UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the quarterly period ending March 31, 2005
[_] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
ECOLOCLEAN INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0420750
------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
2242 South Hwy #83, Crystal City, TX 78839
(Address of principal executive offices)
(830) 374-9100
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - $0.001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 31, 2005, there were 38,150,664 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
--- ---
ECOLOCLEAN INDUSTRIES, INC.
FORM 10-QSB
INDEX
Page
PART I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004........................... 3-4
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2005 and 2004............. 5
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004............. 6-7
Notes to Condensed Consolidated Financial Statements........... 8-10
Item 2 - Management's Discussion and Analysis or Plan of Operation ..... 11
Item 3 - Controls and Procedures........................................ 13
PART II - Other Information
Item 1 - Legal Proceedings ............................................. 14
Item 2 - Unregistered Sales of Equity Securities........................ 14
Item 3 - Defaults Upon Senior Securities................................ 14
Item 4 - Submission of Matters to a Vote of Security Holdings........... 14
Item 5 - Other Information.............................................. 14
Item 6 - Exhibits....................................................... 14
Signature............................................................... 15
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
March 31, 2005 December 31, 2004
----------------- -----------------
(Unaudited)
Current Assets:
Cash $ 47,152 $ 5,929
Accounts Receivable 78,985 153,987
Prepaid Expenses 28,622 72,294
----------------- -----------------
Total Current Assets 154,759 232,210
----------------- -----------------
Property Plant and Equipment, Net 497,845 516,479
----------------- -----------------
Other Assets:
Assets Held For Sale 100,258 342,213
Deposits 101,296 12,970
License, Net 75,935 80,434
Intangible Asset 33,585 33,585
----------------- -----------------
Total Other Assets 311,074 469,202
----------------- -----------------
Total Assets $ 963,678 $ 1,217,891
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-3-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
March 31, 2005 December 31, 2004
----------------- -----------------
(Unaudited)
Current Liabilities:
Accounts Payable and
Accrued Expenses $ 1,100,109 $ 1,055,720
Deposit - Sale of Assets 4,891 0
Note Payable - Current Maturities 222,434 260,461
----------------- -----------------
Total Current Liabilities 1,327,434 1,316,181
Long-Term Debt 8,136 9,661
Due to Related Parties 2,138,967 1,941,808
----------------- -----------------
Total Liabilities 3,474,537 3,267,650
----------------- -----------------
Commitments and Contingencies -- --
Stockholders' (Deficit):
Preferred Stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common Stock, $.001 par value per share,
50,000,000 shares authorized;
37,900,664 shares issued and
outstanding December 31, 2004
38,150,164 shares issued and outstanding
March 31, 2005 3,815 3,790
Additional Paid-in Capital 1,619,706 1,591,731
Accumulated (Deficit) (4,134,380) (3,645,280)
----------------- -----------------
Total Stockholders' (Deficit) (2,510,859) (2,049,759)
----------------- -----------------
Total Liabilities and
Stockholders' (Deficit) $ 963,678 $ 1,217,891
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
Revenues: $ 0 $ 71,117
-------------- --------------
Expenses:
Cost of Sales 0 31,155
Operating Expenses 54,254 42,749
Depreciation & Amortization 23,256 16,744
Interest 30,335 14,598
Officer's Salary 30,000 30,000
Selling, General and Administrative 222,194 226,815
-------------- --------------
Total Expenses 360,039 362,061
-------------- --------------
Net (Loss) From Continuing Operations (360,039) (290,944)
Net (Loss) From Discontinued Operations (129,061) (18,142)
-------------- --------------
Net (Loss) $ (489,100) $ (309,086)
============== ==============
Net (Loss) Per Common Share
Basic and Diluted
Net (Loss) From Continuing Operations $ (0.01) $ (0.01)
Net (Loss) From Discontinued Operations (0.00) (0.00)
-------------- --------------
Total $ (0.01) $ (0.01)
============== ==============
Weighted Average Number of Common
Shares Outstanding 38,025,664 32,550,664
============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss)
From Continuing Operations $ (360,039) $ (290,944)
From Discontinued Operations (129,061) (18,142)
Adjustments To Reconcile Net (Loss)
To Net Cash Provided (Required)
By Operating Activities:
Depreciation And Amortization
From Continuing Operations 23,256 16,744
From Discontinued Operations 21,078 2,931
Issuance Of Common Stock
For Services Provided 16,000 50,000
Loss On Sale Of Equipment 15,090
Officer's Salary 30,000 30,000
Changes In:
Accounts Receivable 75,002 36,507
Prepaid Expenses 43,672 8,350
Deposits 11,800 0
Accounts Payable And Accrued Expenses 26,389 40,590
Deposit - Sale Of Assets 4,891 0
Customer Deposits 0 (200)
-------------- --------------
Net Cash (Required)
By Operating Activities (221,922) (124,164)
-------------- --------------
Cash Flows Provided (Required)
By Investing Activities:
Deposits And Advances For
Pending Acquisitions (100,126) 0
Proceeds - Sale of Equipment 211,928 0
Acquisitions of Property, Plant & Equipment (6,264) (184,783)
-------------- --------------
Net Cash Provided (Required)
By Investing Activities 105,538 (184,783)
-------------- --------------
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
(CONTINUED)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
Cash Flows Provided (Required) By
Financing Activities:
Payment Of Short-Term Loans (38,027) 0
Payments Of Long-Term Loans (1,525) (544)
Proceeds Of Loans From
Related Parties 197,159 343,891
-------------- --------------
Net Cash Provided By Financing Activities 157,607 343,347
-------------- --------------
Net Increase In Cash 41,223 34,400
Cash At Beginning Of Period 5,929 2,532
-------------- --------------
Cash At End Of Period $ 47,152 $ 36,932
============== ==============
Supplemental Disclosures Of
Cash Flow Information
Cash Payments For Interest $ 13,335 $ 3,032
============== ==============
Cash Payments For Income Taxes $ 0 $ 0
============== ==============
Non-Cash Financing Activities:
Issuance Of Common Stock:
Operating Activities $ 16,000 $ 50,000
Payment Of Accounts Payable 12,000 0
-------------- --------------
Total Non-Cash Financing Activities $ 28,000 $ 50,000
============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
-7-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited condensed consolidated financial statements
for the three month periods ended March 31, 2005 and 2004 have been
prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Regulation S-B. The financial information as of December 31,
2004 is derived from the registrant's Form 10-KSB for the year ended
December 31, 2004. Certain information or footnote disclosures normally
included in condensed consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission.
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. In the opinion of
management, the accompanying consolidated financial statements include
all adjustments necessary (which are of a normal and recurring nature)
for the fair presentation of the results of the interim periods
presented. While the registrant believes that the disclosures presented
are adequate to keep the information from being misleading, it is
suggested that these accompanying financial statements be read in
conjunction with the registrant's audited consolidated financial
statements and notes for the year ended December 31, 2004, included in
the registrant's Form 10-KSB for the year ended December 31, 2004.
Operating results for the three-month period ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the
remainder of the fiscal year ending December 31, 2005. The accompanying
unaudited condensed consolidated financial statements include the
accounts of the registrant and its wholly-owned subsidiaries,
Ecoloclean, Inc., World Environmental Technologies, Inc., Ecoloclean of
Texas, Inc. and Reliant Drilling Systems, Inc. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
-8-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 2 - GOING CONCERN
------ -------------
The accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis, which anticipates the
realization of assets and the liquidation of liabilities during the
normal course of operations. However, as shown in these condensed
consolidated financial statements, the Company during the three-month
period ended March 31, 2005, incurred a net loss from continuing
operations of $360,039 and a net loss from discontinued operations of
$129,061. In addition, as at March 31, 2005, the Company's total
liabilities exceeded its total assets by $2,510,859. The Company has
experienced significant recurring operational losses and negative cash
flows from operations and at March 31, 2005 has an accumulated deficit
of $4,134,380. These factors raise doubt about the Company's ability to
continue as a going concern if changes in operations are not
forthcoming. Management, in the first quarter of 2005 has taken a
position that by discontinuing operations in certain of its
wholly-owned subsidiaries, and concentrating its efforts on more
productive resources, the Company will achieve more favorable operating
results. The Company's ability to continue as a going concern will
depend on management's ability to successfully implement a business
plan which will increase revenues, control costs, and obtain additional
forms of debt and/or equity financing. These financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
-9-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 3 - LICENSE AND TRADE MARK COSTS
------ ----------------------------
The Company acquired an industry exclusive, perpetual worldwide license
to commercialize the inventions on patents and market, manufacture,
sell, lease and, or utilize, for processing electrocoagulation units
for the treatment of effluent water. Royalties are $3,000 per unit
manufactured and 2% of gross processing revenues. License costs are
being amortized over 5 years.
During 2004, the Company obtained the worldwide exclusive rights for
the patented Coale Separator which supercedes a previously announced
general revenue sharing agreement with the licensors.
The new license agreement and international marketing rights will allow
the Company the opportunity to market, manufacture, install and
commercialize the inventions and to operate and use such process
apparatus, machinery and devices to remove contaminants from fuels used
in combustion engines, using fewer than five (5) gallons of fuel per
minute. The exclusive rights granted under this superceding agreement
will apply to industries that use combustion engines and are inclusive
of two patents currently in place and any future related patents,
improvements or applications. This acquisition will be developed and
marketed under the Company's subsidiary, World Environmental
Technologies, Inc.
The license agreement and a related consulting agreement require a
$50,000 one-time license fee and the issuance of 50,000 shares of
restricted common stock of Ecoloclean Industries, Inc. which was valued
at $12,000 and issued on January 24, 2005. This license fee is also
being amortized over a 5-year life.
The Company incurred trademark application costs of $3,505 regarding
various product names for the Coale Separator during 2004.
A summary of license and trademark costs at March 31, 2005 and December
31, 2004 net of applicable amortization is as follows:
March 31, December 31,
2005 2004
------------ ------------
License Costs Electro Coagulation
Technology (Net) $ 13,530 $ 14,929
License Costs - Coale Separator (Net) 58,900 62,000
Trademark Costs - Coale 3,505 3,505
------------ ------------
$ 75,935 $ 80,434
============ ============
-10-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
------ -----------------------------
A summary of property, plant and equipment at March 31, 2005 and
December 31, 2004 is as follows:
Estimated
March 31, December 31, Economic
2005 2004 Life
------------ ------------ --------
Land $ 80,000 $ 80,000 N/A
Warehouse 34,120 34,120 40 Years
Electro Coagulation Units 239,237 239,237 5 Years
Machinery & Equipment 235,845 229,829 5 Years
Office Equipment 8,789 8,789 5 Years
Computers & Related Equipment 12,939 12,691 5 Years
Transportation Equipment 42,448 42,448 5 Years
------------ ------------
Total 653,378 647,114
Less Accumulated Depreciation 155,533 130,635
------------ ------------
Net Property, Plant
& Equipment $ 497,845 $ 516,479
============ ============
Assets Held For Sale $ 100,258 $ 342,213
============ ============
Depreciation expense for the three months ended March 31, 2005 and
March 31, 2004 amounted to $38,835 and $18,276 respectively.
NOTE 5 - LONG-TERM DEBT
------ --------------
A summary of notes and loans payable at March 31, 2005 and December 31,
2004 are as follows:
March 31, December 31,
2005 2004
------------ ------------
Note Payable, Unsecured, 10% Interest
Bearing, Maturing October 6, 2005 $ 150,000 $ 150,000
Loan Payable, Unsecured, Non Interest Bearing
Payable on Demand 15,195 15,108
Notes Payable, Secured Interest Bearing
Factoring Line of Credit (See Note Below) 50,693 89,252
Note Payable, Secured by a Truck, 14%
Interest Bearing, Maturing July 22, 2007 14,682 15,762
------------ ------------
230,570 270,122
Less Current Maturities 222,434 260,461
------------ ------------
Total Long-Term Debt $ 8,136 $ 9,661
============ ============
-11-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 5 - LONG-TERM DEBT (CONTINUED)
------ -------------------------
Note: The Company has entered into an agreement to factor certain
accounts receivable. Under this agreement, the Company may receive up
to seventy percent of the account balance at an interest rate of 2% the
first month and 1% per month on the outstanding factored invoice
thereafter until payment is received. On May 5, 2005, the Company
completed payment of all outstanding accounts due.
NOTE 6 - RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. As
of March 31, 2005, the cumulative amount of unpaid officer's salary was
$310,000 and is included in accounts payable and accrued expenses.
At March 31, 2005, cumulative advances bearing interest at 5% per annum
due to officers of the Company amounted to $2,138,967 plus $122,724
accrued interest. The accrued interest is included in accounts payable
and accrued expenses. The advances are due July 10, 2006 with the right
of prepayment.
NOTE 7 - DISCONTINUED OPERATIONS
------ -----------------------
During the first quarter of 2005, Reliant Drilling Systems, Inc.
("RDS"), a wholly-owned subsidiary of the Company, which had been
engaged in providing solids control services for oil and gas drillers
and producers, began to sell certain of its equipment assets in order
to implement its decision to no longer offer these services. For the
year ended December 31, 2004, RDS had revenues of $718,025 with a
reported loss of $280,091.
Sales of equipment recorded by "RDS" during the first quarter of 2005
were in excess of $200,000 with a resulting loss of $15,090. During
April 2005, "RDS" recorded approximately $38,000 of equipment sales
resulting in a gain in excess of $6,500.
Following this sale, "RDS" has equipment remaining with a book value
approximating $55,000. "RDS" expects to receive an additional $ 35,000
on the sale of certain equipment which will result in a minimal gain.
The balance of the equipment (approximately $20,000) will be utilized
by another subsidiary.
Also during the first quarter of 2005, Ecoloclean of Texas, Inc.,
("ECOT") a wholly-owned subsidiary of the Company, which had been
engaged in providing enviro cleanup services to industrial customers,
executed a Letter of Intent to sell certain of its equipment with a
book value of $41,574, job materials and supplies and its customer
contracts for $120,000 (see Note 9). For the year ended December 31,
2004, this wholly-owned subsidiary had revenues of $132,668 with a
reported loss of $285,651.
-12-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 7 - DISCONTINUED OPERATIONS (CONTINUED)
------ -----------------------------------
As a result of the Company discontinuing the operations of "RDS" and
"ECOT", the condensed consolidated financial statements and the related
notes contained herein have been restated to reflect the financial
position, results of operations and cash flows of "RDS" and "ECOT" as
discontinued operations.
The following table sets forth, for the periods indicated, selected
financial data of the Company's discontinued operations.
SELECTED FINANCIAL DATA FOR DISCONTINUED OPERATIONS
Three Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Revenue $ 76,007 $ 67,610
Cost of Sales 48,628 17,398
-------------- --------------
Gross Profit 27,379 50,212
Expenses 156,440 68,354
-------------- --------------
(Loss) From Discontinued Operations $ (129,061) $ (18,142)
============== ==============
NOTE 8 - COMMON STOCK TRANSACTIONS
------ -------------------------
0n January 24, 2005, the Company issued 200,000 shares of its
restricted common stock for 2005 investor public relations services
valued at $16,000.
On January 24, 2005, the Company issued 50,000 shares of its restricted
common stock valued at $12,000 in partial payment of obligations
regarding the acquisition of the Coale Separator license.
-13-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE 9 - SUBSEQUENT EVENTS
------ -----------------
On April 18, 2005, Ecoloclean of Texas, Inc. ("ECOT") completed the
transaction to sell its equipment assets and customer contracts for
$120,000 payable over a one-year period. The effective date of the
transaction was April 1, 2005 and resulted in a gain of approximately
$75,000.
On May 13, 2005, the Company executed a non-binding Letter of Intent to
acquire 100% ownership of a company engaged in providing creative and
cost effective solutions to a wide range of industrial pure water,
waste water and solid waste management problems. In order to complete
the proposed transaction, the Company is required to provide $300,000
of working capital and other considerations including 2,500,000 shares
of its restricted common stock. Prior to the execution of the Letter of
Intent, the Company provided $51,000 of deposits/advances of which
$31,000 was advanced as of March 31, 2005.
The Company has also been in discussions and negotiations with a
water-processing company for possible acquisition. The company has
advanced funds and incurred expenses in excess of $70,000 as of March
31, 2005. The Company is continuing its efforts to complete the
acquisition of the entity.
-14-
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview and Plan of Operation
Background
During the quarter ended March 31, 2005, Ecoloclean Industries, Inc. ("ECCI"),
had gross operating revenues of $0 from continuing operations and $76,007 from
discontinued operations which were generated by its Louisiana subsidiary,
Reliant Drilling Systems, Inc. ("RDS"), and its Texas Subsidiary, Ecoloclean of
Texas, Inc. ("ECOT"), whose operations were discontinued during this quarter.
Current Operations
A. Industrial and Exploration Liquid Waste Remediation Services
World Environmental Technologies, Inc. ("WET"), a wholly owned subsidiary, has
utilized its Louisiana statewide Water Discharge Permit and its patented Electro
Coagulation ("EC") treatment systems to aggressively market it services for oil
field and industrial liquid waste remediation. These efforts have resulted in
WET acquiring Master Service Agreements from several Refinery Groups and
Petroleum Operators, which it is waiting to implement. At this time there are no
pending contracts or orders to provide services for oil field and industrial
liquid waste remediation.
WET has reached a tentative agreement to utilize its Louisiana State Wide Water
Discharge Permit as the basis to install a waste water treatment facility at the
AB Dock, located in Cameron Parrish, Louisiana. This opportunity developed
because the present owners do not have the authority to treat and discharge the
waste water being brought ashore for treatment, disposal and/or reuse. Under the
proposed arrangement, the AB Dock owners anticipate an increase in the amount of
waste water being brought ashore which will cause an immediate need for
additional storage and treatment facilities.
WET has agreed to install and operate such facilities on a revenue-sharing basis
whereby WET would receive the greatest majority of the generated revenue. The
contract would be for a one-year term with optional renewal periods.
B. Agricultural Clean Up
Ecoloclean, Inc. ("ECI"), a wholly owned subsidiary of the Company, continues to
devote efforts to the Dairy Industries as it pertains to the animal waste
created by cows, swine and chickens. Recently during the first quarter of 2005,
ECI formed an alliance with another company in this field. By combining the EC
Unit technology with that of the new partner, the Company was successfully able
to demonstrate a ninety-nine percent plus (99% +) phosphate removal from dairy
waste.
-15-
During the second quarter of 2005, the Company will be performing another
demonstration for approximately two hundred (200) dairy farmers, representatives
from Texas A&M University, American Dairy Association, Texas Farm Bureau, the
EPA and other interested parties.
Based on the test results from the initial demonstration, the Company expects to
be able to offer the dairy industry along with swine and chicken producers a
much needed solution to their waste disposal problems.
C. Coale Separator aka "Diesel Pure"
ECCI has obtained the Worldwide Exclusive Rights for the patented Coale
Separator through an agreement with Coale's Environmental Systems, Inc.
("Coale"). As previously announced on June 2, 2004, ECCI entered into a General
Revenue Sharing Agreement with Coale. The new license agreement and
international marketing rights will allow ECCI the opportunity to market,
manufacture, install and commercialize the inventions and to operate and use
such process apparatus, machinery and devices to remove contaminants from fuels
used in combustion engines using fewer than five (5) gallons of fuel per minute.
The exclusive rights are inclusive of two patents currently in place and any
future related patents, improved or applications. This acquisition will be
developed and marketed under ECCI's WET subsidiary.
The Coale Separator (a.k.a. "Diesel Pure Unit") decreases and substantially
eliminates contaminants in diesel fuel. It is designed to operate as a mobile
fuel-scrubbing unit that reduces abrasive sediments and corrosive degradation by
removing contaminants such as water, oxidation, dirt, sand and sludge. The Coale
Separator effectively separates these liquid and solid particles from diesel
fuel, thereby allowing only purified fuel to reach combustions engines. This
device is easily installed without any modifications to the existing engine.
This process increases horsepower and engine efficiency by burning a cleaner
fuel. The Coale Separator is effective for use with diesel fuel, gasoline,
kerosene, hydraulic oil transmission fluid and JP8 jet fuel. In addition, it
extends filter life resulting in measurable cost savings. Other benefits include
a reduction of fuel system problems, broken injector tips, excessive engine wear
and power losses, thereby improving overall engine performance. The Company
anticipates the potential customer base will include owner/operators of
combustion engines, including, but not limited to, offshore/onshore drilling
rigs, tugboats and transportation departments of government agencies.
During the first quarter, production, marketing and sales efforts were initiated
for the Diesel Pure Unit. In addition, a website has been established explaining
the capabilities of the Diesel Pure Unit.
-16-
The Company has placed several units with potential end-users for testing
periods varying between one week and one month. Initial reports have been
favorable. The Company expects to be in contact with potential distributors in
addition to end-users during the second quarter of 2005.
D. New Developments
On April 18, 2005, Ecoloclean of Texas, Inc. ("ECOT") completed the transaction
to sell its equipment assets and customer contracts for $120,000 payable over a
one-year period. The effective date of the transaction was April 1, 2005 and
resulted in a gain of approximately $75,000.
On May 13, 2005, the Company executed a non-binding Letter of Intent to acquire
100% ownership of a company engaged in providing creative and cost effective
solutions to a wide range of industrial pure water, waste water and solid waste
management problems. In order to complete the proposed transaction, the Company
is required to provide the $300,000 of working capital and other considerations
including 2,500,000 shares of its restricted common stock. Prior to the
execution of the Letter of Intent, the Company provided $51,000 of
deposits/advances of which $31,000 was advanced as of March 31, 2005.
The Company has also been in discussions and negotiations with a water-
processing company for possible acquisition. The Company has advanced funds and
incurred expenses in excess of $70,000 as of March 31, 2005. The Company is
continuing its efforts to complete the acquisition of the entity.
Financial Considerations
Currently, there are insufficient revenues and resources to offset annual
operating overhead, which is now projected to be approximately $750,000, after
taking into consideration the sales of equipment assets and customer contracts
of the discontinued operations of Reliant Drilling Systems, Inc. and Ecoloclean
of Texas, Inc. subsidiaries. Until the Company obtains the amount of working
capital required to meet its continuing operating overhead, it will be necessary
to call upon the investment community and/or the Company's officers and
directors for financial assistance. In addition, the Company will also be
attempting to obtain the capital necessary to complete to the two acquisitions
discussed above in the "New Development" section.
During the first quarter, the Company's President provided $197,159 in loans to
the Company. All of the funds advanced during the first quarter were utilized to
offset operating overhead expenses and provide advances also described in the
"New Development" section above. The officers have not indicated a willingness
to continue providing funds during the remaining nine months of 2005 in amounts,
commensurate to the $1,166,439 advanced during 2004. Efforts are ongoing to
obtain funding from sources outside of the Company. At this time, the Company
has not received any financing commitments although certain initiatives are
ongoing.
-17-
Going Concern
The Independent auditors' report contains language indicating that the financial
statements have been prepared on a going concern basis, which contemplates
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company has continuously incurred losses from operations and has a
significant accumulated deficit. The appropriateness of using the going concern
basis is dependent upon the Company's ability to obtain additional financing or
equity capital and, ultimately, to achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
It is the Company's belief that it will continue to incur losses for at least
the next six months, and as a result will require additional funds from debt or
equity investments to meet such needs. Without realization of additional
capital, it would be unlikely for the Company to continue as going concern. The
Company anticipates that its officers will contribute a portion of the funds
needed to satisfy the cash needs of the Company for the next six months.
However, there can be no assurances to that effect, as the Company has limited
revenues and the Company's need for capital may change dramatically if it is
successful in acquiring a new business. If the Company cannot obtain needed
funds, it may be forced to curtail or cease its activities. To meet these
objectives, management's plans are to (i) raise capital by obtaining financing
through private placement efforts; (ii) issue common stock for services rendered
in lieu of cash payments and (iii) obtain loans from officers to the extent
possible.
The Company's future ability to achieve these objectives cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating periods.
Conclusion
Although the Company expended substantial financial resources to establish all
three of its field service operations, the expected results were not achieved.
Accordingly, as indicated above, two of the Company's subsidiaries discontinued
operations during the first quarter of 2005 and their assets have been, or are
being, liquidated.
The Company is concentrating its efforts on the marketing and sales of its Coale
Separator and liquid waste remediation services along with the development of
its Agricultural Clean-Up Program. In addition, the Company is expending its
full efforts to be in position to complete one of or both of the acquisition
opportunities described above.
As stated herein, all future activities of the Company will be dependent on its
ability to obtain additional funding in the near future.
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RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $0 from continuing operations for the
three months ended March 31, 2005 as compared with $71,117 revenues for the
three months ended March 31, 2004. The decreased revenues of $71,117 were due to
the reduction of revenues at World Environmental Technologies, Inc., the
Company's water processing subsidiary.
TOTAL COSTS AND EXPENSES: Total costs and expenses decreased from $362,061 for
the three months ended March 31, 2004 to $360,039 from continuing operations for
the three months ended March 31, 2005.
OPERATING EXPENSES: Operating expenses increased from $42,749 for the three
months ended March 31, 2004 to $54,254 from continuing operations for the three
months ended March 31, 2005. The increase of $11,505 was primarily due to the
increased costs connected with Dairy Industry initiatives and with preparing to
manufacture the Coale Separator.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses decreased from $226,815 for the three months ended March 31, 2004 to
$222,194 for the three months ended March 31, 2005. The decrease of $4,621 was
due to increases of various administrative expenses.
INCOME TAX: The pretax loss increased from $309,086 for the three months ended
March 31, 2004 to $489,100 for the three months ended March 31, 2005, an
increase of $180,014.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures
during the three months ended March 31, 2005 totaled $6,265 as compared with
$184,783 for the three months ended March 31, 2004. The expenditures of $6,265
primarily consist of equipment purchased for the Coale Separator manufacturing
efforts; whereas, the $184,783 of capital expenditures for the three months
ended March 31, 2004, primarily consisted of equipment purchased for the
Company's water processing subsidiary.
Sales of capital assets for the three months ended March 31, 2005 were $211,928
including a $6,685 cost adjustment as compared to $0 for the three months ended
March 31, 2005. The increase of $211,928 was due to sales of equipment by the
Company's Reliant Drilling Systems, Inc., subsidiary after discontinuing its
operations.
Total debt increased from $3,267,650 at December 31, 2004 to $3,474,537 at March
31, 2005, an increase of $206,882. The increased debt was primarily attributable
due to an increase of $197,159 in monies due to the President which he advanced
during the quarter. These funds advanced by the President allowed us to continue
operations. Total debt as of March 31, 2005 and December 31, 2004 expressed as a
percentage of the sum of total debt and shareholders' equity was 360.5% and
268.3% respectively.
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Net loss for the three months ended March 31, 2005 was $489,100, an increase of
158.2% from the net loss of $309,086 for the three months ended March 31, 2004.
Diluted net loss per common share remained at $0.01. The net loss per share
calculation for the three months ended March 31, 2005 included an increase in
actual and equivalent shares outstanding.
DISCONTINUED OPERATIONS: The loss from discontinued operations for the three
months ended March 31, 2005, includes losses of $53,229 incurred by Reliant
Drilling Systems, Inc., and $75,832 incurred by Ecoloclean of Texas, Inc. These
losses of each subsidiary, which total $129,061, are primarily attributable to
their inability to obtain gross revenue levels and margins in sufficient enough
amounts to cover operating support costs and other overhead of each company.
Losses of these two subsidiaries were $18,142 for the three months ended March
31, 2004, which was the first full quarter of operations for Reliant Drilling
Systems, Inc., and the pre-operating period of Ecoloclean of Texas, Inc.
GOING CONCERN: While the Company's unaudited condensed consolidated financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and liquidation of liabilities during the normal course of
operations, certain adverse conditions and events cast substantial doubt upon
the validity of this assumption. Factors contributing to this substantial doubt
include recurring losses from operations and net working capital deficiencies.
As mentioned in the Financial Condition, Liquidity and Capital Resources section
above, we are currently dependent on funding from the President to continue the
Company's operations. The discontinuance of such funding and the unavailability
of outside financing to replace such funding could result in the Company ceasing
operations.
FORWARD-LOOKING STATEMENTS:
We have included forward-looking statements in this report. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "plan" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Factors that might cause forward-looking statements to differ materially from
actual results include, among other things, overall economic and business
conditions, demand for the Company's products, competitive factors in the
industries in which we compete or intend to compete, impact and other
uncertainties of our future acquisition plans.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, are not subject to material
foreign currency exchange risk. Although the Company has outstanding debt and
related interest expense, market risk of interest rate exposure in the United
States is currently not material.
Item 3. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that material
information related to our company is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms.
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation
under the supervision and with the participation of management, including our
Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, our Principal Executive
Officer and Principal Financial Officer concluded, as of the date of such
evaluation, that the design and operation of such disclosure controls and
procedures were effective.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a)above,
there were no changes in our internal controls or other factors that could
significantly affect these controls, including any corrective action with regard
to significant deficiencies and material weaknesses.
(c) Limitations.
Our management, including our Principal Executive Officer and Principal
Financial Officer, does not expect that our disclosure controls or internal
controls over financial reporting will prevent all errors or all instances of
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon certain
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assumptions about the likelihood of future events, and any design may not
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures. Because
of the inherent limitation of a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No material legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We reported unregistered equity securities sales on a current report
filed on Form 8-K on January 28, 2005.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the quarter of the fiscal year
covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits
a) Exhibits
Exhibit No. Exhibit Name
31.1 Chief Executive Officer-Section 302 Certification
pursuant to Sarbanes-Oxley Act.
31.2 Chief Financial Officer- Section 302 Certification
pursuant to Sarbanes-Oxley Act.
32 Chief Executive and Financial Officer-Section 906
Certification pursuant to Sarbanes-Oxley Act.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ECOLOCLEAN INDUSTRIES, INC.
Dated: May 18, 2005 /s/ Royis Ward
---------------------------
By: Royis Ward
Title: President, CEO
Dated: May 18, 2005 /s/ Michael Ward
---------------------------
By: Michael Ward
Title: Secretary, CFO
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