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 June 30, 2006
[_] 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 - $0.0001 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
--- ---
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2of the Exchange Act. Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 2006, there were 58,090,085 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
June 30, 2006, and December 31, 2005.......................... 3-4
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2006 and 2005............. 5
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 2006 and 2005............... 6
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2006 and 2005............... 7-8
Notes to Condensed Consolidated Financial Statements.......... 9-12
Item 2 - Management's Discussion and Analysis or Plan of Operation..... 13
Item 3 - Controls and Procedures....................................... 19
PART II - Other Information
Item 1 - Legal Proceedings............................................. 20
Item 2 - Changes in Securities and Use of Proceeds..................... 20
Item 3 - Defaults Upon Senior Securities............................... 21
Item 4 - Submission of Matters to a Vote of Security Holdings.......... 21
Item 5 - Other Information............................................. 21
Item 6 - Exhibits and Reports on Form 8K .............................. 21
Signature.............................................................. 21
-2-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
June 30, 2006 December 31, 2005
----------------- -----------------
(Unaudited)
Current Assets:
Cash $ 9,328 $ 8,649
Accounts Receivable 118,814 100,839
Inventory 187,426 76,091
Prepaid Expenses 24,552 44,594
Current Portion of Assets
Of Discontinued Operations 60,278 58,520
----------------- -----------------
Total Current Assets 400,398 288,693
----------------- -----------------
Property Plant and Equipment, Net 228,982 364,130
----------------- -----------------
Other Assets:
Deposits 6,450 6,450
License & Trademark Costs (Net) 10,037 12,836
Patent 480,000 0
Goodwill 310,696 310,696
----------------- -----------------
Total Other Assets 807,183 329,982
----------------- -----------------
Total Assets $ 1,436,563 $ 982,805
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-3-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
June 30, 2006 December 31, 2005
----------------- -----------------
(Unaudited)
Current Liabilities:
Current Maturities-Notes and
Loans Payable $ 418,137 $ 198,161
Accounts Payable and Accrued Expenses 1,488,655 1,225,212
Current Portion of Liabilities
Of Discontinued Operations 102,882 117,220
----------------- -----------------
Total Current Liabilities 2,009,674 1,540,593
Long-Term Debt 9,859 15,494
Due to Related Parties 1,434,300 1,302,085
----------------- -----------------
Total Liabilities 3,453,833 2,858,172
----------------- -----------------
Commitments and Contingencies -- --
Stockholders' (Deficit):
Preferred Stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common Stock, $.0001 par value per share,
100,000,000 shares authorized; 51,600,085
shares issued and outstanding December
31, 2005; 58,090,085 shares issued and
outstanding June 30, 2006 5,809 5,160
Additional Paid-in Capital 6,031,964 5,358,581
Accumulated (Deficit) (8,055,043) (7,239,108)
----------------- -----------------
Total Stockholders' (Deficit) (2,017,270) (1,875,367)
----------------- -----------------
Total Liabilities and
Stockholders' (Deficit) $ 1,436,563 $ 982,805
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
June 30, 2006 June 30, 2005
------------- -------------
(Restated)
Revenues: $ 73,003 $ 8,889
------------- -------------
Expenses:
Cost of Sales 82,399 2,504
Operating Expenses 16,365 21,928
Depreciation & Amortization 21,695 24,339
Interest 29,368 32,480
Officer's Salary 52,500 30,000
Selling, General and Administrative 363,393 326,340
------------- -------------
Total Expenses 565,720 437,591
------------- -------------
(Loss) From Operations (492,717) (428,702)
Other Income/ (Expenses)
Gain on Sale of Assets 76,066 0
------------- -------------
Net (Loss) From Continuing Operations (416,651) (428,702)
Net Gain/ (Loss) From Discontinued Operations (4,797) 42,853
------------- -------------
Net (Loss) $ (421,448) $ (385,849)
============= =============
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 56,760,085 42,077,135
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
------------- -------------
(Restated)
Revenues: $ 138,603 $ 8,889
------------- -------------
Expenses:
Cost of Sales 161,644 2,504
Operating Expenses 37,101 76,182
Depreciation & Amortization 33,627 47,595
Interest 54,156 62,815
Officer's Salary 105,000 60,000
Selling, General and Administrative 628,744 598,534
------------- -------------
Total Expenses 1,020,272 847,630
------------- -------------
(Loss) From Operations (881,669) (838,741)
Other Income/ (Expenses)
Gain on Sale of Assets 76,066 0
------------- -------------
Net (Loss) From Continuing Operations (805,603) (838,741)
Net (Loss) From Discontinued Operations (10,332) (86,208)
------------- -------------
Net (Loss) $ (815,935) $ (924,949)
============= =============
Net (Loss) Per Common Share
Basic and Diluted
Net (Loss) From Continuing Operations $ (0.01) $ (0.02)
Net (Loss) From Discontinued Operations (0.00) (0.00)
------------- -------------
Total $ (0.01) $ (0.02)
============= =============
Weighted Average Number of Common
Shares Outstanding 54,845,085 41,592,135
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
------------- -------------
(Restated)
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss)
From Continuing Operations $ (805,603) $ (838,741)
From Discontinued Operations (10,332) (86,208)
Adjustments to Reconcile Net (Loss)
To Net Cash Provided (Required)
By Operating Activities:
Depreciation and Amortization
From Continuing Operations 33,627 47,595
From Discontinued Operations 0 35,712
Issuance of Common Stock
For Services Provided 247,350 191,000
(Gain)/Loss on Sale of Assets (76,066) (60,653)
Officer's Salary 105,000 60,000
Changes In:
Accounts Receivable (19,349) 133,334
Inventory (111,335) 0
Prepaid Expenses 20,042 54,311
Deposits 0 10,970
Accounts Payable and Accrued Expenses 170,788 36,558
------------- -------------
Net Cash (Required)
By Operating Activities (445,878) (416,122)
------------- -------------
Cash Flows Provided (Required)
By Investing Activities:
Deposits and Advances For
Pending Acquisitions 0 (197,439)
Proceeds - Sale of Equipment 198,631 385,856
Acquisitions of Property, Plant & Equipment (18,245) (26,198)
------------- -------------
Net Cash Provided (Required)
By Investing Activities 180,386 162,219
------------- -------------
See Accompanying Notes to Condensed Consolidated Financial Statements
-7-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
(CONTINUED)
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
------------- -------------
(Restated)
Cash Flows Provided (Required) By
Financing Activities:
Proceeds - Sale of Common Stock 70,000 0
Note Receivable - Sale of Assets 0 (85,000)
Proceeds of Short-Term Loans 247,500 0
Payment of Short-Term Loans (177,525) (88,720)
Payments of Long-Term Loans (5,635) (3,051)
Proceeds of Loans from Related Parties 132,215 432,343
------------- -------------
Net Cash Provided By Financing Activities 266,555 255,572
------------- -------------
Net Increase in Cash 1,063 1,669
Cash at Beginning of Period 11,290 5,929
------------- -------------
Cash at End of Period $ 12,353 $ 7,598
============= =============
Supplemental Disclosures Of
Cash Flow Information
Cash Payments for Interest $ 5,413 $ (16,975)
============= =============
Cash Payments For Income Taxes $ 0 $ 0
============= =============
Non-Cash Investing and Financing Activities:
Issuance of Common Stock:
Repayment of Loan from Related Party $ 0 $ 1,250,000
Acquisition of Patent 330,000 0
Payment of Accounts Payable 26,683 12,000
------------- -------------
Total Non-Cash Financing Activities $ 356,683 $ 1,262,000
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
-8-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited condensed consolidated financial statements
for the six month periods ended June 30, 2006 and 2005 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,
2005, is derived from the registrant's Form 10-KSB for the year ended
December 31, 2005. 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, 2005, included in
the registrant's Form 10-KSB for the year ended December 31, 2005.
Operating results for the six-month period ended June 30, 2006, are not
necessarily indicative of the results that may be expected for the
remainder of the fiscal year ending December 31, 2006. The accompanying
unaudited condensed consolidated financial statements include the
accounts of the registrant and its wholly-owned subsidiaries,
Ecoloclean, Inc., World Environmental Technologies, Inc., and
Aquatronics Industries, Inc. The operations of two wholly-owned
subsidiaries, Ecoloclean of Texas, Inc., and Reliant Drilling Systems,
Inc., were discontinued during 2005. These financial statements reflect
the net assets and net liabilities of the discontinued operations as
well as the operating results of the discontinued units. All
significant inter-company accounts and transactions have been
eliminated in consolidation.
-9-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
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 six-month
period ended June 30, 2006, incurred a net loss from continuing
operations of $805,603 and a net loss from discontinued operations of
$10,332. In addition, as at June 30, 2006, the Company's total
liabilities exceeded its total assets by $2,017,270. The Company has
experienced significant recurring operational losses and negative cash
flows from operations and at June 30, 2006, has an accumulated deficit
of $8,055,043. These factors raise doubt about the Company's ability to
continue as a going concern if changes in operations are not
forthcoming.
During the third quarter of 2005, the Company acquired 100% of the
issued and outstanding stock of Aquatronics Industries, Inc.,
(Aquatronics), a company which specializes in the removal of impurities
and waste by-products. Aquatronics has been in the waste water
treatment field for over 20 years. Management believes that this
acquisition will provide new avenues of opportunity in the development
of its water remediation and purification services. In addition to the
acquisition of Aquatronics, the Company, on March 23, 2006, acquired a
certain patent relating to the disinfection and purification of water
and related technology (See Note 3). Management, in its continuing
efforts to obtain debt/equity financing, closed in February 2006 on a
debt financing arrangement of approximately $125,000. During June, the
Company repaid the debt financing with a portion of the proceeds
received from the sale of its Louisiana building. During the 2nd
Quarter, the Company completed the sale of 1,400,000 shares of its
restricted common stock for $70,000. During July 2006, the Company
completed the sale of an additional 1,000,000 shares of its restricted
common stock for $50,000. These financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
-10-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 3 - ACQUISITION OF PATENT
------ ---------------------
On March 23, 2006, the Company acquired all rights, title and interest
to a certain "patent" relating to the disinfection and purification of
water and related technology. This "patent" had been recorded in the
United States Patent and Trademark office on March 12, 2001. The cost
of this "patent" is $15,000 on the execution of the agreement (March
23, 2006) and nine monthly payments of $15,000 per month commencing on
May 1, 2006 and ending on January 1, 2007. In addition, the Company
shall transfer 3,000,000 shares of restricted common stock of
Ecoloclean Industries, Inc., to the holder of the patent. As of March
31, 2006, 1,000,000 shares had been issued to the original patent owner
and another 2,000,000 shares had been issued and were being held for
later release (March 23, 2007) pursuant to the terms and conditions of
the "Agreement for Assignment of Patent" dated March 23, 2006. A
further condition of this "patent" acquisition requires the Company to
pay a royalty to the original patent owner based on the gross sales of
products utilizing the patented technology or any component thereof.
NOTE 4 - SUMMARY OF RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
------ ---------------------------------------------------------------
As a result of management re-evaluating its accounting treatment for
certain restricted stock issued for services and fees, the June 30,
2005, interim condensed consolidated financial statements have been
restated. In addition, management reclassified and netted all revenue
and expenses related to discontinued operations and disclosed the net
(loss) from discontinued operations as a separate line item and also
segregated all assets and liabilities relating to the discontinued
operations.
NOTE 5- RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. At
June 30, 2006, the cumulative amount of unpaid officer's salary was
$520,000 and is included in Accounts Payable and Accrued Expenses.
At June 30, 2006, cumulative advances bearing interest at 5% per annum
due to officers of the Company amounted to $1,434,300 plus $233,790 of
accrued interest. The accrued interest is included in Accounts Payable
and Accrued Expenses. The advances are due July 10, 2007, with the
right of prepayment.
NOTE 6 - COMMON STOCK TRANSACTIONS
------ -------------------------
On April 12, 2006, the Company sold 1,000,000 shares of its restricted
common stock for $50,000, which was received at that time.
-11-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 6 - COMMON STOCK TRANSACTIONS (CONTINUED)
------ -------------------------------------
On May 1, 2006, the Company sold 400,000 shares of its restricted
common stock for $20,000, which was received at that time.
On June 5, 2006, the Company issued 100,000 shares of its common stock
valued at $12,000 for management services provided to a subsidiary.
On June 5, 2006, the Company issued 80,000 shares of its common stock
valued at $9,600 for accounting services provided to a subsidiary.
On June 5, 2006, the Company issued 80,000 shares of its common stock
valued at $9,600 for accounting services.
On June 12, 2006, the Company issued 1,000,000 shares of its restricted
common stock valued at $142,500 for consulting services.
NOTE 7 - DISCONTINUED OPERATIONS
------ -----------------------
During the first and second quarters of 2005, the Company implemented
its decision to discontinue operations of two wholly-owned
subsidiaries, Reliant Drilling Systems, Inc., (RDS) and Ecoloclean of
Texas, Inc. (ECOT).
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
---------------------------------------------------
Six Months Ended
June 30, June 30,
2006 2005
--------- ---------
Revenue $ 0 $ 75,863
Cost of Sales 0 49,066
--------- ---------
Gross Profit 0 26,797
Expenses (Net of Gains/Losses on Sales of Assets) 10,332 113,005
--------- ---------
(Loss) From Discontinued Operation $ (10,332) $ (86,208)
========= =========
NOTE 8 - SUBSEQUENT EVENTS
------ -----------------
On July 13, 2006, the Company completed the sale of 1,000,000 shares of
its restricted common stock for $50,000 and granted a three-year stock
option at fifteen ($0.15) cents per share to acquire 750,000 additional
shares of the Company's restricted common stock to the investor.
-12-
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis or Plan or Operation
Overview and Plan of Operation
Background
During the quarter ended June 30, 2006, Ecoloclean Industries, Inc., (ECCI) had
gross operating revenues of $73,003 from continuing operations and $0 from
discontinued operations, which included its Louisiana subsidiary, Reliant
Drilling Systems, Inc.,(RDS) and its Texas subsidiary, Ecoloclean of Texas,
Inc., (ECOT) whose operations were discontinued during the first six months of
2005.
Current Operations
A. Industrial and Exploration Liquid Waste Remediation Services
World Environmental Technologies, Inc. is still awaiting the approval for the
amendment to its State-Wide Water Discharge Permit which would allow World
Environmental Technologies, Inc., to again offer its services of cleaning drill
water to the oil and gas industry. Once approval of the amendment is received,
it is anticipated that the services offered by World Environmental Technologies,
Inc., could again be in demand. Until the approval occurs, the Company will
utilize its equipment in any other income-producing activity which becomes
available.
B. Agricultural Clean Up
Ecoloclean, Inc. (ECI), a wholly owned subsidiary of the Company, has devoted
substantial efforts to the Dairy Industry as it pertains to the animal waste
created by cows, swine and chickens. During the first quarter of 2006, we have
been informed that Texas A&M University has finished their report, although we
have not received a copy at this time. We assume that the EPA, American Dairy
Association, Texas Farm Bureau and other interested agencies, have not received
their copy. The Company does not expect any revenue producing activities from
the agricultural business until the fourth quarter of 2006 at the earliest,
subject to the receipt of a positive report from Texas A & M University. If the
Company does have an opportunity to obtain contracts as a result of a positive
report, it will then determine the economic feasibility of allocating the
necessary funds if they are available.
C. Coale Separator aka "Diesel Pure"
As outlined previously, ECCI obtained the Worldwide Exclusive Rights for the
patented Coale Separator. This device is capable of removing contaminants from
diesel fuel, such as water, sand and other impurities, thus increasing engine
life, reducing injector replacement and engine wear.
-13-
During the third quarter of 2005, the Company signed an exclusive marketing
agreement with an experienced organization in the truck and auto after market
and to the industrial market place. In order to sell our "Diesel Pure" product
line in these market places, the Company is required to complete additional
product information and instructions when adequate funding becomes available in
order to gain further acceptance in the market place. If the Company cannot
obtain adequate funding sufficient to allocate the necessary funds for the
"Diesel Pure" Project, the Company will cancel its license.
D. Aquatronics Industries, Inc.
On September 13, 2005, the Company completed the acquisition of 100% of the
outstanding stock of Aquatronics Industries, Inc., located in Riverside, Rhode
Island by the issuance of 2,500,000 shares of its restricted common stock and
providing working capital of $300,000. Aquatronics Industries, Inc., a wholly
owned subsidiary of Ecoloclean Industries, Inc., (ECCI) has provided creative
and cost effective solutions to a wide range of industrial, commercial
residential pure water, wastewater and solid waste management problems for in
excess of 20 years. The Company intends to build on the 20 years of experience
of Aquatronics' management and employees which includes a customer base and
established reputations of technical expertise.
In addition to providing capital over the $300,000 initial requirement and an
amount in excess of $150,000, Ecoloclean Industries, Inc., has assisted
"Aquatronics" in acquiring the "BioCatalytica" water purification patent (See
New Developments). This patent both extends the activities in which
"Aquatronics" is already engaged and expands its capabilities beyond the levels
of its previous experience in a cost-effective manner.
E. New Developments
On March 23, 2006, the Company's wholly owned subsidiary, Aquatronics
Industries, Inc., acquired the "BioCatalytica" water purification patent rights,
which acts as an adjunct to the active disciplines engaged in the production and
installation of water remediation systems and also provides the Company with
exclusive manufacturing rights.
Consideration includes $150,000 due at closing with the remaining $135,000 due
at $15,000 per month beginning May l, 2006, and a 5% royalty in addition to
3,000,000 shares of Ecoloclean Industries, Inc. restricted common stock of which
1,000,000 shares were due at closing with the remaining 2,000,000 shares due
within one year or earlier, subject to orders utilizing the patented compound.
These shares have been issued and are being held for such releases.
Although "Aquatronics" revenues for the six months ended June 30, 2006, were
$135,563, which resulted in an operating loss of $250,347, their management has
indicated an increased level of revenues for the remaining months of 2006, based
on their current back log and ongoing marketing and sales efforts.
Financial Considerations
Currently, there are insufficient revenues and resources to offset annual
operating overhead, which is now projected to be approximately $500,000. 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 others associated with the Company
for financial assistance.
-14-
In addition to capital needs for operating overhead, the Company's need for
capital has increased substantially as a result of it acquiring Aquatronics
Industries, Inc. To meet these continuing and increasing needs, management's
plans are to (i) to raise capital by obtaining financing through private
placement efforts (ii) issue common stock for services rendered in lieu of cash
payment and (iii) obtain loans from the President and other employees of the
Company.
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.
The Company believes that it will continue to incur losses for at least the next
six months and, as a result, will require additional funds to meet such needs.
Without realization of additional capital, it would be unlikely for the Company
to continue as a going concern.
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 period.
Conclusion
As stated here, future activities of the Company will be partially dependent on
its ability to obtain additional funding in the near future and the success of
its newly acquired subsidiary, Aquatronics Industries, Inc.
-15-
RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $73,003 from continuing operations
for the three months ended June 30, 2006, as compared to $8,889 in revenues for
the three months ended June 30, 2005. The increased revenues of $64,114 were all
due to revenues from our newly acquired subsidiary, Aquatronics Industries, Inc.
("Aquatronics").
TOTAL COSTS AND EXPENSES: Total costs and expenses increased from $437,591
(restated) for the three months ended June 30, 2005, to $565,720 for the three
months ended June 30, 2006, of which $187,903 was incurred at "Aquatronics." The
decrease of $59,774 (exclusive of "Aquatronics") was primarily due to the
Company's cost reduction program. Non-cash stock-based costs and expenses
totaled $173,700 of the total costs and expenses.
OPERATING EXPENSES: Operating expenses decreased from $21,928 for the three
months ended June 30, 2005, to $16,365 from continuing operations for the three
months ended June 30, 2006. The decrease of $5,563 was primarily due to the
Company's cost reduction program.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses increased from $326,340 (restated) for the three months ended June 30,
2005, to $363,393 for the three months ended June 30, 2006, of which $64,944 was
incurred at "Aquatronics." The decrease of $27,891 (exclusive of "Aquatronics")
was primarily due to the Company's cost reduction program.
INCOME TAX: The pre-tax loss increased from $385,849 (restated) for the three
months ended June 30, 2005, to $421,448 for the three months ended June 30,
2006, a decrease of $79,301 (exclusive of the $114,900 loss at "Aquatronics").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures
during the six months ended June 30, 2006, totaled $18,345 as compared with
$26,198 for the six months ended June 30, 2005.
Sales of capital assets were $198,631 (net of $12,110 selling expenses) for the
six months ended June 30, 2006, as compared to $325,203 for the six months ended
June 30, 2005. The 2005 sales of capital assets were sales of equipment and
other capital assets of the Company's discontinued subsidiaries. The 2006 sales
of capital assets included $187,890 (net) from the sale of Company's Louisiana
building.
Total debt increased from $2,858,172 at December 31, 2005, to $3,453,833 at June
30, 2006, an increase of $595,661 inclusive of $620,339 of "Aquatronics" debt.
During the six months ended June 30, 2006, the Company received loans of
$132,215 from the President, $107,500 from employees and a loan of $125,000 from
an outside financing source which was repaid during June. Total debt, as of June
30, 2006, and June 30, 2005, expressed as a percentage of the sum of total debt
and shareholders' deficit was 240.4% and 290.8% respectively.
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Net loss for the six months ended June 30, 2006, was $815,935 a decrease of
15.5% from the restated net loss of $924,949 for the six months ended June 30,
2005. Basic and diluted net loss per common share decreased to $0.01 for the six
months ended June 30, 2006 from $0.02 for the six months ended June 30, 2005.
DISCONTINUED OPERATIONS: The loss from discontinued operations for the three
months ended June 30, 2006, includes losses of $1,849 incurred by Reliant
Drilling Systems, Inc., and $2,948 incurred by Ecoloclean of Texas, Inc. These
losses of each discontinued subsidiary represent a $47,650 difference from the
$42,853 income from discontinued operations for the three months ended June 30,
2005.
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 and an employee
of the Company 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.
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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 are
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 acquisitions plans.
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.
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Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the reporting period, June 30, 2006, we carried out an
evaluation, under the supervision and with the participation of our management,
including the Company's Chairman and Chief Executive Officer/Principal
Accounting Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934 (the "Exchange Act"), which disclosure controls and
procedures are designed to insure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within required time periods specified by the
SEC's rules and forms. Based upon that evaluation, the Chairman and the Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company required to be included in the Company's period SEC filings.
(b) Changes In Internal Control Over Financial Reporting.
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. However, we believe that our disclosure controls and procedures are
designed to provide reasonable assurance of achieving this objective. 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 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various legal proceedings and
claims incidental to our normal business operations for which no material
liability is expected beyond that which has been recorded in our financial
statements. While the ultimate resolution of the above matters is not known,
management does not expect that the resolution of these matters will have a
material adverse effect on the Company's financial statements and results of
operation.
We are not aware of any material legal proceedings to which, any director,
officer or affiliate of the Company, any owner of record or beneficial owner of
more than 5% of our Company common stock, is a party to a legal proceeding
adverse to our Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During our second quarter we offered, sold and issued the following common:
On April 12, 2006, the Company sold 1,000,000 shares of restricted common stock
to Stanley Merdinger for $50,000.
On May 1, 2006, the Company sold 400,000 shares of restricted common stock to
William Birnbaum and Marsha Gottlieb for $20,000.
On June 12, 2006, the Company issued 1,000,000 shares of restricted common stock
to Roplis Holdings, Inc. for consulting services valued at $142,500.
We believe the offer and sale of these securities qualifies for the securities
transaction exemption permitted by Section 4(2) of the Securities Act of 1933,
as amended, (the "Act"). These are restricted securities and may not be publicly
resold without registration under the Act or an exemption from registration.
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.
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Item 6. Exhibits
Exhibit No. Exhibit Name
31 Chief Executive/Financial Officer-Section 302
Certification pursuant to Sarbanes-Oxley Act.
32 Chief Executive and Financial Officer-Section 906
Certification pursuant to Sarbanes-Oxley Act.
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.
/s/ Royis Ward
Dated: August 14, 2006 ---------------------------
By: Royis Ward
Title: President, CEO, CFO
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