mississippi River, its tributaries,
South Pass, and Southwest Pass, excluding the Intra Coastal
Waterway.  The Agreement has an initial term of three years and renews
automatically for successive one year terms but can be terminated upon 60 days
prior written notice by either party.  Custom is not required to
purchase a minimum volume of EnerBurn during the term of the Custom Agreement.
Subsequent to the signing of the Custom Agreement, Custom obtained the
regulatory approvals and installed the blending equipment necessary to
facilitate its distribution of EnerBurn.  In February 2006, we
delivered our first shipment of EnerBurn to Custom by delivering 4,840
gallons.  During the first quarter and most of the second quarter on
2006, Custom concentrated on completing the required infrastructural work to
allow Custom to begin servicing the Ingram and other fleets.  This
work was completed late in the second quarter of 2006 and treatment of the
Ingram fleet was commenced.  Late in the second quarter of 2006,
Custom placed a second order of 4,840 gallons and began treatment on the
Mississippi River.





Primarily
as a result of our relationship with Custom, we had product sales of $396,000 in
2007 and $282,000 in 2008.  During 2009, however, Custom represented
0.0% of the Company’s sales. Custom has again ordered in early 2010, and we
still believe will be a significant part of our business.  However, we
are hopeful that as other customer testing in completed in other industries,
Custom’s impact on our business will lessen.  Nevertheless, at the
present time, the business generated by Custom materially impacts our operating
results.




4





Sales
revenues for 2009 were considerably less than earlier anticipated primarily due
to certain unforeseen events first occurring during 2007 and were still being
addressed for much of 2008, 2009 and extending into 2010: (i) an equipment
malfunction on the Mississippi River that apparently started early in 2007,
which went undetected by the vendor for an extended period of time, causing a
severe reduction of fuel dosage of its fleet, (ii) a delay of over a year in the
completion of one of the principal Marine fueling facilities for EnerBurn on the
Mississippi River from the original date projected until February 2008 which
also delayed the shipment and required the reclassification of a material sale
from 2007 to 2008, and (iii) a delay of more than two years by  major
vendors in the completion of final development, testing and availability of
on-truck dosing units required for use by most trucks operating in the trucking
industry, until late 2009.  Original versions of this equipment proved
faulty, leading to significant additional testing and modification
requirements.   As a result, the Company located a second firm to
supply another design which can also handle the function for the trucking
industry.  With our assistance, most of these problems have been
addressed and have been either corrected or are close to being
corrected.  In addition, during 2009 the significant downturn in the
economy adversely affected our customers in most industries and precluded them
in many cases from moving forward with testing and installation of injection
equipment for the utilization of our products.   We now believe
that if not for the occurrence of these events, we may have been able to achieve
significant sales in 2009.  It is expected that sales should show
significant increases throughout 2010, despite the problems with the
economy.





The
Industry





General Discussion of Diesel Fuel and
Diesel Fuel Additives





As crude oil is heated, various
components evaporate at increasingly higher temperatures. First to evaporate is
butane, the lighter-than-air gas used in cigarette lighters, for instance. The
last components of crude oil to evaporate, and the heaviest, include the road
tars used to make asphalt paving. In between are gasoline, jet fuel, heating
oil, lubricating oil, bunker fuel (used in ships), and of course diesel fuel.
The fuel used in diesel engine applications such as trucks and locomotives is a
mixture of different types of molecules of hydrogen and carbon and include
aromatics and paraffin. Diesel fuel cannot burn in liquid form. It must vaporize
into its gaseous state. This is accomplished by injecting the fuel through spray
nozzles at high pressure. The smaller the nozzles utilized and the higher the
pressure, the finer the fuel spray and vaporization. When more fuel vaporizes,
combustion is more complete, so less soot will form inside the cylinders and on
the injector nozzles. Soot is the residue of carbon, partially burned and
unburned fuel.





Sulfur is also found naturally in crude
oil. Sulfur is a slippery substance and it helps lubricate fuel pumps and
injectors. It also forms sulfuric acid when it burns and is a catalyst for the
formation of particulate matter (one of the exhaust emissions being regulated).
In an effort to reduce emissions, the sulfur content of diesel fuel is being
reduced through the refinery process; however, the result is a loss of
lubricity.





Diesel fuel has other properties that
affect its performance and impact on the environment as well. The main problems
associated with diesel fuel include:





·
            Difficulty
      getting it to start burning o Difficulty getting it to burn completely o
      Tendency to wax and gel


·
            With
      introduction of low sulfur fuel, reduced
  lubrication


·
            Soot
      clogging injector nozzles


·
            Particulate
      emissions


·
            Water
      in the fuel


·
            Bacterial
      growth





Diesel fuel additives have been
developed to address the variety of problems associated with diesel fuel
performance.





Diesel Fuel and the
Environment





Diesel fuel is the most cost effective
fuel/engine technology available for heavy-duty industrial and vehicle service.
However, environmentally it needs dramatic improvement. Governments worldwide
are legislating specifications regarding the fuel itself and diesel engine
design.




5





Today’s advanced diesel engines are far
cleaner than the smoke-belching diesels of recent decades. Unfortunately, even
smokeless diesel engines are not clean enough to meet current stricter air
pollution regulations.





While diesel engines are the only
existing cost-effective technology making significant inroads in reducing
“global warming” emissions from motor vehicles, it is not sufficient to satisfy
regulators and legislators. Diesel engines will soon be required to adhere to
stringent regulatory/legislative guidelines that meet near “zero” tailpipe
emissions, especially on smog-forming nitrogen oxides (NOx), particulate matter
(PM) and “toxins”; the organic compounds of diesel exhaust.





Diesel engines can become ultra-clean.
Meeting the environmental challenges will require extensive research on
clean-diesel technology. Research in this area is currently being sponsored by
government agencies, major engine companies, truck manufacturers, automobile
makers, catalyst producers and, for fuels, oil refining companies and their
technology suppliers.





The search for ultra-clean diesel is
far from over. Discoveries and breakthroughs will continue to prevail. Large
Fortune 500 companies, as well as small, emerging technology companies are
investing hundreds of millions of dollars in research and development worldwide
on these and other clean-diesel technologies.





Today, there is no economic alternative
to diesel engines for most industrial applications. This is true for ocean
vessels, tug boats, commercial/recreational vessels, locomotive, trucking, bus
transport, construction, mining, agriculture, logging, distributed power
generation, and, in many parts of the world, personal transportation. In short,
diesel fuel does the world’s heavy work.





Products
and Services





The Diesel Fuel Additive Product
Line


EnerBurn Combustion Catalyst for Diesel
Fuel





EnerBurn is a liquid, chemical
formulation, presently sold in bulk quantities to fleet and vessel operators,
under three product codes differentiated by market application and product
concentration, as indicated below:


Product
              
              ApplicationEnerBurn
      EC5805A
              
              U.S.
      On-Road MarketEnerBurn
      EC5931A
              
              U.S.
      Off-Road  MarketEnerBurn
      EC5805C
              
              International
      Market







Although added to diesel fuel and
generally referred to as a diesel fuel additive within the industry, EnerBurn
functions as an engine treatment application by removing carbon deposits from
the combustion surfaces of the engine and greatly reducing further carbon
deposit buildup. It also provides for an increased rate of combustion. By adding
EnerBurn to diesel fuel in accordance with proprietary methodology, it forms a
non-hazardous catalytic surface in the diesel engine combustion chamber and on
the surface of the piston heads. This surface is visible in the form of a
monomolecular film that develops after initiation of treatment and remains
active for a period of time after cessation of treatment.





The buildup of carbon within the
combustion chamber of a diesel engine can generate greater exhaust opacity and
increased engine wear. These carbon deposits can cause piston rings to stick and
reduce compression resulting in decreased engine efficiency with extended
use.





The unique chemical formulation of
EnerBurn, when applied in accordance with proprietary methodology, has been
shown to produce  benefits in fuel economy, NOx formation, smoke,
brake horsepower and engine wear (See “Product Testing”, below).





EnerBurn Volumetric Proportioning
Injector Equipment (VPI)





Volumetric proportioning injection
equipment is used to deliver proper dosage ratios of EnerBurn to the diesel
fuel, and are typically offered to our customers in support of an EnerBurn sale.
Three equipment vendors supply additive injection equipment to us that is either
installed at a bulk fueling depot or onboard the vehicle or vessel.




6





Product Testing





Southwest Research
Institute





The Southwest Research Institute
(“SWRI”) of San Antonio, Texas has extensively tested the EnerBurn technology.
This institute is an independent, nonprofit, applied engineering and physical
sciences research and development organization with 11 technical divisions using
multidisciplinary approaches to problem solving. The Institute occupies 1,200
acres and provides nearly two million square feet of laboratories, test
facilities, workshops, and offices for more the 2,700 employees who perform
contract work for industry and government clients.





The extensive testing of EnerBurn
conducted by SWRI confirmed product claims of lower highway smoke, reduced NOx
emissions, a significant reduction in engine wear and an increase in horsepower.
Actual customer usage data has also confirmed the claim that EnerBurn usage
reduces fuel consumption.





EnerBurn Proof of Performance
Demonstrations





An integral part of our sales process
is to conduct proof of performance demonstrations for potential customers
wherein we accumulate historical fleet data that documents the effects of the
use of EnerBurn (i.e. advantages in terms of increased fuel economy, a decrease
in engine wear and reductions in toxic emissions) on that customer’s specific
vehicles or vessels. In connection with these proofs of performance
demonstrations, we provide fleet monitoring services and forecasts of fuel
consumption for purposes of the prospective customer’s own
analysis.





The results below are indicative of
typical customer experiences using EnerBurn. In many instances, customers have
directly informed us about their satisfaction with EnerBurn and the fuel savings
that its use has provided them. In all cases, our own comparison of the customer
provided historical fuel usage data with the EnerBurn usage (which we have
monitored) data has proven to us and the customer that the use of EnerBurn has
reduced their fuel consumption. In addition to fuel consumption reduction, the
decrease in emissions resulting from EnerBurn use is measured with a device
called the UEI Intelligent Solutions Meter. Similarly, the percentage reduction
in opacity (smoke generated by diesel engines) is measured by the Wager 6500
Meter (manufactured by Robert H. Wager Co., Inc.).





·
            An
      EnerBurn proof of performance demonstration of a long haul truck fleet
      began in August of 1998. The number of trucks treated with EnerBurn
      exceeded 3,000-Century Class Freightliners, most of that were equipped
      with Caterpillar or similar type engines. This company’s measurable fuel
      savings averaged 10.4% over a 3 plus year period while using EnerBurn,
      resulting in annual fuel savings in excess of $6.5 million. In addition,
      the company’s maintenance department observed significant reductions in
      metal loss in crankcase wear-parts, although they did not attempt to
      quantify the value of this phenomenon.


·
            A
      fleet of 24 three-year-old 1400 horsepower Morrison Knudson MK1500
      locomotives with Caterpillar 3512 diesel engines were used for a 12-month
      proof of performance demonstration of the effectiveness of EnerBurn. This
      demonstration started on July 1, 1999 and clearly documented a 10.8%
      reduction in fuel consumption and a 9.5% reduction in Brake Specific Fuel
      Consumption (“BSFC”). The demonstration also reflected a significant
      reduction in engine wear, confirmed by a 56% reduction in copper content
      of the lube oil.


·
            Three
      maritime vessels were selected from a large fleet, based on size and
      typical routes for accessibility of regular fueling at this company’s bulk
      fueling barge. A proof of performance protocol was developed under the
      guidance and supervision of this company’s management. The base line
      demonstration commenced on July 11, 2001 and the final demonstration was
      performed on February 28, 2002. One of the three demonstration vessels
      represented an untreated placebo; two were treated with EnerBurn. The two
      treated vessels exhibited a measured reduction in fuel consumption of 7%
      and 9.9%, while the untreated placebo experienced nearly a 10% increase in
      fuel consumption. Additionally five vessels with different diesel engines
      were selected for proof of performance under the same protocols yielding
      results in excess of 10% in fuel savings, significant reductions in
      opacity, from 33%-86%, reductions of NOx emissions between 11% and
      20%.





Overview
of Worldwide Diesel Fuel Consumption





The U.S. Department of Energy, Energy
Information Administration (“EIA”) estimates that worldwide annual consumption
of diesel fuel approximates 210 billion U.S. gallons. A breakdown of this
estimate is summarized as follows:




7





Annual
consumption of Diesel
Fuel - Billion USG/Year





United
      States
              
              
              60Europe
              
              
              60Pacific
      Rim
              
              
              50Rest
      of the World
              
              
              40Total
      Gallons Consumption
              
              
              210


Domestic Diesel Fuel
Consumption





Based on further EIA published data,
the following table* depicts domestic distillate fuel oil consumption by energy
use for 2001.





Energy
    Use
              
              2001
      (Thousand Gallons)U.S.
      Total
              
              
              58,971,486Residential
              
              
              6,263,440Commercial
              
              
              3,505,057Industrial
              
              
              2,323,797Oil
      Company
              
              
              820,321Farm
              
              
              3,427,343Electric
      Power
              
              
              1,510,273Railroad
              
              
              2,951,831Vessel
      Bunkering
              
              
              2,093,252On-Highway
      Diesel
              
              
              33,215,320Military
              
              
              346,060Off-Highway
      Diesel
              
              
              2,514,791





*
Sources: Energy Information Administration’s Form EIA-821, “Annual Fuel Oil and
Kerosene Sales Report,” for 1997-2001 and “Petroleum Supply Annual,” Volume 1,
1997-2001. Totals may not equal sum of components due to independent
rounding.





Our
Target Markets





Our primary domestic target markets
presently include the trucking, rail, heavy construction and maritime shipping
industries.  We also expect that revenues will be derived in the
future from the mining and offshore drilling
industries.   Combined, management believes these industries
consume billions of gallons of diesel fuel.    Furthermore,
each of these industries typically experiences relatively small operating
margins. Because of these financial factors, management believes that the
ability to reduce fuel consumption, even by a small amount, could have a
dramatic effect on its customers’ competitive viability.




Sales
and Marketing Strategy





The fuel additive industry has
historically been mired by a myriad of technically dubious products and
potential customers are usually wary of promotional claims by product
manufacturers or “snake oil” peddlers as they are sometimes
labeled.





Prospective customers in all targeted
market sectors and geographic locations are primarily concerned about the
potential business risks associated with the adoption of any new fuel or engine
treatment. Thus, the first resistant barrier to adoption of a fleet proof of
performance demonstration is dispelling fear about impact on engine warranties
and any potential business risk associated with a fleet shutdown caused by our
product. The potential EnerBurn fuel and maintenance savings are strong
motivators but are secondary to risk avoidance. The SWRI fitness for use testing
and customer testimonials are paramount in assisting us in addressing these
fears.





Potential customers have a strong
predisposition to accept only demonstrable proof-of-benefit in their own fleet
as justification for any new expenditure. After risk avoidance, the ability to
demonstrate and prove results is the primary obstacle for market adoption of the
EnerBurn product.





Our sales process begins with a proof
of performance demonstration that is a thorough analysis of the potential
customer, including fleet type, size, and opportunity. (See “Business - Product
Testing - EnerBurn Proof of Performance Demonstrations”, above). This is
followed with sales presentations at both the executive level and maintenance
level. Executive level sales presentations emphasize return on investment
(“ROI”), while maintenance level sales presentations emphasize our technology
and why it does not impact engine warranties and any potential business risk
associated with a fleet shutdown.




8





Convincing a potential customer to
undertake a proof of performance demonstration is a difficult task because there
is a significant expense to be borne by the potential customer. Specifically,
the potential customer must pay for both the EnerBurn that is used during the
demonstration as well as purchase the additive injection equipment that is also
needed. The cost will vary according to the potential customer and the industry
in which it is in. For a proof of performance demonstration on a typical fleet
of 100 diesel engine trucks, the cost of the EnerBurn would be approximately
$30,000, while the average cost of the equipment used would be approximately
$20,000 to $50,000. The personnel costs related to providing fleet monitoring
services and forecasts of fuel consumption for the potential customer’s analysis
are borne either by the Company, its supplier or the sales agent. For a
demonstration involving a fleet of 100 hundred trucks, typically 50 to 100
man-hours are involved. The current sales cycle from inception to full customer
implementation is typically six to 12-months from initial customer contact. This
includes the two to six months it usually takes for the benefits of EnerBurn to
begin to take effect in the subject engines during the proof of performance
demonstration period.





The
BATL Agreement and Our Purchase of the EnerBurn Technology





As mentioned above, prior to July 2006,
we obtained EnerBurn products and services from Ruby Cat and its affiliates
pursuant to arrangement made with Ruby Cat.   Pursuant to a
memorandum of understanding with Ruby Cat which expired on December 31, 2003,
the Company was granted the exclusive, global marketing rights from Ruby Cat and
an option to purchase the EnerBurn technology and associated assets by December
31, 2003 for $6.6 million which was not exercised.  Following
expiration of the memorandum of understanding, Ruby Cat and its affiliates
continued to supply EnerBurn products to the Company but not pursuant to a
formal written contract.





On December 8, 2005, we entered into a
Securities Purchase Agreement (the “BATL Agreement”) with BATL Bioenergy LLC
(“BATL”), then an unrelated third party, pursuant to which we agreed to issue
and sell to BATL, for the aggregate purchase price of $3,000,000 (the “BATL
Purchase Price”), (i) 2,450,000 shares (the “BATL Shares”) of the common stock
of the Company, and (ii) a warrant (the “BATL Warrant”) expiring in five years
to purchase an additional 1,000,000 shares of common stock at an exercise price
of $2.00 per share.  In accordance with the terms of the BATL
Agreement, BATL shall be entitled to nominate one director to the Board of
Directors of the Company.  On December 9, 2005 (the “BATL Closing
Date”), the transactions contemplated by the BATL Agreement were completed with
the Purchase Price being paid and the BATL Shares and BATL Warrant being
issued.  In addition, on the BATL Closing Date, Thomas Donino,
President of BATL, was appointed by the Board of Directors of the Company to
serve on the Board.  The BATL Agreement provides that for so long as
BATL shall beneficially own in excess of 10% of the outstanding shares of the
common stock of the Company, BATL shall be entitled to nominate one director to
the Board of Directors of the Company.





In accordance with the terms on the
BATL Agreement, we agreed that the proceeds of the Purchase Price shall be used
as follows: (i) $1,000,000 to complete the purchase of Ruby Cat Technology, LLC
(the “Ruby Cat Transaction”); (ii) no more than $340,000 to repay certain
outstanding debt of the Company and its subsidiary; and (iii) the balance for
working capital purposes.





On July
13, 2006, we completed the acquisition of the EnerBurn formulas, technology and
associated assets pursuant to an Asset Purchase Agreement executed as of the
same date (the “EnerBurn Acquisition Agreement”) between the Company and the
owner of Ruby Cat (the “Seller”).  Pursuant thereto, the Company
acquired from the Seller all of its  rights with respect to the liquid
diesel motor vehicle fuel additives known as EC5805A and EC5931A products (the
“Products”) as well as its rights to certain intellectual property and
technology associated with the Products (collectively, the “Purchased
Assets”).  The purchase price for the Purchased Assets was $3.0
million, payable as follows: (i) $1.0 million paid on July 13, 2006 in cash, and
(ii) the remaining $2.0 million evidenced by a promissory note (the “Note”)
bearing interest each month at a rate of 4.0% per annum, compounded monthly, and
which is to be paid in four annual payments of $500,000 plus accumulated
interest to that date on each anniversary of the closing until the entire
purchase price is paid in full.  In order to secure the debt
represented by the Note, the Company executed and delivered to the Seller a
Security Agreement in which the Company granted the Seller a first priority lien
on the Purchased Assets.  The first payment of $500,000 was made in
advance in May 2007.  An additional $500,000 due July 13, 2008 was
also made in advance of the due date, on July 3, 2008.  Due to recent
litigation commenced between the Company and the Seller, the Company has
requested the court to grant it leave to pay the remaining installments under
the EnerBurn Acquisition Agreement, including the installment due July 13, 2009,
into the registry of the court pending adjudication of such
matter.  The court granted the request and the Company paid $500,000
plus accrued interest into the registry on July 13, 2009.  The next
and final payment to complete the purchase will be due on July 13,
2010.




9





The
EnerBurn Acquisition Agreement provides that for five years after closing the
Seller will not, within the United States or anywhere abroad, be engaged in the
business of researching, developing, manufacturing, marketing or selling
products intended to improve the fuel efficiency of heavy duty diesel
engines.





In addition, so long as any amounts
payable to the Seller under the Note remain unpaid, the Company shall provide
observation rights to one representative designated by the Seller to attend
meeting of the Company’s Board of Directors.  Such observer shall have
the right to observe and participate in such meetings but shall not have the
right to vote.





Contemporaneously with the closing, the
Company granted the Seller a non-exclusive, fully paid, perpetual,
non-revocable, royalty-free, assignable license, to manufacture, market and sell
a certain product known as “Thermoboost II”, which has the same chemical
formulation as one of the Products and which is used exclusively in home heating
oil.





Manufacturing





The acquisition of the EnerBurn
formulas, technology and associated assets has provided us the ability to
transform our business from a sales organization to a fully integrated
manufacturer and distributor of EnerBurn.  The manufacturing of our
EnerBurn product has been undertaken for the past three years pursuant to a
Manufacturing and Supply Agreement entered into on August 18, 2006 with
Independent Contract Packaging, Inc., a Texas corporation located in Cut and
Shoot, Texas (“ICP”).  Pursuant to the agreement, ICP was appointed as
our non-exclusive manufacturer, blender and packager of our EnerBurn product for
a term of three years which  ended in 2009.  We have
subsequently moved our principal manufacturing operation to Magna Blend of
Waxahachie, Texas, with a second company, J. T. Enterprises of Tyler, Texas as
our backup manufacturing facility.  We have agreed to supply certain
tanks and related equipment and raw materials to be used by J. T. Enterprise to
manufacture, blend and package the EnerBurn product, and both Magna Blend and J.
T. Enterprises have agreed to provide their manufacturing, blending and
packaging services on a commercially reasonably prompt basis according to the
specifications received from and required by us.  For such services,
we have agreed to pay each its fees pursuant to an agreed upon fee
schedule.





Competition





The market for products and services
that increase diesel fuel economy, reduce emissions and engine wear is rapidly
evolving and intensely competitive and management expects it to increase due to
the implementation of stricter environmental standards. Competition can come
from other fuel additives, fuel and engine treatment products and from producers
of engines that have been modified or adapted to achieve these results. In
addition, the we  believe that new technologies, including additives,
will further increase competition.





Our primary current competitors include
Lubrizol Corporation, Chevron Oronite Company (a subsidiary of Chevron
Corporation), Octel Corp., Clean Diesel Technologies, Inc. and Ethyl
Corporation.





Many of our competitors have been in
business longer than it has, have significantly greater financial, technical,
and other resources, or greater name recognition. Our competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements. Competition could negatively impact our business. Competitive
pressures could cause us to lose market share or to reduce the price of its
products, either of which could harm its business, financial condition and
operating results.





Management believes that the principal
competitive factors in the Company’s market include the:





·
            effectiveness
      of the product;


·
            cost;


·
            proprietary
      technology;


·
            ease
      of use; and


·
            Quality
      of customer service and support.




10




Government
Regulation - Fuel Additive Registration





We need to comply with registration
requirements for each geographic jurisdiction in which it sells EnerBurn. On
January 21, 2001, the US Environmental Protection Agency, pursuant to the
Environmental Protection Act (the “Act”) (40 CFR 79.23) issued permit number EC
5805A in connection with the use of EnerBurn. This registration allows EnerBurn
to be used anywhere in the United States for highway use in all over-the-road
diesel applications. Additionally, on March 30, 2004, we received a second EPA
permit, permit number EC 5931A in connection with the use of EnerBurn. This
registration allows EC 5931A to be used anywhere in the United States for use in
all diesel applications. Under these registrations, we have pass through rights
from the formulator, blender and supplier to sell EnerBurn in on-road
applications. However, there are provisions in the Act under which the EPA could
require further testing. The EPA has not exercised these provisions yet for any
additive. Internationally, we  intend to seek registration in other
countries as we develops market opportunities.





Our business is impacted by air quality
regulations and other regulations governing vehicle emissions as well as
emissions from stationary engines. If such regulations were abandoned or
determined to be invalid, its prospects may be adversely affected. As an
example, if crude oil and resulting diesel prices were to reach or approach
historical lows, the emphasis for fuel efficiency would be diminished,
potentially impacting sales velocity of the products, consequently adversely
affecting our performance. Typically, there are registration and regulation
requirements for fuel additives in each country in which they are sold. In the
United States, fuel and fuel additives are registered and regulated pursuant to
Section 211 of the Clean Air Act. 40 CFR Part 79 and 80 specifically relates to
the registration of fuels and fuel additives





In accordance with the Clean Air Act
regulations at 40 CFR 79, manufacturers (including importers) of gasoline,
diesel fuel and additives for gasoline or diesel fuel, are required to have
their products registered by the EPA prior to their introduction into commerce.
Registration involves providing a chemical description of the fuel or additive,
and certain technical, marketing, and health-effects information. The
health-effects research is divided into three tiers of requirements for specific
categories of fuels and additives. Tier 1 requires a health-effects literature
search and emissions characterization. Tier 2 requires short-term inhalation
exposures of laboratory animals to emissions and screened for adverse health
effects, unless comparable data are already available. Alternative Tier 2
testing can be required in lieu of standard Tier 2 if EPA concludes that such
testing would be more appropriate. Certain small businesses are exempt from some
or all the Tier 1 and Tier 2 requirements. Tier 3 provides for follow-up
research, if necessary.





Employees





We
currently employ seven individuals on a full-time basis, and we also engage
independent sales representatives.  None of our employees are covered
by a collective bargaining agreement.  We believe that relations with
our employees are good.








Item
1A. Risk Factors.





In addition to other information and
financial data set forth elsewhere in this report, the following risk factors
should be considered carefully in evaluating the Company.





Business and Financial
Risks







THE
ONGOING ECONOMIC SLOWDOWN MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS AND
FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT.The
ongoing global economic slowdown has caused disruptions and extreme volatility
in global financial markets, increased rates of default and bankruptcy, and
declining consumer and business confidence.  While the ultimate
outcome of these events cannot be predicted, they could materially adversely
affect our business and financial condition. For example, the consequences of
the economic crisis could result in interruptions or delays in our suppliers’ or
customers’ performance of any contracts, reductions and delays in customer
purchases, delays in or the inability of customers to obtain financing to
purchase our products, and bankruptcy of customers.  We may also find it
more costly or difficult to obtain financing to fund operations, or to refinance
our debt in the future.  There can be no assurance that we will be
able to raise additional capital or debt when necessary or
desirable.  Any of these events may materially adversely affect our
business.




11





WE HAVE A
HISTORY OF LOSSES WHICH MAY CONTINUE AND WHICH MAY NEGATIVELY IMPACT OUR ABILITY
TO ACHIEVE OUR BUSINESS OBJECTIVES AND OUR FINANCIAL
RESULTS.   For the years ended December 31, 2009 and 2008, we
generated revenues of $404,000 and $282,000, respectively, and incurred net
losses of $2,054,000 and $1,524,000, respectively.  Continued failure
to increase our revenues significantly will harm our
business.   Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis in the
future.   If our revenues grow more slowly than we anticipate,
our gross margins fail to maintain its current improvement, or our operating
expenses exceed our expectations, our operating results will
suffer.  If we are unable to sell our products at acceptable prices
relative to our costs, or if we fail to develop and introduce on a timely basis
new products from which we can derive additional revenues, our financial results
will suffer.





WE FACED CERTAIN RISKS AND CHALLENGES
AS A COMPANY WITH A LIMITED OPERATING HISTORY. We acquired EnerTeck Sub on
January 9, 2003 which company was only formed in November 2000 and, therefore,
has a limited operating history. As a result, we are subject to all the
risks and challenges associated with the operation of a enterprise with a
limited operating history, including inexperience, lack of a track record,
difficulty in entering the targeted market place, competition from more
established businesses with greater financial resources and experience, an
inability to attract and retain qualified personnel (including, most
importantly, sales and marketing personnel) and a need for additional capital to
finance our marketing efforts and intended growth.  In addition, we
cannot rely upon historical results in order to anticipate and timely adapt to
increases or decreases in sales, revenues or expenses.  We cannot
assure you that we will be successful in overcoming these and other risks and
challenges that we face as an enterprise with a limited operating
history.





THE ENERBURN TECHNOLOGY HAS NOT GAINED
MARKET ACCEPTANCE, NOR DO WE KNOW WHETHER A MARKET WILL DEVELOP FOR IT IN THE
FORESEEABLE FUTURE TO GENERATE ANY MEANINGFUL REVENUES.  The EnerBurn
technology has received only limited market acceptance. This technology is a
relatively new product to the market place and we have not generated any
significant sales. Although ever growing concerns and regulation regarding the
environment and pollution has increased interest in environmentally friendly
products generally, the engine treatment and fuel additive market remains an
evolving market. The EnerBurn technology competes with more established
companies such as Lubrizol Corporation, Chevron Oronite Company (a subsidiary of
Chevron Corporation), Octel Corp., Clean Diesel Technologies, Inc. and Ethyl
Corporation, as well as other companies whose products or services alter, modify
or adapt diesel engines to increase their fuel efficiency and reduce pollutants.
Acceptance of EnerBurn as an alternative to such traditional products and/or
services depends upon a number of factors including:





·
            favorable
      pricing visa vie projected savings from increased fuel
      efficiency


·
            the
      ability to establish the reliability of EnerBurn products relative to
      available fleet data


·
            public
      perception of the product





For these reasons, we are uncertain
whether our technology will gain acceptance in any commercial markets or that
demand will be sufficient to create a market large enough to produce any
meaningful revenue or earnings. Our future success depends upon customers’
demand for our products in sufficient amounts.





OUR TECHNOLOGY MAY BE ADVERSELY
AFFECTED BY FUTURE TECHNOLOGICAL CHANGES AND ENVIRONMENTAL REGULATORY
REQUIREMENTS. Although diesel engines are now being manufactured that have
reduced dangerous emissions, this has not satisfied governmental regulators and
legislators. We believe that diesel engines themselves may soon be required to
adhere to stringent guidelines that produce nearly zero tailpipe emissions.
Research in this area is currently being sponsored by governmental agencies,
major engine companies, truck manufacturers, automobile makers, catalyst
producers, oil refining companies and their technology suppliers. If such
research is successful, it could eventually reduce the need for diesel fuel
additives such as EnerBurn as they relate to pollution control.





SINCE WE MARKET A RANGE OF PRODUCTS
WITHIN ONLY ONE PRODUCT LINE, WE ARE ENTIRELY DEPENDENT UPON THE ACCEPTANCE OF
ENERBURN IN THE MARKET PLACE FOR OUR SUCCESS. Our business operations are not
diversified. If we do not generate sufficient sales of the EnerBurn product, we
will not be successful, and unlikely to be able to continue in business. We
cannot assure you that we will be able to develop other product lines to hedge
against our dependency on EnerBurn, or if our EnerBurn sales will be sufficient
for us to generate revenue or be profitable.





OUR SALES PROCESS IS COSTLY AND TIME
CONSUMING WHICH DECREASES OUR ABILITY TO EFFECT SALES.   In order
to affect EnerBurn sales, we must prove to a potential customer that the use of
our product is specifically beneficial to and cost effective for that potential
customer. We accomplish this by conducting proof of performance
demonstrations.  Our supplier, our sales agent and/or we bear the cost
to provide the personnel to do the monitoring and analyzing of compiled data.
However, the potential customer must bear the cost of the EnerBurn and equipment
used during the trial period. We cannot assure you that we will be able to
convince potential customers to undertake this expense and affect a significant
number of sales. Furthermore, we cannot assure you that the results of a
specific proof of performance demonstration will prove that the use of EnerBurn
will be beneficial to that specific potential customer, or if beneficial, that
the potential customer will purchase EnerBurn. If, after conducting the proof of
performance demonstration, the potential customer does not purchase our product,
we will have wasted the time and the cost of providing personnel to the proof of
performance demonstration.




12





WE FACE INTENSE COMPETITION AND MAY NOT
HAVE THE FINANCIAL AND HUMAN RESOURCES NECESSARY TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGES WHICH MAY RESULT IN OUR TECHNOLOGY BECOMING
OBSOLETE.  The diesel fuel additive business and related
anti-pollutant businesses are subject to rapid technological change, especially
due to environmental protection regulations, and subject to intense competition.
We compete with both established companies and a significant number of startup
enterprises. We face competition from producers and/or distributors of other
diesel fuel additives (such as Lubrizol Corporation, Chevron Oronite Company,
Octel Corp., Clean Diesel Technologies, Inc. and Ethyl Corporation), from
producers of alternative mechanical technologies (such as Algae-X International,
Dieselcraft, Emission Controls Corp. and JAMS Turbo, Inc.) and from alternative
fuels (such as bio-diesel fuel and liquefied natural gas) all targeting the same
markets and claiming increased fuel economy, and/or a decrease in toxic
emissions and/or a reduction in engine wear. Most of our competitors have
substantially greater financial and marketing resources than we do and may
independently develop superior technologies which may result in our technology
becoming less competitive or obsolete. We may not be able to keep pace with this
change. If we cannot keep up with these advances in a timely manner, we will be
unable to compete in our chosen markets.





THE COMPANY NEEDS TO MAINTAIN
ENERBURN’S EPA REGISTRATIONS. In accordance with the regulations promulgated
under the US Clean Air Act, manufacturers (including importers) of gasoline,
diesel fuel and additives for gasoline or diesel fuel, are required to have
their products registered with the EPA prior to their introduction into the
market place. Currently, EnerBurn products have two such registrations (EPA #
5805A and 5931A). However, unforeseen future changes to the registration
requirements may be made, and these products, or either one of them, may not be
able to qualify for registration under such new requirements. The loss of the
EPA registrations or restrictions on the current registrations could have an
adverse affect on our business and plan of operation.





Ruby Cat registered these products with
the US Environmental Protection Agency which registrations we acquired in
connection with the EnerBurn Acquisition Agreement.   EnerBurn is
registered in the United States only, and we are considering its registration in
other countries. Further testing could be needed in these or other countries. We
cannot assure you that EnerBurn will pass any future testing that may be
required. The failure of EnerBurn to obtain registration in countries or areas
where we would like to market it, could have a materially adverse effect on our
business and plan of operation.





FAILURE TO PROPERLY MANAGE OUR
POTENTIAL GROWTH POTENTIAL WOULD BE DETRIMENTAL TO HOLDERS OF OUR
SECURITIES.  Since we have limited operating history, any significant
growth will place considerable strain on our financial resources and increase
demands on our management and on our operational and administrative systems,
controls and other resources. There can be no assurance that our existing
personnel, systems, procedures or controls will be adequate to support our
operations in the future or that we will be able to successfully implement
appropriate measures consistent with our growth strategy. As part of this
growth, we may have to implement new operational and financial systems,
procedures and controls to expand, train and manage our employees and maintain
close coordination among our technical, accounting, finance, marketing, sales
and editorial staff. We cannot guarantee that we will be able to do so, or that
if we are able to do so, we will be able to effectively integrate them into our
existing staff and systems. We may fail to adequately manage our anticipated
future growth. We will also need to continue to attract, retain and integrate
personnel in all aspects of our operations. Failure to manage our growth
effectively could hurt our business.





OUR OPERATING RESULTS ARE STILL
MATERIALLY IMPACTED BY ONE CUSTOMER.  In the past, we had one
customer, Custom Fuel Services Inc. (“Custom”), which represented the majority
of the Company’s revenues.  During 2009, Custom represented 0.0% of
the Company’s sales as compared to 83.3% of the Company’s sales revenues for the
year ended December 31, 2008.  We believe Custom suffered from the
weakened economy although it is currently testing the Company’s principal
product line on additional segments of its business.  Custom has again
ordered in early 2010, and we still believe will be a significant part of our
business.  However, we are hopeful that as other customer testing in
completed in other industries, Custom’s impact on our business will
lessen.  Nevertheless, at the present time, the business generated by
Custom materially impacts our operating results.




13





WE ARE RELIANT UPON THIRD-PARTY
MANUFACTURERS FOR OUR PRODUCTS; ANY PROBLEMS THEY ENCOUNTER WILL DETRIMENTALLY
IMPACT OUR BUSINESS.  The manufacturing of our EnerBurn products has
been undertaken for the past three years pursuant to a Manufacturing and Supply
Agreement entered into on August 18, 2006 with Independent Contract Packaging,
Inc., a Texas corporation located in Cut and Shoot, Texas
(“ICP”).  Pursuant to the agreement, ICP was appointed as our
non-exclusive manufacturer, blender and packager of our EnerBurn product for a
term of three years which term expired in 2009.  We have subsequently
moved our principal manufacturing operation to Magna Blend of Waxahachie, Texas,
with a second company, J. T. Enterprises of Tyler, Texas as our backup
manufacturing facility.  We have agreed to supply certain tanks and
related equipment and raw materials to be used by J. T. Enterprise to
manufacture, blend and package the EnerBurn product, and both Magna Blend and J.
T. Enterprises have agreed to provide their manufacturing, blending and
packaging services on a commercially reasonably prompt basis according to the
specifications received from and required by us.  No assurance can be
made, however, that such manufacturers will be reliable in meeting delivery
schedules.  In addition, such manufacturers may experience their own
financial difficulties or provide products of inadequate
quality.  Furthermore, in the event we need to secure other
manufacturers, there can be no assurance that we will be able to secure such
arrangements on terms acceptable to the Company. Any problems with our
third-party manufacturers can be expected to have a material adverse effect on
our financial condition, business, results of operations and continued growth
prospects.





THE PAYMENTS DUE TO THE SELLER OF THE
ENERBURN TECHNOLOGY HAVE DRAWN SIGNIFICANTLY ON OUR CASH; UNCERTAINTY OF OUTCOME
OF LITIGATION COMMENCED BY SELLER AGAINST COMPANY.  On July 13, 2006,
we completed the acquisition of the EnerBurn formulas, technology and associated
assets pursuant to an Asset Purchase Agreement executed as of the same date (the
“EnerBurn Acquisition Agreement”) between the Company and the owner of Ruby Cat
(the “Seller”).  Pursuant thereto, the Company acquired from the
Seller all of its  rights with respect to the liquid diesel motor
vehicle fuel additives known as EC5805A and EC5931A products (the “Products”) as
well as its rights to certain intellectual property and technology associated
with the Products (collectively, the “Purchased Assets”).  The
purchase price for the Purchased Assets was $3.0 million, payable as follows:
(i) $1.0 million paid on July 13, 2006 in cash, and (ii) the remaining $2.0
million evidenced by a promissory note (the “Note”) bearing interest each month
at a rate of 4.0% per annum, compounded monthly, and which shall be paid in four
annual payments of $500,000 plus accumulated interest to that date on each
anniversary of the closing until the entire purchase price is paid in
full.  In order to secure the debt represented by the Note, the
Company executed and delivered to the Seller a Security Agreement in which the
Company granted the Seller a first priority lien on the Purchased
Assets.  The foregoing payments have drawn and will continue to draw
significantly on our cash position until the Note is paid in
full.  The first payment of $500,000 was made in advance in May
2007.  An additional $500,000 due July 13, 2008 was also made in
advance of the due date, on July 3, 2008.  However, due to litigation
commenced in 2009 between the Company and the Seller, the Company requested the
court to grant it leave to pay the remaining installments under the EnerBurn
Acquisition Agreement, including the installment due July 13, 2009, into the
registry of the court pending adjudication of such matter.  The court
granted the request and the Company paid $500,000 plus accrued interest into the
registry on July 13, 2009.   The next and final payment to
complete the purchase will be due on July 13, 2010.  If we are unable
to make such payment obligations, the Seller could foreclose on its lien on the
Purchase Assets or take other action, all of which would likely have a material
adverse effect on our business.   In addition, in the litigation
commenced in 2009 between the parties, the Seller is seeking a declaratory
judgment which would permit it to sell certain technology which it claims it
retained and is permitted to sell under the EnerBurn Acquisition
Agreement.  The Company is claiming breach of contract and
misappropriation of trade secrets and seeking a declaratory judgment
specifically interpreting and clarifying the Company’s rights under the EnerBurn
Acquisition Agreement.  No assurance can be made such litigation will
result in a favorable outcome to the Company.  Any unfavorable outcome
is likely to have a materially adverse effect on our business.





WE ARE DEPENDENT ON KEY PERSONNEL
INCLUDING OUR EXECUTIVE OFFICERS.  Due to the specialized nature of
our business, our success depends in part upon attracting and retaining the
services of qualified managerial and technical personnel.  The market
for such persons remains competitive and the relative small size of the Company
may make it more difficult for us to recruit and retain qualified
persons.  In addition, and since we are a small company, a loss of one
or more of our current officers could severely and negatively impact our
operations.





14




Risks Related To Our Common
Stock





WE HAVE ISSUED A SUBSTANTIAL NUMBER OF
WARRANTS TO PURCHASE OUR COMMON STOCK WHICH WILL RESULT IN SUBSTANTIAL DILUTION
TO THE OWNERSHIP INTERESTS OF OUR EXISTING SHAREHOLDERS. As of December 31,
2009, we had 21,637,788 shares of common stock outstanding. Up to an additional
2,540,047.5 shares are issuable upon the exercise of the warrants currently
outstanding and up to 328,400 shares are issuable upon exercise of options
currently outstanding.  The exercise of all of these warrants and
options will substantially dilute the ownership interests of our existing
shareholders.





WE DO NOT INTEND TO PAY DIVIDENDS IN
THE FORESEEABLE FUTURE.  We have never declared or paid a dividend on
our common stock. We intend to retain earnings, if any, for use in the operation
and expansion of our business and, therefore, do not anticipate paying any
dividends in the foreseeable future.





THE TRADING PRICE OF OUR COMMON STOCK
MAY BE VOLATILE.  The trading price of our shares has, from time to
time, fluctuated widely and in the future may be subject to similar
fluctuations. The trading price may be affected by a number of factors including
the risk factors set forth in this report as well as our operating results,
financial condition, announcements of innovations or new products by us or our
competitors, general conditions in the market place, and other events or
factors. Although we believe that approximately 19 registered broker dealers
currently make a market in our common stock, we cannot assure you that any of
these firms will continue to serve as market makers or have the financial
capability to stabilize or support our common stock. A reduction in the number
of market makers or the financial capability of any of these market makers could
also result in a decrease in the trading volume of and price of our shares. In
recent years, broad stock market indices, in general, and the securities of
technology companies, in particular, have experienced substantial price
fluctuations. Such broad market fluctuations may adversely affect the future
trading price of our common stock.





OUR STOCK PRICE MAY EXPERIENCE
VOLATILITY.  The market price of the common stock, which currently is
listed in the OTC Bulletin Board, has, in the past, fluctuated over time and may
in the future be volatile.  The Company believes that there are a
small number of market makers that make a market in the Company’s common
stock.  The actions of any of these market makers could substantially
impact the volatility of the Company’s common stock.





POTENTIAL FUTURE SALES PURSUANT TO RULE
144.  Many of the shares of Common Stock presently held by management
and others are “restricted securities” as that term is defined in Rule 144,
promulgated under the Securities Act.  Under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a certain holding period,
may, under certain circumstances sell such shares or a portion of such
shares.  Effective as of February 15, 2008, the holding period for the
resale of restricted securities of reporting companies was shortened from one
year to six months.  Additionally, the SEC substantially simplified
Rule 144 compliance for non-affiliates by allowing non-affiliates of reporting
companies to freely resell restricted securities after satisfying a six-month
holding period (subject only to the Rule 144(c) public information requirement
until the securities have been held for one year) and by allowing non-affiliates
of non-reporting companies to freely resell restricted securities after
satisfying a 12-month holding period. Such holding periods have already
been satisfied in many instances.  Therefore, actual sales or the
prospect of sales of such shares under Rule 144 in the future may depress the
prices of the Company’s securities.





OUR COMMON STOCK IS A PENNY STOCK. Our
Common Stock is classified as a penny Stock, which is traded on the
OTCBB.  As a result, an investor may find it more difficult to dispose
of or obtain accurate quotations as to the price of the shares of the Common
Stock.  In addition, the “penny stock” rules adopted by the Securities
and Exchange Commission subject the sale of the shares of the Common Stock to
certain regulations which impose sales practice requirements on
broker-dealers.  For example, broker-dealers selling such securities
must, prior to effecting the transaction, provide their customers with a
document that discloses the risks of investing in such securities. Furthermore,
if the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker-dealer, the broker-dealer must
also approve the potential customer’s account by obtaining information
concerning the customer’s financial situation, investment experience and
investment objectives.  The broker-dealer must also make a
determination whether the transaction is suitable for the customer and whether
the customer has sufficient knowledge and experience in financial matters to be
reasonably expected to be capable of evaluating the risk of transactions in such
securities. Accordingly, the Commission’s rules may result in the limitation of
the number of potential purchasers of the shares of the Common
Stock.  In addition, the additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in the Common Stock, which could severely limit the market of the
Company’s Common Stock.




15





LIMITATIONS
OF THE OTCBB CAN HINDER COMPLETION OF TRADES.  Trades and quotations
on the OTCBB involve a manual process that may delay order processing. Price
fluctuations during a delay can result in the failure of a limit order to
execute or cause execution of a market order at a price significantly different
from the price prevailing when an order was entered.  Consequently,
one may be unable to trade in the Company’s Common Stock at optimum
prices.





THE OTCBB
IS VULNERABLE TO MARKET FRAUD.   OTCBB securities are frequent
targets of fraud or market manipulation, both because of their generally low
prices and because OTCBB reporting requirements are less stringent than those of
the stock exchanges or NASDAQ.





INCREASED
DEALER COMPENSATION COULD ADVERSELY AFFECT STOCK PRICE.  OTCBB
dealers’ spreads (the difference between the bid and ask prices) may be large,
causing higher purchase prices and less sale proceeds for
investors.





Except as required by the Federal
Securities Law, the Company does not undertake any obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date of this Form 10-KSB or for any other
reason.




Item
1B. Unresolved
Staff Comments.





We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this item.




Item 2. Properties.





We do not own any real
estate.  We lease approximately 2,722 square feet of space for our
executive offices at 10701 Corporate Drive, Suite No. 150, Stafford,
Texas.  Such lease, which commenced on February 1, 2001, had an
original term of three years and has been extended to May 30,
2011.  Rent expense for the years ended December 31, 2009 and December
31, 2008 totaled approximately $50,398 and $48,075,
respectively.   Management believes that the current facility is
adequate for the foreseeable future.




Item
3. Legal
Proceedings.





The
Company is not currently a party to any pending material legal proceeding nor is
it aware of any proceeding contemplated by any individual, company, entity or
governmental authority involving the Company except as described
below.





Based on information which has recently
come to management’s attention that certain confidential and proprietary
information has been disclosed to third parties in violation of the EnerBurn
Acquisition Agreement, the Company filed a petition in April 2009 in Harris
County, Texas, requesting that the court order Econalytic Systems, Inc.
(“Econalytic”) and others to appear for pre-suit
depositions.  Although such petition was opposed by Econalytic and
others, the court granted the Company the right to conduct three depositions
which have now been taken.





Econalytic filed suit in late April
2009 against the Company in the District Court, Boulder County, Colorado in
which Econalytic is seeking a declaratory judgment which would permit it to sell
certain technology which Econalytic claims it retained and is permitted to sell
under the EnerBurn Acquisition Agreement.     In July
2009, the Company filed an answer and counterclaims against Econalytic in such
action claiming breach of contract and misappropriation of trade secrets and
seeking a declaratory judgment specifically interpreting and clarifying the
Company’s rights under the EnerBurn Acquisition Agreement.  On August
14, 2009, the Company removed the state court lawsuit pending in District Court
in Boulder, Colorado to the United States District Court in Denver,
Colorado.  In addition, the Company filed a motion requesting the
court grant the Company leave to pay the remaining installments under the
EnerBurn Acquisition Agreement into the registry of the court pending
adjudication of such matter; which leave was granted.   Discovery
in this action is ongoing and is not scheduled to be completed until the end of
May 2010.  The Company intends to take all legal action which may be
necessary to protect its rights under the EnerBurn Acquisition Agreement,
including prosecuting and defending this matter vigorously.




16








Item
4. Reserved.








PART
II





Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.





Market
Information





The Company’s common stock currently
trades on the OTC Bulletin Board under the symbol “ETCK”. The following table
sets forth the range of high and low sales prices per share of the common stock
for each of the calendar quarters identified below as reported by the OTC
Bulletin Board. These quotations represent inter-dealer prices, without retail
mark-up, markdown or commission, and may not represent actual
transactions.




Year
      ended December 31, 2008:
              
              High
              
              
              LowJan.
      1, 2008 to March 31, 2008
              
              $
              1.10
              
              
              $
              0.75April
      l, 2008 to June 30, 2008
              
              $
              1.05
              
              
              $
              0.55July
      1, 2008 to Sept. 30, 2008
              
              $
              0.94
              
              
              $
              0.38Oct.
      1, 2008 to Dec. 31, 2008
              
              $
              0.99
              
              
              $
              0.13Year
      ended December 31, 2009:
              
              High
              
              
              LowJan.
      1, 2008 to March 31, 2009
              
              $
              0.60
              
              
              $
              0.30April
      l, 2008 to June 30, 2009
              
              $
              0.93
              
              
              $
              0.36July
      1, 2008 to Sept. 30, 2009
              
              $
              0.85
              
              
              $
              0.22Oct.
      1, 2008 to Dec. 31, 2009
              
              $
              0.67
              
              
              $
              0.21


Holders





As of
December 31, 2009, there were approximately 920 stockholders of record of the
Company’s Common Stock.  This does not reflect persons or entities
that hold their stock in nominee or “street name”.





Dividends





The
Company has not paid any cash dividends to date, and it has no intention of
paying any cash dividends on its common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of its Board
of Directors and to certain limitations imposed under the Delaware Corporation
law. The timing, amount and form of dividends, if any, will depend on, among
other things, results of operations, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors.





Recent
Sales of Unregistered Securities





We sold
the following equity securities during the fiscal year ended December 31, 2009
that were not registered under the Securities Act of 1933, as
amended:





During the second quarter of 2009, we
issued 1,600,000 shares of our common stock at $0.50 per share to five investors
for total gross proceeds of $800,000 in a private placement offering to
accredited investors only.   During the third quarter of 2009, we
issued an additional 700,000 shares of our common stock to three other investors
in this offering for additional proceeds of $350,000 which had been advanced
towards this offering during the second quarter of 2009.   An
additional $30,000 has been advanced towards this offering from another investor
during the second quarter of 2009.  These securities were sold
directly by the Company, without engaging in any advertising or general
solicitation of any kind and without payment of underwriting discounts or
commissions to any person.  The securities were issued in reliance
upon the exemption from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended, and/or Rule 506 there under.




17





In May 2009, we issued 250,000 shares
of common stock to Wakabayashi Fund, LLC (“Wakabayashi”) for consulting
services to be rendered pursuant to a consulting agreement entered into in May
2009 between the Company and Wakabayashi.  The securities were issued
in reliance upon the exemption from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.





Recent
Stock Option Grants





Pursuant to the employment agreement
entered into with Gary B. Aman during the first quarter of 2009, the Company
granted Mr. Aman an option to purchase 200,000 shares of Common Stock of the
Company at an exercise price of $1.00 per share which option shall be 25% vested
as of the date of grant (March 27, 2009), shall become 100% vested on January 1,
2010 and shall expire March 27, 2014.





During the third quarter of 2009,
options to acquire 64,200 shares were issued under our 2003 Option Plan to five
employees which options are immediately exercisable.  These options
have an exercise price of $0.55 per share and expire in five years from their
issue date.





Equity
Compensation Plan Information




Plan
      category
              
              Number of securities to be issued
      upon exercise of outstanding options, warrants and
      rights (a)
              
              
              Weighted-average exercise
      price of outstanding options, warrants and
      rights (b)
              
              
              Number of securities remaining
      available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)) (c)Equity
      compensationplans
      approved by security holders
              
              
              328,400
              (1)
              
              $
              0.87
              
              
              
              671,600
              (1)Equity
      compensationplans
      not approved by security holders
              
              
              2,540,047.5
              (2)
              
              $
              1.68
              
              
              
              N/ATotal
              
              
              2,868,447.5
              
              
              $
              1.58
              
              
              
              671,600









(1)
            Represents
      shares underlying the 2003 Employee Stock Option
  Plan.





(2)
            Represents
      shares underlying the individual grant of
  warrants.




Item 6.  Selected Financial
Data.





We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.





Item 7.  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.





The following discussion should be read
in conjunction with the audited consolidated financial statements and the notes
thereto appearing elsewhere in this report and is qualified in its entirety by
the foregoing.





Executive
Overview





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




18





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





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





Results
of Operations





Revenues





We
recognized revenues of $404,000 for the year ended December 31, 2009, compared
to revenues of $282,000 for the year ended December 31, 2008, with $0 returned
products in 2009 compared to $14,000 in 2008, an increase in revenues of
$122,000 or 43.3%.  The primary source of revenue for the years ended
December 31, 2009 and 2008 is from the sale of EnerBurn to the railroad, heavy
construction and maritime industries.  The price levels of product
sold in 2009 was relatively comparable to pricing in 2008.  This
increase in revenues can be traced primarily to new customers, which began
purchasing late in 2009 as a result of successful testing and of a renewed
marketing effort on the part of our marketing staff and
distributors.   As testing is completed with other large
potential new customers and in new areas with existing customers, more sales
should occur.  It is expected that sales should show significant
increases throughout 2010.





On July 28, 2005, EnerTeck Sub had
entered into an Exclusive Reseller and Market Development Agreement (the “Custom
Agreement”) with Custom, a subsidiary of Ingram Barge.  Under the
Custom Agreement, EnerTeck Sub has appointed Custom, which provides dockside and
midstream fueling from nine service locations in Louisiana, Kentucky, Illinois,
West Virginia, Missouri and Iowa, as its exclusive reseller of EnerBurn and the
related technology on the Western Rivers of the United States, meaning the
Mississippi River, its tributaries, South Pass, and Southwest Pass, excluding
the Intra Coastal Waterway.  The Agreement has an initial term of
three years and renews automatically for successive one year terms but can be
terminated upon 60 days prior written notice by either party.  Custom
is not required to purchase a minimum volume of EnerBurn during the term of the
Custom Agreement. Subsequent to the signing of the Custom Agreement, Custom
obtained the regulatory approvals and installed the blending equipment necessary
to facilitate its distribution of EnerBurn.  In February 2006, we
delivered our first shipment of EnerBurn to Custom by delivering 4,840
gallons.  During most of 2006, Custom concentrated on completing the
required infrastructural work to allow Custom to begin servicing the Ingram and
other fleets.  This work was completed late in the second quarter of
2006 and treatment of the Ingram fleet was commenced.  Late in the
second quarter, Custom placed a second order of 4,840
gallons.  However, Custom was unable to take delivery until late in
the fourth quarter of 2006.  Sales to Custom, currently the Company’s
largest customer have been slower than initially anticipated principally due to
an equipment problems and delay in the completion of a principal Marine fueling
facility for EnerBurn on the Mississippi River.  We believe that each
of these problems has been addressed and have been corrected and are in the
process of being corrected.  We cannot guarantee that meaningful
revenues will be derived in the future from the Custom
Agreement.  During 2009, Custom represented 0.0% of the Company’s
sales as compared to 83.3% of the Company’s sales revenues for the year ended
December 31, 2008.  We believe Custom suffered from the weakened
economy although it is currently testing the Company’s principal product line on
additional segments of its business.  Custom has again ordered in
early 2010, and we still believe will be a significant part of our
business.  However, we are hopeful that as other customer testing in
completed in other industries, Custom’s impact on our business will
lessen.  Nevertheless, at the present time, the business generated by
Custom materially impacts our operating results.




19





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





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





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





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





Gross Profit





Gross profit, defined as revenues less
cost of goods sold and the results of the one time sales return discussed above,
was $336,000 or 83.1% of sales for the year ended December 31, 2009, compared to
$220,000 or 78.0%  of sales for the year ended December 31,
2008.  In terms of absolute dollars, gross profit increased $116,000
primarily due to the increased sales achieved in 2009 compared to
2008.   The gross profit percentage increased 5.1% for the 2009
calendar year compared to the 2008 calendar year due primarily to the
improvement in our manufacturing proficiency.  We are now the
manufacturer of our core products, instead of a purchaser and
relabeler.   As our overall volume increases, we feel confident
that this improvement in the gross profit percentage should continue as our
manufacturing proficiency continues to improve for our core
products.





Cost of good sold was $69,000 for the
2009 calendar year which represented 16.9% of revenues compared to $48,000 for
the 2008 calendar year which represented 17.0% of revenues.  The
decrease in cost of goods sold as a percentage of revenues primarily reflect the
decrease in overall product cost from our initiation of manufacturing of our
products.  We have owned the EnerBurn technology and associated assets
since its purchase in July 2006.  Although our actual manufacturing
function is performed for us by an unrelated third party under contract to us,
we should continue to realize better gross margins through the
manufacturing of our product lines, compared to those we achieved in the past
when we purchased all of our products from an outside vendor.





Cost
and Expenses





Costs and
expenses for operations increased to $2,358,214 for the year ended December 31,
2009 from $883,000 for the year ended December 31, 2008, a increase of
$1,475,214.  Costs and expenses in all periods primarily consisted of
payroll, professional fees, rent expense, depreciation expense, amortization
expense and other general and administrative expenses.  While there
has been a substantial increase in costs and expenses for 2009 it is felt that
these increases will lead to a considerable increase in earnings potential in
2010 and future years.




20





Net
Loss





Our net
operating loss amounted to $2,022,000 for the year ended December 31, 2009 as
compared to $663,000 for the year ended December 31, 2008, an increase in net
operating loss of $560,000 from the prior year.





Total net loss for the year ended
December 31, 2009, was $2,054,000 as compared to a total net loss of $1,524,000
for the year ended December 31, 2008.   This amounts to an
increase in net loss for the year ended December 31, 2009 of $500,000 as
compared with the year ended December 31, 2008.   Such increase
was primarily due to increased non-cash compensation expenses.





Net
income in the future will be dependent upon our ability to successfully complete
testing in our projected new markets and to increase revenues faster than we
increase our selling, general and administrative expenses, research and
development expense and other expenses.    Our improved
gross margin resulting from our manufacturing of our products should help us in
our ability to hopefully become profitable in the future.





Operations Outlook





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





At present, one customer, Custom,has represented a
majority of our sale revenues to date, although during 2009, Custom represented
0.0% of the Company’s sales.  As stated above, Custom has again
ordered in early 2010, and we still believe will be a significant part of our
business.  In addition, with Custom’s assistance, negotiations have
been underway with several other large customers in the same industry to expand
this market.  The loss of Custom as a customer would adversely affect
our business and we cannot provide any assurances that we could adequately
replace the loss of this customer.  Sales revenues to Custom and its
clients have been less to date than had originally been
projected.  This has been due primarily to the equipment malfunction
and delay in the completion of a principal Marine fueling facility as described
above.  With our assistance, each of these problems has been addressed
and have been corrected and are in the process of being
tested.   It is expected that sales should continue to show
significant increases in 2010.  It is also anticipated that other new
customers coming on board during 2010 will lessen the impact of a loss of
Custom, should that happen.





A major change in the way EnerTeck does
business commenced in the third quarter of 2006 with the completion of the
purchase of the EnerBurn technology and the commencement of manufacturing
operation.    This gave us permanent, exclusive rights to
the EnerBurn formulas and protocols and allows for a much better gross margin
than in the past.    The purchase of the EnerBurn technology
and associated assets had been completed on July 13, 2006 and both the
formulation equipment and raw materials were in place to manufacture both our on
and off road product lines.    The opening of the on-road
market to our products offers great potential to the Company in coming
years.   Our marketing efforts from that point broadened from
principally marine applications to a wide range of new
industries.  Effective January 1, 2009, the marketing effort for the
Company has changed with the addition of a new executive officer (who has been
and remains a director) and a new focus on marketing
strategy.    It remains to be seen how, when or if this
effort will become successful, however the potential for success is much broader
with our increased ability to service these markets.





Liquidity
and Capital Resources





On December 31, 2009, we had negative
working capital of $7163,000 and
stockholders’ equity of $964,000 compared to negative working capital of
$268,000 and stockholders’ equity of $1,505,000 on December 31,
2008.   The majority of the decrease in equity stems directly
from the write down in the current value on our principal asset, caused by poor
sales during the past two periods.    On December 31, 2009,
the Company had $52,000 in cash, total assets of $2,212,000 and total
liabilities of $1,248,000 compared to $106,000 in cash, total assets of
$2,562,000 and total liabilities of $1,057,000.




21





The decrease in cash and working
capital for the year ended December 31, 2009 compared to the prior year was
primarily due to lower than anticipated sales revenues combined with an increase
in expenses resulting principally from greater marketing efforts being made in
2009 compared to prior years.





Cash used
in operating activities was $980,000 for the year ended December 31, 2009, which
was primarily the result of a loss of $2,054,000 partially offset by non-cash
charges for depreciation of $45,000, $579,000 for amortization expense, $225,000
for common stock issued for consultants’ fees and warrants/options expense of
$137,000.  Cash used in operating activities was $595,000 for the year
ended December 31, 2008, which was primarily the result of a loss of $1,524,000
partially offset by non-cash charges for depreciation of $38,000, $825,000 for
impairment and options issued of $47,000.





Cash
provided by investing activities was a negative $4,300 for the year ended
December 31, 2009 which was primarily the result of proceeds from the sale of
assets of $7,100, capital expenditures of $10,900, offset by employee advances
of $400.  Cash used by investing activities was $12,000 for the year
ended December 31, 2008 which was primarily the result of capital expenditures
of $17,000 offset by employee advances of $4,000.





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





In the
past, we have been able to finance our operations primarily from capital which
has been raised.  To date, sales have not been adequate to finance our
operations without investment capital.  Cash provided by financing
activities was $930,000 for the year ended December 31, 2009 primarily from the
sale of common stock of $1,150,000, shareholder advances of $30,000 and proceeds
from a shareholder note payable of $250,000, offset by the $500,000 payment on
the intellectual property.   This compares to $394,000 from
financing activities for the year ended December 31, 2008 primarily from
$334,000 received from the exercise of warrants, and $560,000 received from
private stock placement, offset by $500,000 paid on the intellectual property in
2008.





We
anticipate, based on currently proposed plans and assumptions relating to our
operations, that in addition to our current cash and cash equivalents together
with projected cash flows from operations and projected revenues we will require
additional investment to satisfy our contemplated cash requirements for the next
12 months.  No assurance can be made that we will be able to obtain
such investment on terms acceptable to us or at all. We anticipate that our
costs and expenses over the next 12 months will be approximately $2.6 million,
which includes the amount we will have to pay in 2010 on the Note and for the
anticipated cost of inventory for 2010 business.  Other than the Note
Payable for the purchase of the intellectual property, we currently have no
material commitments for capital requirements.  Our continuation as a
going concern is contingent upon our ability to obtain additional financing and
to generate revenues and cash flow to meet our obligations on a timely
basis.  As mentioned above, management acknowledges that sales
revenues for 2007, 2008 and 2009 have been considerably less than earlier
anticipated.  This was primarily due to a combination of circumstances
which have been corrected or are in the process of being corrected and therefore
should not reoccur in the future and the general state of the
economy.   Management expects that sales should show significant
increases in the later parts of 2010.  No assurances can be made that
we will be able to obtain required financial on terms acceptable to us or at
all.  Our contemplated cash requirements beyond 2010 will depend
primarily upon level of sales of our products, inventory levels, product
development, sales and marketing expenditures and capital
expenditures.




22





Inflation has not significantly
impacted the Company’s operations.





Off-Balance
Sheet Arrangements





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





Significant
Accounting Policies





Business
and Basis of Presentation





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





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





Principles
of Consolidation





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





Cash
and Cash Equivalents





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





Inventory





Inventory consists of market ready
EnerBurn plus raw materials required to manufacture the products. Inventory is
valued at the lower of cost or market, using the average cost method. Also
included in inventory are three large Hammonds EnerBurn doser systems amounting
to $57,000, which will be transferred to marine or railroad customers during
2010.   The Company’s remaining inventory was split on
approximately a 60/40 basis between raw materials and finished goods at December
31, 2009.





Accounts
Receivable





Accounts receivable represent
uncollateralized obligations due from customers of the Company and are recorded
at net realizable value.  This value includes an appropriate allowance
for estimated uncollectible accounts to reflect any loss anticipated on the
accounts receivable balances and charged to the provision for doubtful
accounts.  The Company calculates this allowance based on historical
write-offs, level of past due accounts and relationships with and economic
status of the customers.  As of December 31, 2009, there were no
uncollectible accounts and no allowance has been provided.





Property
and Equipment





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




23





Intangible
Assets





The Company follows the provisions of
FASB ASC 350, Goodwill and
Other Intangible Assets.  FASB ASC 350 addresses financial
accounting and reporting for acquired goodwill and other intangible
assets.  Specifically, FASB ASC 350 addresses how intangible assets
that are acquired should be accounted for in financial statements upon their
acquisition, as well as how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. The statement requires the Company to evaluate its intellectual
property each reporting period to determine whether events and circumstances
continue to support an indefinite life.  In addition, the Company
tests its intellectual property for impairment on an annual basis, or more
frequently if events or changes in circumstances indicate that the asset might
be impaired.  The statement requires intangible assets with finite
lives to be reviewed for impairment whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable and that a loss
shall be recognized if the carrying amount of an intangible exceeds its fair
value.





Intellectual property and other
intangibles are recorded at cost.  Prior to 2009, the Company
determined that its intellectual property had an indefinite life because it
believed there was no legal, regulatory, contractual, competitive, economic or
other factor to limit its useful life, and therefore would not be
amortized.  For other intangibles, amortization would be computed on
the straight-line method over the identifiable lives of the assets.





Management made the decision during
2009 to change the characterization of its intellectual property to a
finite-lived asset and to amortize the remaining balance of its intangible
assets to
the nominal value of $150,000 by the end of 2012, due to its determination that
this now represents the scheduled end of its exclusive registration during that
year.





Revenue
Recognition





The Company follows the provisions of
FASB ASC 605,Revenue
Recognition, and recognizes revenues when evidence of a completed
transaction and customer acceptance exists, and when title passes, if
applicable.





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





Income
Taxes





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




The current and deferred tax provisions
in the financial statements include consideration of uncertain tax positions in
accordance with FASB ASC 740, Income
Taxes.  Management believes there are no significant uncertain
tax positions, so no adjustments have been reported from adoption of FASB ASC
740.  The Company files income tax returns in the U.S. federal
jurisdiction, and various state jurisdictions.





Income
(Loss) Per Common Share





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





Diluted net income (loss) per common
share is computed by dividing the net income applicable to common stockholders,
adjusted on an "as if converted" basis, by the weighted average number of common
shares outstanding plus potential dilutive securities. For 2009 and 2008,
potential dilutive securities had an anti-dilutive effect and were not included
in the calculation of diluted net loss per common share.





24




Management
Estimates and Assumptions





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





Financial
Instruments





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





Stock
Options and Warrants





Effective January 1, 2006, the Company
began recording compensation expense associated with stock options and other
forms of equity compensation in accordance with FASB ASC 718, Stock
Compensation.





Recently
Issued Accounting Pronouncements





In December 2007, the Financial
Accounting Standards Board issued an update to ASC 810, Consolidations, establishing
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, changes in a parent’s ownership of a
noncontrolling interest, calculation and disclosure of the consolidated net
income attributable to the parent and the noncontrolling interest, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest and fair value measurement of any retained noncontrolling equity
investment. This update is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and was adopted by the Company during
the fiscal year ended December 31, 2009. Adoption did not have a material effect
on its financial position, results of operations or cash flows.





In December 2007, the Financial
Accounting Standards Board issued an update to ASC 805,Business
Combinations.  This update defines the acquirer as the entity
that obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer achieves
control.  This update will require an entity to record separately from
the business combination the direct costs, where previously these costs were
included in the total allocated cost of the acquisition and will require an
entity to recognize the assets acquired, liabilities assumed, and any
non-controlling interest in the acquired at the acquisition date, at their fair
values as of that date.  This compares to the cost allocation method
previously required by FASB ASC 805.  This update will require an
entity to recognize as an asset or liability at fair value for certain
contingencies, either contractual or non-contractual, if certain criteria are
met.  Finally, this update will require an entity to recognize
contingent consideration at the date of acquisition, based on the fair value at
that date.  This update is effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008.  This update was adopted by the Company during the
fiscal year ended December 31, 2009. Adoption did not have a material effect on
its financial position, results of operations or cash flows.





In May 2009, the FASB issued new
accounting guidance on subsequent events that establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. The
Subsequent Event Topic of the FASB Accounting Standards Codification sets forth
(1) The period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (2) The
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (3) The
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The pronouncement is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of
this statement did not have a material effect on the Company’s financial
statements.




25







Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.





We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.





Item
8. Financial
Statements and Supplementary Data.





See the Financial Statements annexed to
this report.





Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.





None.





Item
9A(T). Controls and Procedures.





Under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Exchange Act) as of the end of the period covered by this
report.  Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of December 31, 2009, these
disclosure controls and procedures were effective to ensure that all information
required to  be disclosed by us in the reports that we file or submit
under the Exchange Act is: (i) recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rule and forms; and (ii)
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.





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





Management’s
Annual Report on Internal Control over Financial Reporting





Our management is responsible for
establishing and maintaining adequate internal control over financial
reporting.  Internal control over financial reporting is a process
designed by, or under the supervision of, the Chief Executive Officer and Chief
Financial Officer and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.





Our evaluation of internal control over
financial reporting includes using the COSO framework, an integrated framework
for the evaluation of internal controls issued by the Committee of Sponsoring
Organizations of the Treadway Commission, to identify the risks and control
objectives related to the evaluation of our control environment.





Based on our evaluation under the
frameworks described above, our management has concluded that our internal
control over financial reporting was effective as of December 31,
2009.





This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation requirements by the company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the company to provide only management’s report in this annual
report.





Item
9B. Other Information.





Not
applicable.





26




PART
III





Item
10. Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance
with Section 16(a) of the Exchange Act.





Set forth below are our present
directors and executive officers.  Note that there are no other
persons who have been nominated or chosen to become directors nor are there any
other persons who have been chosen to become executive
officers.  There are no arrangements or understandings between any of
the directors, officers and other persons pursuant to which such person was
selected as a director or an officer.  Directors are elected to serve
until the next annual meeting of stockholders and until their successors have
been elected and have qualified.  Officers serve at the discretion of
the Board of Directors.




Name
              
              Age
              
              Present
      Position and Offices
              
              Has
      Served as Director SinceDwaine
      Reese
              
              67
              
              Chairman
      of the Board, Chief Executive Officer and Director
              
              January
      2003Gary
      B. Aman
              
              62
              
              President
      and Director
              
              March
      2005Jack
      D. Cowles
              
              49
              
              Director
              
              March
      2005Thomas
      F. Donino
              
              48
              
              Director
              
              December
      2005Richard
      B. Dicks
              
              62
              
              Chief
      Financial Officer
              
              -





Set forth below are brief accounts of
the business experience during the past five years of each director and
executive officer of the Company and each significant employee of the
Company.





DWAINE REESE has been the Chairman of
the Board and the Company’s Chief Executive Officer of EnerTeck Sub since 2000
and of EnerTeck Parent since 2003. From approximately 1975 to 2000, Mr. Reese
held various executive, management, sales and marketing positions in the
refining and specialty chemical business with Nalco Chemical Corporation and
later Nalco/Exxon Energy Chemicals, LP. In 2000, he founded EnerTeck Chemical
Corp., and has been its President and Chief Executive Officer since that time.
Mr. Reese has been and will continue to devote his full-time to the Company’s
business. Mr. Reese has B.S. degree in Biology and Chemistry from Lamar
University and a M.S. degree in Chemistry from Highland New Mexico
University.





GARY B. AMAN has been a director of the
Company since March 2005 and President since March 2009.  He has been
employed with Nalco Company since 1994, most recently serving as General Manager
of ADOMITE Subsurface Chemicals, a Nalco division, since 1999. ADOMITE is
recognized as a technology leader in energy exploration additives including
drilling fluids, cementing, fracturing and well stimulation additives. Mr. Aman
retired from Nalco effective October 31, 2008.  Mr. Aman received a
Bachelor of Science degree in Mathematics from the University of South Dakota in
1970.





JACK D. COWLES has been a director of
the Company since March 2005.  He has been a Managing Director of JDC
Consulting, a management consulting firm, since 1997. JDC, headquartered in New
York City, provides a broad range of senior level management consulting services
including strategy, business process improvement and implementation, change
management, financial management, due diligence and merger integration. Mr.
Cowles received a Bachelor of Arts, Economics degree; Phi Beta Kappa, from the
University of Michigan in 1983 and a Masters of Business Administration degree
for the University of Pennsylvania, Wharton School of Business in
1994.





THOMAS F. DONINO has been a director of
the Company since December 2005.  Since August 1997, he has been a
partner at First New York Securities (FNY) in New York, New York.  FNY
is an investment management company with assets over $250 million
dollars.   Mr. Donino is also the General Partner of BATL
Management LP, a family Limited Partnership, and President of BATL Bioenergy
LLC.




27





RICHARD B. DICKS has been Chief
Financial Officer of the Company since December 2005.  Mr. Dicks is a
certified public accountant and since January 1985 has had his own accounting
practice focusing on tax, financial, cash management and MAS
services.  In addition, from July 1993 to December 2001, Mr. Dicks was
President and Chief Executive Officer of Combustion Process Manufacturing
Corporation, located in Houston, Texas.  Mr. Dicks received a
Bachelor’s Degree from Oklahoma State University in 1969.





None of the directors and officers is
related to any other director or officer of the Company.





To the knowledge of the Company, none
of the officers or directors has been personally involved in any bankruptcy or
insolvency proceedings. To the knowledge of the Company, none of the directors
or officers have been convicted in any criminal proceedings (excluding traffic
violations and other minor offenses) or are the subject of a criminal proceeding
which is presently pending, nor have such persons been the subject of any order,
judgment, or decree of any court of competent jurisdiction, permanently or
temporarily enjoining them from acting as an investment advisor, underwriter,
broker or dealer in securities, or as an affiliated person, director or
insurance company, or from engaging in or continuing in any conduct or practice
in connection with any such activity or in connection with the purchase or sale
of any security, nor were any of such persons the subject of a federal or state
authority barring or suspending, for more than 60 days, the right of such person
to be engaged in any such activity, which order has not been reversed or
suspended.





Audit
Committee Financial Expert





We do not
have an audit committee financial expert, as such term is defined in Item
407(d)(5) of Regulation S-K, serving on our audit committee because we have no
audit committee and are not required to have an audit committee because we are
not a listed security.





Compliance
with Section 16(a) of the Exchange Act





Section 16(a) of the Securities
Exchange Act of 1934 requires the Company’s directors and executive officers,
and persons who own more than ten percent of the Company’s Common Stock, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes of ownership of Common Stock of the
Company.  Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.





Based solely on the Company’s review of
such forms received by it, or written representations from certain of such
persons, the Company believes that, with respect to the year ended December 31,
2009, all Section 16(a) filing requirements applicable to  its
officers, directors and greater than 10% beneficial owners were complied with
except that each of Dwaine Reese, Gary B. Aman, Thomas F. Donino and Richard B.
Dicks filed one report late relating to a total of one transaction
each.





Code
of Ethics





The Board
of Directors has adopted a Code of Ethics applicable to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, which is designed to
promote honest and ethical conduct; full, fair, accurate, timely and
understandable disclosure; and compliance with applicable laws, rules and
regulations.   A copy of the Code of Ethics will be provided to
any person without charge upon written request to the Company at its executive
offices, 10701 Corporate Drive, Suite 150, Stafford, Texas 77477.








Item
11. Executive Compensation.





The following summary compensation
tables set forth information concerning the annual and long-term compensation
for services in all capacities to the Company for the years ended December 31,
2009 and December 31, 2008, of those persons who were, at December 31, 2008 (i)
the chief executive officer and (ii) the other most highly compensated executive
officers of the Company, whose annual base salary and bonus compensation was in
excess of $100,000 (the named executive officers):




28




Summary
Compensation Table


Name
      and Principal Position
              
              Year
              
              
              Salary
      ($)
              
              
              
              Bonus
      ($)
              
              
              
              Stock
      Awards ($)
              
              
              
              Option
      Awards ($)
              
              
              
              Non-Equity
      Incentive Plan Compensation ($)
              
              
              
              Nonqualified
      Deferred Compensation Earnings ($)
              
              
              
              All
      Other Compensation ($)
              
              
              
              TotalDwaine
      Reese, Chairman of the
              
              2009
              
              $
              139,402
              
              
              $
              0
              
              
              $
              0
              
              
              $
              13,744
              (1)
              
              $
              0
              
              
              $
              0
              
              
              $
              3,348
              (2)
              
              $
              156,494Board
      and Chief
              
              2008
              
              $
              178,153
              
              
              
              0
              
              
              
              0
              
              
              
              18,331
              
              
              
              0
              
              
              
              0
              
              
              $
              8,628
              (2)
              
              $
              205,112Executive
      OfficerGary B. Aman, President(3)
              
              2009
              
              $
              200,000
              
              
              $
              0
              
              
              $
              0
              
              
              $
              101,875
              (1)
              
              $
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              301,875







(1)
            Represents
      the dollar amount recognized for financial statement reporting purposes
      with respect to the fiscal year in accordance with ASC
  718.





(2)
            Mr.
      Reese was reimbursed $3,348 and $8,628 in 2009 and 2008, respectively, for
      health insurance costs.





(3)
            Mr.
      Aman became President of the Company as of January 1,
  2009.





Equity
Awards





The following table provides certain
information concerning equity awards held by the named executive officers as of
December 31, 2009.





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END





Option
      Awards
            
            
            
            
            
            Stock
      AwardsName
            
            No.
      of
              Securities
              Underlying
              Unexercised
              Options
      (#)
              Exercisable
            
            Number
      of
              Securities
              Underlying
              Unexercised
              Options
      (#)
              Unexercisable
            
            Option
              Exercise
              Price
      ($)
            
            Option
              Expiration
              Date
            
            Number
      of
              Shares
      or
              Units
      of Stock
              That
      Have Not
              Vested
      (#)
            
            Equity
      Incentive Plan
              Awards:
      Number of
              Unearned
      Shares, Units
              Or
      Other Rights That
              Have
      Not Vested(#)Dwaine
      Reese
            
            25,000
              25,000
            
            -0-
              -0-
            
            $0.55
              $0.80
            
            7/21/2014
              1/15/2013
            
            -0-
              -0-
            
            -0-
              -0-Gary
      Aman
            
            50,000
            
            150,000
            
            $1.00
            
            3/27/2014
            
            -0-
            
            -0-





2003
Stock Option Plan





In September 2003, our shareholders
approved an employee stock option plan (the “2003 Option Plan”) authorizing the
issuance of options to purchase up to 1,000,000 shares of our common stock. This
plan is intended to give us greater ability to attract, retain, and motivate
officers, key employees, directors and consultants; and is intended to provide
us with the ability to provide incentives more directly linked to the success of
our business and increases in shareholder value. As of December 31, 2007, no
options have been issued under the 2003 Option Plan.  During the first
quarter of 2008, options to acquire 64,200 shares at an exercise price of $0.80
per share were issued under the 2003 Option Plan to five employees, and during
the third quarter of 2009, options to acquire 64,000 shares at an exercise price
of $0.55 per share were issued under the 2003 Option Plan to five
employees.   All of such options  are immediately
exercisable as of the issue date and expire five years thereafter.





2005
Stock Compensation Plan





In June 2005, the Board of Directors
adopted the 2005 Stock Compensation Plan (the “2005 Stock Plan”) authorizing the
issuance of up to 2,500,000 shares of common stock.  Pursuant to the
2005 Stock Plan, employees, directors, officers or individuals who are
consultants or advisors of the Company or any subsidiary may be awarded shares
under the 2005 Stock Plan.   The 2005 Stock Plan is intended to
offer those employees, directors, officers, or consultants or advisors of the
Company or any subsidiary who assist in the development and success of the
business of the Company or any subsidiary, the opportunity to participate in a
compensation plan designed to reward them for their services and to encourage
them to continue to provide services to the Company or any
subsidiary.  In 2005, 2,000,000 shares were awarded under the 2005
Stock Plan, 500,000 of which were returned to the Company in December 2005, and
50,000 shares were awarded in 2006.  Since then, no additional awards
have been granted under the 2005 Stock
Plan.





29




Other
Options, Warrants or Rights





We have no other outstanding options or
rights to purchase any of our securities.  However, as of December 31,
2009, we do have outstanding warrants to purchase up to 2,540,047.5 shares of
our common stock.





Employment Agreements - Executive
Officers and Certain Significant Employees





On March 27, 2009, the Company entered
into an employment agreement with Gary B. Aman, effective as of January 1, 2009,
pursuant to which Mr. Aman agreed to be employed by the Company as President for
a period of two years expiring December 31, 2010.  During the period
of employment, Mr. Aman shall receive an annual base salary equal to $200,000,
subject to review each year for possible increases, provided, however, that Mr.
Aman has agreed to accrual of said salary until the earlier of (i) such time
that the Company’s financial condition improves so that payment of said salary
does not cause undue financial burden to the Company which shall be determined
by the Board of Directors at its sole discretion, or (ii) January 1,
2010.  Mr. Aman shall also be entitled to participate in any long term
and annual incentive plans and arrangements presently existing or as may be
adopted from time to time and other employee benefits plans and programs on the
same basis generally as other employees of the Company.





Pursuant to the employment agreement,
the Company also agreed to grant Mr. Aman an option to purchase 200,000 shares
of Common Stock of the Company at an exercise price of $1.00 per share which
option shall be 25% vested as of the date of grant (March 27, 2009), shall
become 100% vested on January 1, 2010 and shall expire March 27,
2014.





As of December 31, 2009, none of our
other officers and key employees are bound by employment
agreements.





We do not have any termination or
change in control arrangements with any of our named executive
officers.





Compensation
of Directors





At the present time, directors receive
no cash compensation for serving on the Board of Directors, other than
reimbursement of reasonable expenses incurred in attending
meetings.





The
following table provides certain summary information concerning the compensation
paid to the Company’s non-employee directors during fiscal 2009 for their
services as such.  All compensation paid to Mr. Reese and Mr. Aman is
set forth in the Summary Compensation table above.




Director
Compensation





Name
            
            Fees
              Earned
      or
              Paid
      in
              Cash
      ($)
            
            
            Stock
              Awards
      (S)
            
            
            Option
              Awards
      ($)
            
            
            All
      Other
              Compensation
              ($)
            
            
            Total
      ($)Jack
      D. Cowles
            
            $
            0
            
            
            
            -0-
            
            
            $
            0
            
            
            
            -0-
            
            
            $
            0Thomas
      F. Donino
            
            $
            0
            
            
            
            -0-
            
            
            $
            0
            
            
            
            -0-
            
            
            $
            0





Indebtedness
of Management





No member of management was indebted to
the Company during its last fiscal year.




30




Item
12.   Security Ownership of Certain Beneficial Owners and
Management and
Related Stockholder Matters.





The following table sets forth, as of
March 8, 2010, certain information with regard to the record and beneficial
ownership of the Company’s Common Stock by (i) each stockholder owning of record
or beneficially 5% or more of the Company’s Common Stock, (ii) each director of
the Company, (iii) the Company’s Chief Executive Officer and other executive
officers, if any, of the Company whose total compensation was in excess of
$100,000 (the “named executive officers”), and (iv) all executive officers and
directors of the Company as a group:




Name
      of Beneficial Owner
              
              Amount
      and Nature of Beneficial Ownership
              
              
              Percent
      of ClassDwaine
      Reese
              
              
              3,615,000
              (1)
              
              
              16.7
              %BATL
      Bioenergy LLC
              
              
              3,960,000
              (2)
              
              
              17.1
              %Thomas
      F. Donino
              
              
              6,751,889
              (3)
              
              
              28.9
              %Gary
      B. Aman
              
              
              870,000
              (4)
              
              
              4.0
              %Jack
      D. Cowles
              
              
              398,550
              (5)
              
              
              1.8
              %Richard
      B. Dicks
              
              
              128,400
              (6)
              
              
              *All
      Executive Officers andDirectors
      as a Group (5 persons)
              
              
              11,763,839
              
              
              
              49.5
              %





*
            Less
      than 1%.





(1)
            Consists
      of 3,565,000 shares held by Mr. Reese and 50,000 shares underlying an
      option granted to him.  The address for Mr. Reese is 10701
      Corporate Drive, Suite 150, Stafford,
Texas.





(2)
            Consists
      of 2,450,000 shares held by BATL Bioenergy LLC (“BATL”) and 1,510,000
      shares underlying warrants held by BATL.  This information is
      based solely upon information reported in filings made to the SEC on
      behalf of BATL.  The address for BATL is 7 Lakeside Drive, Rye,
      New York.





(3)
            Consists
      of 2,113,404 shares held by Mr. Donino, 2,450,000 shares held by BATL,
      435,700 shares held by BATL Management LP (“BATL Management”), 1,510,000
      shares underlying warrants held by BATL and 242,785 shares underlying
      warrants held by Mr. Donino.  As the president and managing
      member of BATL and the sole officer, director and shareholder of BATL
      Management’s general partner, Mr. Donino may be deemed to be the
      beneficial owner of shares owned by BATL and BATL
      Management.  BATL Management is a family limited partnership
      whose members are certain relatives and trusts for the benefit of certain
      relatives of Mr. Donino.  This information is based solely upon
      information reported in filings made to the SEC on behalf of Thomas
      Donino, BATL and BATL Management.  The address for Mr. Donino is
      7 Lakeside Drive, Rye, New York.





(4)
            Consists
      of 670,000 shares held by Mr. Aman and 200,000 shares underlying an option
      granted to him.  The address for Mr. Aman is 10701 Corporate
      Drive, Suite 150, Stafford, Texas.





(5)
            The
      address for Mr. Cowles is 30 Lansdowne Drive, Larchmont, New
      York.





(6)
            Consists
      of 100,000 shares underlying warrants held by Mr. Dicks and 28,400 shares
      underlying an option granted to him.  The address for Mr. Dicks
      is 10701 Corporate Drive, Suite 150, Stafford,
  Texas.




Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





On July 7, 2009, the Company entered
into a $100,000 unsecured promissory note with Gary B. Aman, its President and a
director, due on demand.  Interest is payable at 12% per
annum.





On December 11, 2009, the Company
entered into a $50,000 note with Thomas F. Donino, a director. Interest is 5%
per annum.  The principal balance of the note is due on the earlier of
December 11, 2012, or upon completion by the Company of equity financing in
excess of $1.0 million in gross proceeds.  Interest on the loan is
payable on the maturity date at the rate of 5% per annum.




31




Other than the foregoin, since January
1, 2009, there has not been, nor is there currently proposed, any transaction or
series of similar transactions to which we were or will be a party: (i) in which
the amount involved exceeds the lesser of $120,000 or one percent of the average
of our total assets at year-end for the last three completed fiscal years; and
(ii) in which any director, executive officer, shareholder who beneficially owns
5% or more of our common stock or any member of their immediate family had or
will have a direct or indirect material interest.




Director
Independence




Our board of directors currently
consists of four members.  They are Dwaine Reese, Gary B. Aman, Jack
D. Cowles and Thomas F. Donino.  Mr. Reese is the Company’s Chairman
of the Board and Chief Executive Officer, and Mr. Aman is the Company’s
President.  Messrs. Cowles and Donino are independent
directors.  We have determined their independence using the general
independence criteria set forth in the Nasdaq Marketplace Rules.





Item
14.  Principal Accountant Fees and Services.





The
following is a summary of the fees billed to us by the principal accountants to
the Company for professional services rendered for the fiscal years ended
December 31, 2009 and December 31, 2008:




Fee
      Category
              
              2009
      Fees
              
              
              2008
      FeesAudit
      Fees
              
              $
              38,682
              
              
              $
              33,022Audit
      Related Fees
              
              $
              0
              
              
              $
              0Tax
      Fees
              
              $
              0
              
              
              $
              0All
      Other Fees
              
              $
              0
              
              
              $
              0Total
      Fees
              
              $
              38,682
              
              
              $
              33,022





Audit Fees.  Consists of fees
billed for professional  services rendered for the
audit  of  our   financial   statements  and  review  of  interim
consolidated  financial  statements  included in
quarterly  reports and services
that  are  normally  provided  by the
principal accountants
in  connection  with  statutory  and
regulatory filings or engagements.





Audit Related Fees. Consists of fees
billed for assurance and related services that are reasonably related to the
performance of the audit or review of our consolidated financial statements and
are not reported under “Audit Fees”.





Tax Fees.  Consists of fees
billed for professional services for tax compliance, tax advice and tax
planning.  These services include preparation of federal and state
income tax returns.





All
Other  Fees.  Consists of fees for product and services
other than the services reported above.





Pre-Approval Policies and
Procedures





Prior to engaging its accountants to
perform a particular service, the Company’s Board of Directors obtains an
estimate for the service to be performed. All of the services described above
were approved by the Board of Directors in accordance with its
procedures.





PART
IV





Item
15.  Exhibits and Financial Statement Schedules.





The
following documents are filed as part of this report:





(1)           Financial
Statements





Financial Statements are annexed to
this report.




32





(2)           Financial
Statement Schedules





No
financial statement schedules are included because such schedules are not
applicable, are not required, or because required information is included in the
financial statements or notes thereto.





(3)           Exhibits




Incorporated
      byReference
      to2.1
              
              Share
      Exchange Agreement
              
              Exhibit
      2.1 (1)2.2
              
              Plan
      of Merger
              
              Exhibit
      2.2 (2)2.3
              
              Article
      of Merger (Delaware)
              
              Exhibit
      2.3 (2)2.4
              
              Articles
      of Merger (Washington)
              
              Exhibit
      2.4 (2)3.1
              
              Articles
      of Incorporation (July 8, 2003 filing date)
              
              Exhibit
      3.1 (2)3.2
              
              Bylaws
              
              Exhibit
      3.2 (2)4.1
              
              Specimen
      of Common Stock Certificate
              
              Exhibit
      4.1 (2)4.2
              
              Registrant’s
      2003 Stock Option Plan
              
              Exhibit
      4.1 (3)4.3
              
              Registrant’s
      2005 Stock Compensation Plan
              
              Exhibit
      99.1 (4)4.4
              
              Form
      of Common Stock Purchase Warrant granted to various persons at
      various times from August 2003 to date
              
              Exhibit
      4.4 (5)4.5
              
              Registration
      Rights Agreement dated December 8, 2005 between the
      Company and BATL Bioenergy LLC
              
              Exhibit
      4.1 (6)4.6
              
              Warrant
      to purchase 1,000,000 shares issued to BATL Bioenergy LLC
              
              Exhibit
      4.2 (6)10.1
              
              Office
      Lease dated February 1, 2001
              
              Exhibit
      10.23 (2)10.2
              
              Office
      Lease Amendment dated March 31, 2003
              
              Exhibit
      10.24 (2)10.3
              
              Second
      Amendment to Lease Agreement
              
              Exhibit
      10.4 (7)10.4
              
              Third
      Amendment to Lease Agreement
              
              Exhibit
      10.5 (7)10.5
              
              Fourth
      Amendment to Lease Agreement
              
              *10.6
              
              Securities
      Purchase Agreement dated December 8, 2005 between
      the Company and BATL Bioenergy LLC
              
              Exhibit
      10.2 (6)10.7
              
              Asset
      Purchase Agreement dated as of July 13, 2006
              
              Exhibit
      2.1 (8)10.8
              
              Exclusive
      Reseller and Market Development Alliance With
      Custom Fuel Services, Inc.
              
              Exhibit
      10.10 (9)10.9
              
              Employment
      Agreement with Gary B. Aman dated March 27, 2009
              
              Exhibit
      99.1 (10)21.1
              
              Subsidiaries
      of the Registrant
              
              Exhibit
      21.1 (7)23.1
              
              Consent
      of Philip Vogel & Co. PC
              
              *31.1
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14
      of the Exchange Act)
              
              *31.2
              
              Certification
      of Principal Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14
      of the Exchange Act)
              
              *32.1
              
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002 (18 U.S.C. 1350)
              
              *







*
            Filed
      herewith.





(1)
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on January
      23, 2003, and incorporated by reference
herein.





(2)
            Filed
      as an exhibit to the Company’s Registration Statement on Form SB-2, File
      No. 333-108872, and incorporated by reference
  herein.





(3)
            Filed
      as an exhibit to the Company’s Schedule 14A filed on August 12, 2003, and
      incorporated by reference herein.





(4)
            Filed
      as an exhibit to the Company’s Registration Statement on Form S-8, File
      No. 333-1258814, and incorporated by reference
  herein.




33




(5)
            Filed
      as an exhibit to the Company’s Annual Report on Form 10-KSB for the year
      ended December 31, 2005, and incorporated by reference
    herein.





(6)
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on
      December 12, 2005, and incorporated by reference
  herein.





(7)
            Filed
      as an exhibit to the Company’s Annual Report on Form 10-KSB for the year
      ended December 31, 2006, and incorporated by reference
    herein.





(8)
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on July
      19, 2006, and incorporated by reference
herein.





(9)
            Filed
      as an exhibit to Amendment No. 3 to the Company’s Registration Statement
      on Form SB-2 filed as Form S-1/A on March 25, 2008, File No. 333-133651,
      and incorporated by reference
herein.





(10)
            Files
      as an exhibit to the Company’s Current Report on Form 8-K filed on April
      2, 2009, and incorporated by reference
herein.




34





SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.




ENERTECK
      CORPORATION(Registrant)By:
              /s/ Dwaine
      ReeseDwaine
    Reese,Chief
      Executive OfficerDated:
      March 30,
      2010




Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant, and in the capacities and on the
dates indicated:




Signature
              
              Title
              
              Date/s/
      Dwaine Reese
              
              Chief
      Executive Officer,
              
              03/30/2010Dwaine
      Reese
              
              Chairman
      of the Boardand
      Director(Principal
      Executive Officer)/s/
      Richard B. Dicks
              
              Chief
      Financial Officer
              
              03/30/2010Richard
      B. Dicks
              
              (Principal
      Financial Officer)/s/
      Gary B. Aman
              
              President
      and Director
              
              03/30/2010Gary
      B. Aman/s/
      Jack D. Cowles
              
              Director
              
              03/30/2010Jack
      D. Cowles/s/
      Thomas F. Donino
              
              Director
              
              03/30/2010Thomas
      F. Donino


35





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the Board of Directors


EnerTeck
Corporation


Houston,
Texas





We have
audited the accompanying consolidated balance sheets of EnerTeck Corporation and
subsidiary as of December 31, 2009 and 2008, and the related consolidated
statements of operations, of changes in stockholders’ equity and of cash flows
for each of the years in the two-year period ended December 31,
2009.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audits.





We
conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform the
audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  The company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control over financial reporting.
Accordingly, we express no such opinion.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide
a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EnerTeck
Corporation and subsidiary as of December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.





/s/
      Philip Vogel & Co. PCPHILIP
      VOGEL & CO. PCCertified
      Public Accountants


Dallas,
Texas





March  29,
2010




F-1




ENERTECK CORPORATION AND
SUBSIDIARY


CONSOLIDATED
BALANCE SHEET


December
31, 2009 and 2008





2009
            
            
            2008ASSETSCurrent
      assetsCash
            
            $
            52,129
            
            
            $
            106,240Inventory
            
            
            168,381
            
            
            
            161,019Receivables
      - trade
            
            
            243,854
            
            
            
            10,036Receivables
      - employee
            
            
            500
            
            
            
            100Prepaid
      Expenses
            
            
            20,129
            
            
            
            11,584Total
      current assets
            
            $
            484,993
            
            
            
            288,979Intellectual
      Property, net of accumulated amortization of $578,658 and $0
      respectively
            
            
            1,596,644
            
            
            
            2,175,302Property
      and equipment, net of accumulated depreciation of $280,264 and $240,614
      respectively
            
            
            130,365
            
            
            
            98,091Total
      assets
            
            $
            2,212,002
            
            
            $
            2,562,372LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesNote
      payable - current maturity
            
            $
            500,000
            
            
            $
            500,000Accounts
      payable
            
            
            155,447
            
            
            
            8,204Stockholder
      advances and notes
            
            
            230,000
            
            
            
            0Accrued
      liabilities
            
            
            312,806
            
            
            
            48,796Total
      current liabilities
            
            
            1,198,253
            
            
            
            557,001Long
      Term LiabilitiesStockholder
      advances and notes
            
            
            50,000
            
            
            
            0Notes
      Payable - long term portion
            
            
            0
            
            
            
            500,000Total
      Long Term Liabilities
            
            $
            50,000
            
            
            $
            500,000Stockholders’
      EquityPreferred
      stock, $.001 par value, 100,000,000 shares authorized, none
      issuedCommon
      stock, $.001 par value, 100,000,000 shares authorized, 21,637,788 and
      19,087,788 shares issued and outstanding, respectively
            
            
            21,638
            
            
            
            19,088Additional
      paid-in capital
            
            
            22,396,618
            
            
            
            20,886,996Accumulated
      deficit
            
            
            (21,454,507
            )
            
            
            (19,400,712
            )Total
      stockholders’ equity
            
            $
            963,749
            
            
            $
            1,505,373Total
      liabilities and stockholders’ equity
            
            $
            2,212,002
            
            
            $
            2,562,372




See
accompanying summary of accounting policies and notes to financial
statements.




F-2




ENERTECK
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


Years
Ended December 31, 2009 and 2008





2009
            
            
            2008Product
      Sales
            
            $
            404,335
            
            
            $
            282,195Sales
      Returns
            
            
            0
            
            
            
            13,760Cost
      of goods sold
            
            
            68,531
            
            
            
            48,057Gross
      profit
            
            $
            335,804
            
            
            $
            220,378Costs
      and expenses:General
      and Administrative Expenses:Wages
            
            $
            790,189
            
            
            $
            425,879Non-cash
      compensation
            
            
            137,171
            
            
            
            47,074Depreciation
            
            
            44,605
            
            
            
            38,343Amortization
            
            
            578,658
            
            
            
            0Professional
      Fees
            
            
            225,000
            
            
            
            0Other
      Selling, General and Administrative Expenses
            
            
            582,591
            
            
            
            371,417Total
      Expenses
            
            $
            2,358,214
            
            
            $
            882,713Operating
      loss
            
            $
            (2,022,410
            )
            
            $
            (662,335
            )Other
      income (expense)Interest
      Income
            
            
            291
            
            
            
            12,074Other
      Income
            
            
            7,340
            
            
            
            3,531Non-cash
      Impairment
            
            
            0
            
            
            
            (824,698
            )Interest
      expense
            
            
            (39,016
            )
            
            
            (52,541
            )Net
      Income (loss)
            
            $
            (2,053,795
            )
            
            $
            (1,523,970
            )Net
      loss per share:Basic
      and diluted
            
            $
            (0.10
            )
            
            $
            (0.08
            )Weighted
      average shares outstanding:Basic
      and diluted
            
            
            20,349,980
            
            
            
            18,273,536




See
accompanying summary of accounting policies and notes to financial
statements.




F-3




ENERTECK
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


Years
Ended December 31, 2009 and 2008





Common
      Stock
            
            
            Additional
      Paid-in
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            TotalBalances,
      December 31, 2007
            
            
            17,761,359
            
            
            $
            17,762
            
            
            $
            19,947,381
            
            
            $
            (17,876,742
            )
            
            $
            2,088,400Options
      Granted
            
            
            
            
            
            
            
            
            
            $
            47,074
            
            
            
            
            
            
            $
            47,074Warrants
      Exercised
            
            
            526,334
            
            
            $
            526
            
            
            
            333,272
            
            
            
            
            
            
            
            333,798Private
      Offering
            
            
            800,095
            
            
            
            800
            
            
            
            559,270
            
            
            
            
            
            
            
            560,070Loss
      1/01 – 12/31/2008
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,523,970
            )
            
            
            (1,523,970
            )Balances,
      December 31, 2008
            
            
            19,087,788
            
            
            $
            19,088
            
            
            $
            20,886,996
            
            
            $
            (19,400,712
            )
            
            $
            1,505,372Options
      Granted
            
            
            
            
            
            
            
            
            
            $
            137,173
            
            
            
            
            
            
            $
            137,173Private
      Offering
            
            
            2,300,000
            
            
            $
            2,300
            
            
            
            1,147,700
            
            
            
            
            
            
            $
            1,150,000Common
      stock for services
            
            
            250,000
            
            
            $
            250
            
            
            
            224,750
            
            
            
            
            
            
            $
            225,000Current
      Loss 1/01 – 12/31/2009
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (2,053,796
            )
            
            $
            (2,053,796
            )Balances,
      December 31, 2009
            
            
            21,637,788
            
            
            $
            21,638
            
            
            $
            22,396,618
            
            
            $
            (21,454,507
            )
            
            $
            963,749




See
accompanying summary of accounting policies and notes to financial
statements.




F-4




ENERTECK
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Years
Ended December 31, 2009 and 2008





2009
            
            
            2008Net
      (loss)
            
            $
            (2,053,796
            )
            
            $
            (1,523,970
            )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
            
            
            44,605
            
            
            
            38,343Common
      stock and options issued for services
            
            
            362,171
            
            
            
            47,074Amortization
      of intellectual property
            
            
            578,658
            
            
            
            0Impairment
      of intellectual property
            
            
            0
            
            
            
            824,698Gain/Loss
      on sale of asset
            
            
            (2,310
            )
            
            
            0Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (211,463
            )
            
            
            40,884Inventory
            
            
            (7,362
            )
            
            
            (14,365
            )Prepaid
      expenses and other
            
            
            (8,545
            )
            
            
            8,055Accounts
      payable
            
            
            76,574
            
            
            
            (2,446
            )Accrued
      Interest payable
            
            
            (4,595
            )
            
            
            (19067
            )Accrued
      Liabilities
            
            
            246,250
            
            
            
            6,198NET
      CASH USED IN OPERATING ACTIVITIES
            
            $
            (979,813
            )
            
            $
            (594,598
            )CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from sales of assets
            
            $
            7,100
            
            
            
            0Capital
      Expenditures
            
            
            (10,999
            )
            
            $
            (16,541
            )Employee
      advances
            
            
            (400
            )
            
            
            4,384CASH
      PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            $
            (4,299
            )
            
            $
            (12,157
            )CASH
      FLOWS FROM FINANCING ACTIVITIESExercise
      of warrants
            
            $
            0
            
            
            $
            333,799Proceeds
      from sale of common stock
            
            
            1,150,000
            
            
            
            560,070Related
      party note payable and advances
            
            
            280,000
            
            
            
            0Repayments
      of note payable
            
            
            (500,000
            )
            
            
            (500,000
            )CASH
      PROVIDED BY FINANCING ACTIVITIES
            
            $
            930,000
            
            
            $
            393,869NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (54,111
            )
            
            $
            (212,886
            )Cash
      and cash equivalents, beginning of year
            
            
            106,240
            
            
            
            319,126Cash
      and cash equivalents, end of year
            
            $
            52,129
            
            
            $
            106,240Cash
      paid for:Income
      tax
            
            $
            0
            
            
            $
            0Interest
            
            $
            43,611
            
            
            $
            70,365Non-cash
      investing and financing activities:




See
accompanying summary of accounting policies and notes to financial
statements.




F-5





ENERTECK
CORPORATION and SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Business
and Basis of Presentation





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





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





Principles
of Consolidation





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





Financial
Accounting Standards Board Codification





In
June 2009, the Financial Accounting Standards Board (FASB) established
the FASB Accounting Standards Codification (“Codification” or “ASC”) as the
source of authoritative U. S. generally accepted accounting principles
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretative releases of the SEC under authority of federal securities laws
are also sources of authoritative guidance for SEC registrants. All
non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Codification became effective for the
period ended September 30, 2009 and did not have a significant impact on
the Company’s financial statements.





Cash
and Cash Equivalents





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





Inventory





Inventory
consists of market ready EnerBurn plus raw materials required to manufacture the
products. Inventory is valued at the lower of cost or market using the average
cost method. Also included in inventory are three large Hammonds EnerBurn doser
systems amounting to $57,000 which were projected to be transferred to marine
customers during 2009, but are now projected to go in mid 2010. Finished product
amounted to approximately $27,000 and $56,000 at December 31, 2009 and 2008,
respectively:  the remaining inventory being comprised of raw
materials.




F-6





Accounts
Receivable





Accounts
receivable represent uncollateralized obligations due from customers of the
Company and are recorded at net realizable value.  This value includes
an appropriate allowance for estimated uncollectible accounts to reflect any
loss anticipated on the accounts receivable balances and charged to the
provision for doubtful accounts.  The Company calculates this
allowance based on historical write-offs, level of past due accounts and
relationships with and economic status of the customers. The allowance for
doubtful accounts amounted to $6,900 and $6,900 at December 31, 2009 and 2008,
respectively.





Property
and Equipment





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





Intangible
Assets





The
Company follows the provisions of FASB ASC 350, Goodwill and Other Intangible
Assets.  FASB ASC 350 addresses financial accounting and
reporting for acquired goodwill and other intangible
assets.  Specifically, FASB ASC 350 addresses how intangible assets
that are acquired should be accounted for in financial statements upon their
acquisition, as well as how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. The statement requires the Company to evaluate its intellectual
property each reporting period to determine whether events and circumstances
continue to support an indefinite life.  In addition, the Company
tests its intellectual property for impairment on an annual basis, or more
frequently if events or changes in circumstances indicate that the asset might
be impaired.  The statement requires intangible assets with finite
lives to be reviewed for impairment whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable and that a loss
shall be recognized if the carrying amount of an intangible exceeds its fair
value.





Intellectual
property and other intangibles are recorded at cost.  Prior to 2009,
the Company determined that its intellectual property had an indefinite life
because it believed there was no legal, regulatory, contractual, competitive,
economic or other factor to limit its useful life, and therefore would not be
amortized.  For other intangibles, amortization would be computed on
the straight-line method over the identifiable lives of the
assets.  Management made the decision during 2009 to change the
characterization of its intellectual property to a finite-lived asset and to
amortize the remaining balance of its intangible assets to the nominal
value of $150,000 by the end of 2012, due to its determination that this now
represents the scheduled end of its exclusive registration during that
year.





Revenue
Recognition





The
Company follows the provisions of FASB ASC 605,Revenue Recognition,and
recognizes revenues when evidence of a completed transaction and customer
acceptance exists, and when title passes, if applicable.





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





Income
Taxes





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





The
current and deferred tax provisions in the financial statements include
consideration of uncertain tax positions in accordance with FASB ASC 740, Income
Taxes.  Management believes there are no significant uncertain
tax positions, so no adjustments have been reported from adoption of FASB ASC
740.  The Company files income tax returns in the U.S. federal
jurisdiction, and various state jurisdictions.  The Company is no
longer subject to income tax examinations by the Internal Revenue Service for
years prior to 2006.  For state tax jurisdictions, the Company is no
longer subject to income tax examinations for years prior to 2005.





F-7





Income
(Loss) Per Common Share





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





Diluted
net income (loss) per common share is computed by dividing the net income
applicable to common stockholders, adjusted on an “as if converted” basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For 2009 and 2008, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.





Management
Estimates and Assumptions





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





Financial
Instruments





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





Stock
Options and Warrants





Effective
January 1, 2006, EnerTeck began recording compensation expense associated
with stock options and other forms of equity compensation in accordance with
FASB ASC 718, Stock
Compensation





Recently
Issued Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board issued an update to ASC
810, Consolidations,  establishing
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, changes in a parent’s ownership of a
noncontrolling interest, calculation and disclosure of the consolidated net
income attributable to the parent and the noncontrolling interest, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest and fair value measurement of any retained noncontrolling equity
investment. This update is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and was adopted by the Company during
the fiscal year ended December 31, 2009. Adoption did not have a material effect
on its financial position, results of operations or cash flows.





In
December 2007, the Financial Accounting Standards Board issued an update to ASC
805,Business Combinations.This update defines the acquirer as the entity that obtains control of
one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control.  This
update will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total
allocated cost of the acquisition and will require an entity to recognize
the assets acquired, liabilities assumed, and any non-controlling interest in
the acquired at the acquisition date, at their fair values as of that
date.  This compares to the cost allocation method previously required
by FASB ASC 805. This update will require an entity to recognize as an asset or
liability at fair value for certain contingencies, either contractual or
non-contractual, if certain criteria are met.  Finally, this update
will require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date.  This update is
effective for business combinations completed on or after the first annual
reporting period beginning on or after December 15, 2008.  This update
was adopted by the Company during the fiscal year ended December 31, 2009.
Adoption did not have a material effect on its financial position, results of
operations or cash flows.





F-8





In May 2009, the FASB issued new
accounting guidance on subsequent events that establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued.  FASB ASC 855, Subsequent Events, sets forth
(1) The period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (2) The
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (3) The
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The pronouncement was effective for
interim or annual financial periods ending after June 15, 2009. The adoption of
this statement did not have a material effect on the Company’s financial
statements.





In
February 2010, the FASB amended its guidance on subsequentevents to remove the requirement for SEC filers to
disclose the date through which an entity has evaluatedsubsequentevents, for both issued and
revised financial statements. This amendment alleviates potential conflicts
between the FASB’s guidance and the reporting rules of the SEC. Our adoption of
this amended guidance, which was effective upon issuance, had no effect on our
financial condition, results of operations, or cash flows.  There were
no subsequent events that would require adjustment to or disclosure in the
financial statements.





NOTE
2 - PROPERTY AND EQUIPMENT





At
December 31, 2009 and 2008 property and equipment consisted of the
following:





Useful
      Lives
            
            
            2009
      Amount
            
            
            2008
      AmountFurniture
      and fixtures
            
            
            5-7
            
            
            $
            58,394
            
            
            $
            57,395Equipment
            
            
            5-7
            
            
            
            352,235
            
            
            
            281,310$
            410,629
            
            
            
            323,763Less:
      accumulated depreciation
            
            
            
            
            
            
            280,264
            
            
            
            240,614$
            130,365
            
            
            $
            98,091




NOTE
3 - INTELLECTUAL PROPERTY





In July
2006, EnerTeck acquired the EnerBurn technology.  The purchase price
for the EnerBurn technology is as follows: (i) $1.0 million cash paid on July
13, 2006, and (ii) a promissory note for $2.0 million. In May of 2007, we made
the initial payment of $500,000 plus interest against the
loan.   Prior to 2009 EnerTeck had determined that the life of
the intellectual property was indefinite; therefore, the asset was not
amortized.  The Company tested its intangible assets for impairment as
of December 31, 2008.  As a result of an independent examination based
on sales for the years ended December 31, 2008, the Company determined that an
impairment of the asset in the amount of $825,000 was required to be
recorded.





Management
made the decision during 2009 to change the characterization of its intellectual
property to a finite-lived asset and to amortize the remaining balance of its
intangible assets to the nominal
value of $150,000 by the end of 2012, due to its determination that this now
represents the scheduled end of its exclusive registration during
period.  As a result, amortization expense of approximately $579,000
was recorded for the year ended December 31, 2009.  Amortization
expense for the years ending December 31, 2010, 2011 and 2012 is expected to be
$569,000, $569,000 and $289,000, respectively.





F-9




NOTE
4 - INCOME TAXES





EnerTeck
has incurred net losses since the merger with Gold Bond and, therefore, has no
tax liability. The net deferred tax asset generated by the loss carry-forward
has been fully reserved. The cumulative operating loss carry-forward is
approximately $12,324,000 at December 31, 2009, and will expire beginning in
2025.





Deferred
income taxes consist of the following at December 31, 2009 and
2008:








2009
            
            
            2008Assets:Net
      operating loss carryforwards
            
            $
            4,313,000
            
            
            $
            3,689,000Inventory
      cost differences
            
            
            41,000
            
            
            
            0Deferred
      compensation costs
            
            
            64,000
            
            
            
            0Valuation
      allowance
            
            
            (4,381,000
            )
            
            
            (3,505,000
            )$
            37,000
            
            
            $
            184,000Liabilities:Amortization
      differences
            
            $
            (10,000
            )
            
            $
            (157,000
            )Depreciation
      differences
            
            
            (27,000
            )
            
            
            (27,000
            )$
            (37,000
            )
            
            $
            (184,000
            )




The
change in the valuation allowance for the years ended December 31, 2009 and
2008, was $876,000 and $386,000, respectively.





NOTE
5 - STOCKHOLDERS’ EQUITY





Between
May 1, 2007 and May 16, 2007, the Company sold a total of 1,000,000 shares of
common stock at $0.75 per share to seven investors for total gross proceeds of
$750,000 in a private placement offering to accredited investors
only.





During
the second quarter of 2008, the Company issued 526,334 shares of common stock
upon the exercise of warrants at an aggregate exercise price of
$333,800.





During
the third quarter of 2008, the Company sold 800,095 shares of its common stock
at $0.70 per share to 15 investors for total gross proceeds of $560,066.50 in a
private placement offering to accredited investors only.  In
connection therewith, the investors were also issued a total of 400,047.5
warrants exercisable into shares of common stock at $1.20 per
share.





During
the second quarter of 2009, the Company issued 1,600,000 shares of our common
stock at $0.50 per share to five investors for total gross proceeds of $800,000
in a private placement offering to accredited investors
only.   During the third quarter of 2009, the Company issued an
additional 700,000 shares of our common stock to three other investors in this
offering for additional proceeds of $350,000 which had been advanced towards
this offering during the second quarter of 2009.   An additional
$30,000 has been advanced towards this offering from another investor during the
second quarter of 2009.  These securities were sold directly by the
Company, without engaging in any advertising or general solicitation of any kind
and without payment of underwriting discounts or commissions to any
person.





In May
2009, the Company issued 250,000 shares of common stock at $0.90 per share to
Wakabayashi Fund, LLC (“Wakabayashi”) for a total of
$225,000, which was reported as professional fees during
2009.  Wakabayashi provided consulting services to be rendered
pursuant to a consulting agreement entered into in May 2009 between the Company
and Wakabayashi.





F-10





NOTE
6 - STOCK WARRANTS AND OPTIONS





Stock
Warrants





In
October, 2007, 510,000 warrants were granted to Mr. Thomas Donino of BATL
Bioenergy LLC and his designee pursuant to the terms of an agreement made as
part of the BATL stock purchase in December, 2005. These warrants have an
exercise price of $2.00 per share and expire in five years from their issue
date.  These warrants were valued using the Black-Scholes Model and
the fair value of $374,667 was charged to operating expense during
2007.





During
second quarter of 2008, a total of 526,334 warrants were exercised by the
warrant holders prior to their expiration date.    During
the third and fourth quarters of 2008, 1,900,316 reached their expiration date
and were not extended.     As part of a private
placement during the same period an additional 400,047.5 five year warrants with
a strike price of $1.20 per share and an expiration date of September 30, 2013
were issued.   As these warrants were issued as part of a
purchase, no additional expense was charged for this transaction during
2009.





Warrants
outstanding and exercisable as of December 31, 2009:





Exercise
      Price
            
            
            Number
      of Warrants
            
            
            Weighted
      Average Remaining Life
            
            
            Exercisable
      Number of Warrants$
            1.00
            
            
            
            500,000
            
            
            .7
            
            
            
            
            500,000$
            1.20
            
            
            
            400,047.5
            
            
            3.8
            
            
            
            
            400,047.5$
            2.00
            
            
            
            1,640,000
            
            
            1.6
            
            
            
            
            1,640,0002,540,047.5
            
            
            
            
            
            
            
            2,540,047.5




Stock
Options





In
September 2003, shareholders of the Company approved an employee stock option
plan (the “2003 Option Plan”) authorizing the issuance of options to purchase up
to 1,000,000 shares of common stock. The 2003 Option Plan is intended to give
the Company greater ability to attract, retain, and motivate officers, key
employees, directors and consultants; and is intended to provide the Company
with the ability to provide incentives more directly linked to the success of
the Company’s business and increases in shareholder value.  As of
December 31, 2007, no options had been issued under the 2003 Option
Plan.  On January 15, 2008, options to acquire 64,200 shares were
issued under the 2003 Option Plan to five employees which options are
immediately exercisable.  These options have an exercise price of
$0.80 per share and expire in five years from their issue date.  These
options were valued using the Black-Scholes Model and the fair value of $47,000
was charged to operating expense during the first quarter of 2008.





Pursuant
to the employment agreement entered into with Gary B. Aman during the first
quarter of 2009, the Company granted Mr. Aman an option to purchase 200,000
shares of Common Stock of the Company at an exercise price of $1.00 per share
which option shall be 25% vested as of the date of grant (March 27, 2009), shall
become 100% vested on January 1, 2010 and shall expire March 27, 2014. These
options were valued using the Black-Scholes Model and the fair value of $101,875
was charged to operating expense during 2009.





During
the third quarter of 2009, options to acquire 64,200 shares were issued under
our 2003 Option Plan to five employees which options are immediately
exercisable.  These options have an exercise price of $0.55 per share
and expire in five years from their issue date.  These options were
valued using the Black-Scholes Model and the fair value of $35,295 was charged
to operating expense during the third quarter of 2009.




F-11





The fair
value of options at the date of grant was estimated using the following weighted
average assumptions for fiscal years 2009 and 2008, respectively:





2009
            
            2008Expected
      dividend yield
            
            0
            
            0Expected
      term
            
            5
      yrs
            
            5
      yrsExpected
      volatility
            
            295-313%
            
            150%Risk-free
      interest rate
            
            5%
            
            5%





The
expected term of the options represents the estimated period of time until
exercise and is based on the Company’s historical experience of similar option
grants, giving consideration to the contractual terms, vesting schedules and
expectations of future employee behavior. For fiscal 2009, expected stock
price volatility is based on the historical volatility of our stock. The
risk-free interest rate is based on the U.S. Treasury bill rate in effect at the
time of grant with an equivalent expected term or life. The Company has not paid
dividends in the past and does not currently plan to pay any dividends in the
future.





Information
regarding activity for stock options under our plan is as
follows:


2009
              
              
              2008Number
      of
                shares
              
              
              Weighted
      average
                exercise
      price
              
              
              Number
      of
                shares
              
              
              Weighted
      average
                exercise
      priceOutstanding
      at beginning of year
              
              
              64,200
              
              
              $
              .80
              
              
              
              0
              
              
              $
              0Options
      granted
              
              
              264,200
              
              
              
              .89
              
              
              
              64,200
              
              
              
              .80Options
      exercised
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Options
      forfeited/expired
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Outstanding
      at end of year
              
              
              328,400
              
              
              $
              .87
              
              
              
              64,200
              
              
              $
              .80Options
      exercisable at end of year
              
              
              178,400
              
              
              
              
              
              
              
              64,200Weighted-average
      fair value of options granted during the year
              
              $
              .52
              
              
              
              
              
              
              $
              .73Nonvested
      options at end of year
              
              
              150,000
              
              
              
              
              
              
              
              0Weighted-average
      remaining contractual term – all options
              
              4.1
      yrs
              
              
              
              
              
              
              4.0
      yrsWeighted-average
      remaining contractual term – vested options
              
              4.0
      yrs
              
              
              
              
              
              
              4.0
      yrsFair
      value of options vested during the year
              
              $
              60,764
              
              
              
              
              
              
              $
              47,000Aggregate
      intrinsic value
              
              $
              0
              
              
              
              
              
              
              $
              0





NOTE
7 - NOTE PAYABLE





The
Company has a note payable in connection with its acquisition of intellectual
property.  The note requires four annual payments of $500,000 plus
interest at 4% compounded on a monthly basis, starting July 2007.  The
note is secured by the intellectual property. A payment of $500,000 plus related
interest was made in July, 2008.  An additional payment of $500,000,
plus related interest, was made in July 2009, leaving a remaining balance of
$500,000 (see Note 9).





F-12





NOTE
8 – RELATED PARTY NOTES AND ADVANCES





On July
7, 2009, the Company entered into a $100,000 unsecured promissory note with an
officer, due on demand.  Interest is payable at 12% per
annum.





On
December 11, 2009, the Company entered into a $50,000 note with a
shareholder/director. Interest is 5% per annum.  The principal balance
of the note is due on the earlier of December 11, 2012, or upon completion by
the Company of equity financing in excess of $1.0 million in gross
proceeds.  Interest on the loan is payable on the maturity date at the
rate of 5% per annum.





NOTE
9 - COMMITMENTS AND CONTINGENCIES





RubyCat
Technology Agreement and Note Payable-





Effective
September 7, 2001, EnerTeck entered into an Exclusive Market Segment Development
Agreement with RubyCat Technology, Inc. (“RubyCat”). The agreement provided
EnerTeck exclusive rights to market RubyCat products, which includes EnerBurn,
to on-highway diesel large fleet truck market, small engine marine (<7,000
horsepower) market, railroad diesel and the international diesel fuel market. In
addition, EnerTeck was able to obtain approval from the Environmental Protection
Agency to sell the product through its agreement with RubyCat.





In
October 2005, we entered into a letter of intent to acquire Ruby Cat, the
formulator of our products (the “Ruby Cat LOI”).   Despite the
Ruby Cat LOI to acquire Ruby Cat, we subsequently changed negotiations to simply
acquire the EnerBurn technology and associated assets.  These
negotiations were successfully completed during the third quarter of 2006, with
the completion of the acquisition of the EnerBurn technology and associated
assets on July 13, 2006 for a total purchase price of
$3,000,000.  This acquisition allows us to manufacture our own on and
off road versions of the EnerBurn product line and has allowed for significant
savings in the cost requirements of product sales from
manufacturing.





As a
result of the acquisition, we were required to make an immediate payment of
$1,000,000 at closing and we were to make additional annual payments of $500,000
per year, plus interest at a rate of 4% for four years, all of which will draw
significantly on future cash reserves. The first payment of $500,000 was made in
July 2007.  An additional $500,000 due July 13, 2008 was also made in
advance of the due date, on July 13, 2008.





Based on
information which has recently come to management’s attention that certain
confidential and proprietary information has been disclosed to third parties in
violation of the EnerBurn Acquisition Agreement, the Company filed a petition in
April 2009 in Harris County, Texas, requesting that the court order Econalytic
Systems, Inc. (“Econalytic”) and others to appear for pre-suit
depositions.  Although such petition was opposed by Econalytic and
others, the court granted the Company the right to conduct three depositions
which have now been taken.





Econalytic
filed suit in late April 2009 against the Company in the District Court, Boulder
County, Colorado in which Econalytic is seeking a declaratory judgment which
would permit it to sell certain technology which Econalytic claims it retained
and is permitted to sell under the EnerBurn Acquisition
Agreement.     In July 2009, the Company filed an
answer and counterclaims against Econalytic in such action claiming breach of
contract and misappropriation of trade secrets and seeking a declaratory
judgment specifically interpreting and clarifying the Company’s rights under the
EnerBurn Acquisition Agreement.  On August 14, 2009, the Company
removed the state court lawsuit pending in District Court in Boulder, Colorado
to the United States District Court in Denver, Colorado.  In addition,
the Company filed a motion requesting the court grant the Company leave to pay
the remaining installments under the EnerBurn Acquisition Agreement into the
registry of the court pending adjudication of such matter.





The court
granted the request and the Company paid $500,000 plus accrued interest into the
registry of the court on July 13, 2009.  Econalytic then filed an
amended complaint asserting a breach of promissory note. The next and final
payment to complete the purchase will be due on July
13, 2010.  The Company intends to take all legal action which may
be necessary to protect its rights under the EnerBurn Acquisition Agreement,
including prosecuting and defending this matter vigorously.




F-13





Office
Lease -





EnerTeck
leases office space under a non-cancelable operating lease. Future minimum
rentals due under non-cancelable operating leases with an original maturity of
at least one-year are approximately as follow:





December
      31,
            
            Amount2010
            
            
            41,8052011
            
            
            20,980Total
            
            $
            62,758




Rent
expense for the years ended December 31, 2009 and December 31, 2008 totaled
$50,398 and $48,075, respectively.   The current lease was
recently negotiated for a renewal for an additional year and expires April 30,
2011.  The company has an option to renew for an additional two years
at that time.





Registration
Rights Agreement





In
connection with the BATL Agreement, the Company and BATL entered into a
Registration Rights Agreement dated as of December 8, 2005 (the “Registration
Rights Agreement”), whereby the Company has agreed to prepare and file with the
Commission not later than the 60th day (the “Filing Date”) after the BATL
Closing Date a Registration Statement covering the resale of all of the BATL
Shares and the shares of common stock underlying the BATL
Warrant.  The Company has agreed to use its best efforts to cause the
Registration Statement to be declared effective as promptly as possible after
the filing thereof, but in any event prior to the 240th day after the Filing
Date  (such day referred to as the “Effective Date”); provided that,
if the Registration Statement is not filed by the Filing Date or declared
effective by the Effective Date (each a “Penalty Event”) then the
Company  shall issue a five-year warrant (“Penalty Warrant”) to BATL
to acquire another 49,000 shares of common stock, at an exercise price equal to
the exercise price of the BATL Warrant, per each 30-day period following the
Penalty Event that the Registration Statement has not been filed and/or that the
Effective Date has not occurred.  In April 2006, the Company entered
into a letter agreement with BATL amending and clarifying certain provisions of
the Registration Rights Agreement.  Pursuant to the April 2006 letter
agreement, it was agreed (i) that the number of Penalty Warrants issuable for
all periods prior to April 30, 2006 in respect of delays in filing the
Registration Statement shall be 30,000, and (ii) 28,500 of such warrants shall
be issued to Thomas F. Donino and 1,500 of such warrants shall be issued to Jay
Goldstein.   In October 2007, the Company entered into another
letter agreement with BATL pursuant to which it was agreed that in the event the
Effective Date occurs during the period from and including April 30, 2006
through April 30, 2008 (the “Fixed Period”), the number of shares of Common
Stock underlying any Penalty Warrant issuable due to the fact that the
Registration Statement was not declared effective by the Effective Date shall be
510,000 (the “Fixed Penalty Warrant”), regardless of at which point during the
Fixed Period the Effective Date occurs.  In October 2007, the Fixed
Penalty Warrant was delivered to BATL.  The October 2007 letter
agreement further provides that if the Effective Date shall have not occurred on
or prior to April 30, 2008, then the Company shall once again be obligated to
issue a Penalty Warrant to BATL per 30-day period following the Fixed Period
that the Effective Date has not occurred, in accordance with the terms of the
Registration Rights Agreement.  The Effective Date occurred on April
15, 2008.  As a result, no additional Penalty Warrants were required
to be issued.





Ability
to Continue as a Going Concern





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern which contemplates the realization of assets
and satisfaction of liabilities in the normal course of
business.  During the years ended December 31, 2009 and 2008, the
Company incurred recurring net losses of $2,054,000 and $1,524,000,
respectively.  In addition, at December 31, 2009, the Company has an
accumulated deficit of $21,455,000.  These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern.   The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.





The
Company’s continuation as a going concern is contingent upon its ability to
obtain additional financing and to generate revenues and cash flow to meet its
obligations on a timely basis.  Management believes that sales
revenues for 2009 and 2008 were considerably less than earlier anticipated
primarily due to circumstances which have been corrected or are in the process
of being corrected.   Management expects that marine, railroad
and trucking sales should show significant increases in 2010 over what has been
generated in the past, as a result of the expected outcome of long term client
demonstrations from several extremely large new clients, which took place over
the fourth quarter of 2009 and will take place over the first three quarters of
2010.




F-14





The
Company has been able to generate working capital in the past through private
placements and believes that these avenues will remain available to the Company
if additional financing is necessary.   No assurance can be made
that any of these efforts will be successful.





NOTE
10 - CONCENTRATION OF CREDIT RISK





Financial
instruments that potentially subject EnerTeck to concentration of credit risk
are accounts receivable. Currently all Accounts Receivable are considered
collectible.  EnerTeck performs ongoing credit evaluations as to the
financial condition of its customers.  Generally, no collateral is
required.





EnerTeck
at times has cash in bank in excess of Federal Deposit Insurance Corporation
(“FDIC”) insurance limits.  At December 31, 2009, EnerTeck had $52,000
in cash which is within FDIC insurance limits.





NOTE
11-
REVENUE FROM MAJOR CUSTOMERS





In the
past the Company had one customer, which represented the majority of the
Company’s revenues.   During 2009 this customer represented 0.0%
of the Company’s sales as compared to 83.3% of the Company’s sales revenues for
the year ended December 31, 2008.   This customer itself suffered
from the weakened economy and is currently testing our Company’s principal
product line on additional segments of its business.  This customer
has again ordered in 2010, subsequent to the December 31, 2009 close and is
still a significant part of our business; however as other customer testing is
completed in other industries their individual impact on our business will
lessen.   The Company had no receivables outstanding from this
major customer at year end December 31, 2009.  During 2009 another
customer represented 50% of the Company’s sales, and accounted for 86% of the
Company’s receivables at December 31, 2009.





F-15